2023 (6) TMI 1140 - HC - Income Tax

Validity of Reopening of assessment u/s 147 - new tangible material for initiating reopening - 'independent' v/s 'borrowed' or 'dictated' satisfaction - whether income has escaped the assessment or not? - Exemption claimed on land compulsory acquired - HELD THAT - There is no independent application of mind by respondent authority and a bare perusal of the reasons recorded would clearly indicate that the main and substantial ground is that in respect of other co-owners in proceedings u/s 263 of the Act a different view is taken but then the authority while examining the issue about exemption as prayed for ought to have gone into the specific provisions alongwith the CBDT circular and ought to have applied its mind to the effect that contours of Sections 147 and 263 of the Act are altogether different and as such without analyzing this view is taken, which tentamounts to be a borrowed satisfaction and reflects no independent application of mind. At the best, the authority could have initiated Section 263 proceedings but that having not been done and after unreasonable period trying to reopen the assessment is not step which may be recognized in law. If we peruse the reasons which are recorded it reflects no independent application of mind and as such we do not recognize this routine exercise of reopening of assessment and thereto after a period of almost two years. The authority is sufficiently couched with the power of revision u/s 263 and as such when the authority has resorted to Section 147 is appearing to be impermissible especially when there appears to be no subjective satisfaction independently arrived at that any income chargeable to tax has escaped the assessment for any assessment year. This reason to belief contemplated u/s 147 of the Act requires proper application before initiating the step which here appearing to be missing and as such we are quite satisfied that case is made out by the petitioner to call for any interference. The conclusion of an authority on the issue as to whether income is escaped from the assessment is also not so cogent enough upon which we may permit the authority to reopen the assessment in view of the settled position of law. Here also the land appears to be compulsory acquired and the income is rightly claimed as exempted and therefore, the conclusion of an authority that income has escaped assessment, appears to be erroneous. At this stage, learned advocate appearing for the petitioner has pointed out that co-owners Poonamben Modi whose assessment was also sought to be reopened under Section 148 of the Act for very same reasons and thereafter, an order was passed by revenue under Section 143(3) read with Section 147 order while accepting the submission of the assessee did not make any addition. So when that be so, it is ill-founded that in case of present petitioner reopening is justified. Decided in favour of assessee.

Issues Involved:
1. Legality and validity of the impugned order dated 27.01.2022 and notice dated 31.03.2021.
2. Whether the reopening of assessment under Section 147 of the Income Tax Act is permissible.
3. Application of the principle of "change of opinion."
4. Whether the income from the compulsory acquisition of land is exempt under Section 10(37) of the Income Tax Act.
5. Whether the reopening of the assessment is justified based on the proceedings of other co-owners.

Summary:

Issue 1: Legality and Validity of the Impugned Order and Notice
The petitioner challenged the legality and validity of the impugned order dated 27.01.2022 and the notice dated 31.03.2021 issued under Section 148 of the Income Tax Act. The petitioner argued that the reopening of the assessment was impermissible and violated the relevant proposition of law.

Issue 2: Reopening of Assessment under Section 147
The petitioner contended that the reopening of the assessment was based on a mere change of opinion and lacked any new tangible material. The original assessment was completed after a detailed scrutiny, and the claim of exemption was accepted by the Assessing Officer. The court noted that the reopening of the assessment was initiated almost two years after the original assessment, which was beyond a reasonable period.

Issue 3: Change of Opinion
The court observed that the reopening of the assessment was based on the proceedings of other co-owners, where the claim of exemption was not allowed. The court held that the reopening of the assessment on the basis of the same material and information, which was already scrutinized during the original assessment, amounted to a change of opinion. The court relied on various judgments, including Friends of WWB, India vs. Deputy Commissioner of Income-tax (Exemption) and Janaki Mohan vs. Income-tax Officer, to support the principle that reopening based on a mere change of opinion is impermissible.

Issue 4: Exemption under Section 10(37)
The petitioner claimed exemption on income from the compulsory acquisition of land under Section 10(37) of the Income Tax Act. The court referred to the CBDT Circular dated 25.10.2016, which clarified that compensation received for compulsory acquisition of land under the RFCTLARR Act is exempt from income tax. The court held that the initial assessment had correctly accepted the claim of exemption, and there was no reason to reopen the assessment.

Issue 5: Proceedings of Other Co-owners
The court noted that the reopening of the assessment was primarily based on the proceedings under Section 263 of the Act in respect of other co-owners. However, the court emphasized that the proceedings under Section 263 had not attained finality and were still pending. The court held that the reopening of the assessment based on the proceedings of other co-owners, without any independent application of mind, was impermissible and amounted to borrowed satisfaction.

Conclusion:
The court quashed and set aside the impugned order dated 27.01.2022 and the notice dated 31.03.2021, allowing the petition. The court observed that the reopening of the assessment was not justified and was based on a mere change of opinion, without any new tangible material. The court also clarified that the observations made in the order were in the context of Section 148 proceedings and should not be construed as an expression on the pending proceedings under Section 263 of the Income Tax Act.

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