2024 (8) TMI 49 - HC - Income Tax

Validity of reopening of assessment - notice after the expiry of four years - long term capital loss on sale of flat jointly owned by petitioner and spouse - HELD THAT - Since the notice u/s 148 of the Act was issued after the expiry of four years of the assessment year and the assessment under Section 143(3) of the Act having been completed, as per the proviso to Section 147 of the Act, only if there was a failure on the part of Assessee to disclose truly and fully material facts, the assessment could be reopened. AO has taken a stand that by virtue of the Taxation and Other Loss (Relaxation of Certain Provisions) Ordinance, 2020 and the notifications issued thereunder, the proviso to Section 147 of the Act will not be applicable. It is an incorrect stand because the AO in the notice issued u/s 148 states that it has been issued after obtaining the necessary satisfaction of the Commissioner of Income Tax, ( CIT ) Pune. If it was within four years, he would not have taken the approval of the CIT and he would have taken the approval only of the Joint Commissioner of Income Tax. Moreover, in this case the issue regarding the capital loss on the sale of the said flat was subject of assessment proceedings. It is evident from the assessment order itself. Therefore, it is a clear case of change of opinion and that cannot be the basis for reopening an assessment. Decided in favour of assessee.

Summary

Issues:
Challenging reopening notice under Section 148 of the Income Tax Act, 1961 and order rejecting objections.

Analysis:
The petitioner, a non-resident Indian individual, contested a reopening notice dated 31st March 2021 issued under Section 148 of the Income Tax Act, 1961, along with an order dated 19th January 2022 rejecting the petitioner's objections. The petitioner and spouse jointly owned a flat in Pune, which was sold during the Assessment Year 2015-16, resulting in a long-term capital loss. The petitioner disclosed their share of the loss in the return of income and computation. The case underwent scrutiny assessment, with notices issued to the petitioner seeking clarifications on various points, including details about the sale/purchase of immovable property. The Assessing Officer accepted the loss as declared by the petitioner and spouse in the assessment order dated 29th April 2017.

The petitioner later received a notice under Section 148 of the Act in 2021, alleging that income chargeable to tax for AY 2015-16 had escaped assessment, specifically focusing on the capital loss booked by the petitioner. The Assessing Officer disagreed with the indexed cost disclosed by the petitioner, claiming a capital gain instead of a loss. The reason for reopening the assessment was based on the records provided by the petitioner. The High Court acknowledged that the notice was issued after the expiry of four years from the assessment year, and since the assessment under Section 143(3) had been completed, the assessment could only be reopened if there was a failure to disclose material facts. The court rejected the AO's argument that the proviso to Section 147 would not apply due to a recent ordinance, emphasizing that the issue of capital loss was already addressed in the assessment proceedings, constituting a clear case of a 'change of opinion,' which cannot be the basis for reopening an assessment.

Consequently, the High Court allowed the petition, quashing the notice under Section 148 of the Act and the order on objections, declaring the reassessment proceedings for AY 2015-16 as without jurisdiction, illegal, and arbitrary.