2022 (11) TMI 181 - AT - Income Tax

Reopening of assessment u/s 147 - assessment after expiry of period of four years - Capital gain computation - AO rejected the submissions of the assessee and proceeded to add the profit on sale of land to the book profit for computation of tax liability u/s. 115JB - AO also rejected the cost as on 1/4/1981, considered by the assessee and took the original cost of acquisition for the purpose of computing the capital gain - HELD THAT - AO in reassessment proceedings has raised questions on the facts which have been disclosed in the statement of income of the assessee and has made the addition by taking a different view on the cost of acquisition and the accounting treatment of the sale consideration. The accounting treatment in the books of accounts cannot be considered as failure to disclose fully and truly all material facts, since the assessee while computing the taxable income under the Act, has disclosed the details pertaining to the capital gains on sale of land and depreciable assets. In fact it is based on this disclosure, that the AO has taken the figures while arriving at the additions during the reassessment proceedings. This is not a case where the assessment is sought to be reopened on the reasonable belief that income had escaped assessment on account of failure of the assessee to disclose truly and fully all material facts that were necessary for computation of income but this is a case wherein the assessment is sought to be reopened on account of change of opinion of the AO - we set aside the order of CIT(A) and quash the reassessment order - Decided in favour of assessee.

Issues Involved:
1. Legality of the notice issued under Section 148 of the Income Tax Act.
2. Validity of the reassessment proceedings based on the original cost of acquisition versus the indexed cost as on 1.4.1981.
3. Inclusion of gain on the sale of land in the book profits under Section 115JB.
4. Alleged excess loss claimed on the sale of depreciable assets.

Detailed Analysis:

1. Legality of the Notice Issued Under Section 148:
The assessee contended that the notice under Section 148 was void ab initio for lack of proper jurisdiction and failure to meet necessary conditions. The assessee argued that the reopening was based on a change of opinion and not on any new material or information. The Tribunal, referring to the Supreme Court's decision in CIT vs Kelvinator of India Ltd, emphasized that reopening should be based on "tangible material" indicating income escapement and not on mere change of opinion. The Tribunal found that the AO had no new material and the original assessment had already considered the relevant facts. Hence, the reassessment was deemed invalid.

2. Validity of the Reassessment Proceedings:
The AO recomputed the total income by considering the original cost of acquisition instead of the indexed cost as on 1.4.1981. The assessee argued that the AO's approach was unjustified and contrary to the provisions of Section 55(2)(1) of the Income Tax Act. The Tribunal noted that the AO had not brought any new material for reopening and had merely taken a different view on the cost of acquisition. The Tribunal held that this amounted to a change of opinion, which is not permissible for reassessment under Section 147 after four years unless there is a failure to disclose fully and truly all material facts.

3. Inclusion of Gain on Sale of Land in Book Profits Under Section 115JB:
The AO added the gain on the sale of land directly to the book profit of the company, arguing that the sale proceeds should have been routed through the Profit & Loss account. The assessee contended that the AO's action was based on a change of opinion. The Tribunal found that the AO's reasons for reopening were based on the same materials available during the original assessment. The Tribunal concluded that the accounting treatment in the books could not be considered a failure to disclose material facts and that the AO's action was unjustified.

4. Alleged Excess Loss Claimed on Sale of Depreciable Assets:
The AO claimed that the assessee had shown an excess loss on the sale of depreciable assets. The Tribunal noted that the details of the sale and the loss claimed were already available in the original assessment records. The Tribunal reiterated that the reassessment was based on a change of opinion without any new tangible material, making the AO's action invalid.

Conclusion:
The Tribunal quashed the reassessment order, holding that the reopening of the assessment was based on a change of opinion and not on any new material. The Tribunal set aside the order of the CIT(A) and ruled in favor of the assessee on the legal grounds, rendering the grounds on merits academic and not warranting separate adjudication. The appeal was partly allowed.

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