2023 (7) TMI 380 - HC - Income Tax

Reopening of assessment u/s 147 - relevant material on which a reasonable person could have formed a requisite belief - petitioner has not shown capital gain on sale of the property in question in the return of income - HELD THAT - Validity of opening of the assessment shall have to be determined with reference to the reasons recorded for reopening of the assessment. Power to reopen a complete assessment u/s 147 has been given to the AO if he has reason to believe that any income chargeable to tax has escaped assessment for any assessment year. In the present case petitioner has not shown capital gain on sale of the property in question in the return of income and the officer has reason to believe that the income has escaped assessment at the hands of the petitioner for the year under consideration. Petitioner has submitted objections/ reply, wherein it has been specifically pointed out that he had already disclosed the receipt by way of sale consideration from the transaction in question and has bifurcated the said amount under the head of Building (Depreciable Assets) and under the head of Land (Other Assets) towards the sale consideration, which have been shown. Petitioner has also paid STCG and LTCG - Therefore, it cannot be said that the income chargeable to tax has escaped assessment in the hands of the assessee. Thus looking to the aforesaid facts of the present case, we are inclined to entertain the present petition. Decided in favour of assessee.

Summary

Issues Involved:
1. Validity of the notice issued under Section 148 of the Income Tax Act, 1961 for reopening the assessment.
2. Determination of whether income chargeable to tax has escaped assessment.
3. Examination of the conditions precedent for reopening an assessment under Section 147 of the IT Act.

Summary:

1. Validity of the Notice Issued Under Section 148 of the IT Act:
The petitioner challenged the notice dated 29.03.2021 issued under Section 148 of the IT Act, seeking to reopen the assessment for the assessment year 2014-15. The notice was based on the alleged ground that the petitioner had not shown capital gain on the sale of property in the return of income. The petitioner contended that the capital gain had been duly declared in the return of income, thus questioning the foundation for reopening the assessment.

2. Determination of Whether Income Chargeable to Tax Has Escaped Assessment:
The petitioner argued that the entire sum of Rs. 40,00,000/- received from the sale of the property was shown in the return of income, with LTCG and STCG duly computed and declared. The Assessing Officer had reason to believe that the income of Rs. 40,00,000/- had escaped assessment based on information that the petitioner sold the property for Rs. 1,10,00,000/-, of which Rs. 40,00,000/- was paid to the petitioner and Rs. 70,00,000/- to two confirming parties. The petitioner submitted objections, which were disposed of by the respondent, maintaining that the information would be verified in reassessment proceedings.

3. Examination of the Conditions Precedent for Reopening an Assessment Under Section 147 of the IT Act:
The court examined whether the conditions precedent for reopening an assessment under Section 147 were satisfied. It was noted that the Assessing Officer must have 'reason to believe' that income chargeable to tax has escaped assessment, based on tangible material. The court referred to several precedents, emphasizing that the validity of reopening must be determined with reference to the reasons recorded for reopening and that the sufficiency or correctness of the material is not to be considered at the initiation stage.

Judgment:
The court found that the petitioner had disclosed the receipt of Rs. 40,00,000/- in the return of income and computed the capital gains accordingly. Therefore, it could not be said that income chargeable to tax had escaped assessment. The court allowed the petition, quashing the impugned notice dated 29.03.2021 and the proceedings pursuant thereto. The rule was made absolute.