2023 (2) TMI 719 - HC - Income Tax

Reopening of assessment u/s 147 - Change of opinion - case reopened beyond the period of four years - HELD THAT - While the AO has made a plain statement that there was failure to disclose fully and truly the material facts yet the AO has neither disclosed nor identified as to what were those material facts which were not disclosed in the earlier assessment proceedings. AO on the other hand did record in the reasons that the assessee had fled audited profit and loss account balance-sheet and other details/schedules however short of admitting that the details with regard to reversed sale of TDR had been reflected documents and the return proceeded to take shelter behind a non-existent excuse that the material facts were embedded in such a manner that the same could not be discovered with due diligence. As difficult to accept this plea inasmuch as all these details were contained in the return of income in the audited accounts and profit and loss statement also explained in the notes attached to the auditor s report besides the communication issued by the AO pursuant to which the order of assessment u/s 143(3) came to be passed. There was no failure on the part of the petitioner to disclose fully and truly any material fact to the AO relevant to the assessment year 2015-16. An order of assessment u/s 143(3) having been passed must be deemed to have been passed after considering all material facts in regard to the queries raised which stood duly answered in terms of the judgment of the Full Bench decision of Delhi High Court in Commissioner of Income-tax Vs. Kelvinator of India Ltd 2002 (4) TMI 37 - DELHI HIGH COURT . As stated that there was no new information received by the AO and reference was made to the notes attached to the annual accounts submitted by the assessee-company for the purposes of reopening. It is thus clear that no new information was received by the AO between the date of the order of assessment under section 143(3) till the issuance of the notice impugned u/s 148 of the Act. Therefore the ratio of the judgment in Jindal Photo Films Ltd. 1998 (5) TMI 20 - DELHI HIGH COURT . The Apex Court in Commissioner of Income Tax V/s. Kelvinator of India Ltd. 2010 (1) TMI 11 - SUPREME COURT held that there was a difference between power to review and power to reassess u/s 147 and that the AO had no power to review and that if the concept of change of opinion was removed then in the garb of reopening of the assessment. We have no hesitation in holding that both the jurisdictional conditions had not been satisfied by the AO in the reasons recorded on the touchstone of section 147 of the Act - Decided in favour of assessee.

Summary

Issues Involved:
1. Validity of reopening the assessment under Section 148 of the Income Tax Act, 1961.
2. Whether the reversal of the sale of Transferable Development Rights (TDR) should be treated as a capital or revenue item.
3. Whether the reassessment proceedings constituted a 'change of opinion'.

Issue-wise Detailed Analysis:

1. Validity of Reopening the Assessment under Section 148 of the Income Tax Act, 1961:
The petitioner, engaged in trading textile goods and real estate development, owned land at Sewree entitled to Transferable Development Rights (TDR). The petitioner entered into a Memorandum of Understanding (MOU) with its subsidiary to transfer TDR, but the MOU was terminated due to the inability to obtain a Development Right Certificate (DRC). Consequently, the sale of TDR was reversed in the financial statements for the year ended 31st March 2014. The revenue from the sale of TDR was offered to tax in the assessment year 2012-13, and the loss from the reversal was claimed as a business loss in the assessment year 2014-15. The Assessing Officer (AO) issued a notice under Section 148 on 26th March 2021 to reopen the assessment for the year 2014-15, alleging that the income had escaped assessment. The petitioner objected, asserting that the reasons for reopening had already been examined during the original assessment, making the reopening a 'change of opinion'. The court held that the AO failed to identify specific material facts not disclosed by the petitioner, and the details regarding the reversal of TDR sale were available in the audited accounts and profit and loss statements. Thus, the court found no failure on the petitioner's part to disclose material facts, making the reopening invalid.

2. Whether the Reversal of the Sale of TDR Should be Treated as a Capital or Revenue Item:
The AO contended that since the land was part of a factory used for business purposes, the transaction related to the sale of TDR should be treated as a capital item, not a revenue item. Consequently, the reversal of the sale of TDR would also be capital in nature and not allowable as a deduction in the profit and loss account. However, the court did not delve deeply into this issue as the primary focus was on the validity of the reopening of the assessment.

3. Whether the Reassessment Proceedings Constituted a 'Change of Opinion':
The court emphasized that the AO's reasons for reopening must disclose specific facts or material not fully and truly disclosed during the original assessment. The court referred to precedents, including Hindustan Lever Ltd. v. R. B. Wadkar and Commissioner of Income Tax v. Kelvinator of India Ltd., which established that reasons for reopening should be clear, unambiguous, and based on tangible material. The court found that the AO's reasons lacked specificity and were based on the same set of facts already considered during the original assessment. The court concluded that the reassessment proceedings were a mere change of opinion without any new tangible material, making the reopening invalid.

Conclusion:
The court held that the jurisdictional conditions for reopening the assessment under Section 148 were not satisfied, as there was no failure on the petitioner's part to disclose material facts, and the reassessment was based on a change of opinion. Consequently, the petition was allowed, and the notice under Section 148 and the order rejecting the petitioner's objections were set aside.