2013 (1) TMI 366 - HC - Income Tax

Validity of notice u/s 148 - Reopening of assessment u/s 147 Escaped assessment Change of opinion - Assessee was engaged in the business of development and construction of real estate Reason of belief - Deduction u/s 80-IB(10) was wrongly claimed - Held that - The assessee disclosed the factum of housing project, the construction of shops and the profit derived therefrom. These were the primary facts sufficient for the A.O. to proceed in its assessment process. He had undertaken such process and applied the facts to the provisions of law by applying his mind. An error, a slip, an omission or a mistake on part of the assessing officer in that regard would not furnish a ground to reopen. For, the reopening proceedings are not rectification proceedings. Nor the concluded assessment can be reviewed under the garb. Conditions of section 147 of the Act and in particular the First proviso thereto, which is applicable in the present case, having not been complied with on facts, the reopening of the assessment was not permissible. The assumption of jurisdiction by the respondent-Income Tax Officer seeking to reopen the assessment for the A.Y. 2005-2006 was, therefore, beyond his powers and, was illegal. As a result, the impugned notice dated 18.03.2011 under section 148 issued by the respondent is hereby set aside. In favour of assessee

Issues Involved:
1. Legality of assumption of jurisdiction under section 147 read with section 148 of the Income-tax Act, 1961.
2. Validity of the notice dated 18.03.2011 to reopen the assessment for Assessment Year 2005-2006.
3. Applicability of section 80-IB(10) as amended by Finance (No.2) Act, 2005.
4. Whether there was a failure on the part of the assessee to disclose fully and truly all material facts.
5. Whether the reopening was based on a mere change of opinion.

Issue-wise Detailed Analysis:

1. Legality of Assumption of Jurisdiction under Section 147 read with Section 148:
The petitioner questioned the legality of the respondent-Income Tax Officer's assumption of jurisdiction under section 147 read with section 148 of the Income-tax Act, 1961. The court observed that the reopening of the assessment was after four years from the end of the relevant assessment year. According to the proviso to section 147, reopening after four years is permissible only if there is a failure on the part of the assessee to disclose fully and truly all material facts necessary for the assessment. The court concluded that the reopening was not based on the premise that there was a failure on the part of the assessee to disclose any material fact but was based on the ground that the benefit was wrongly claimed, which does not justify reopening under section 147.

2. Validity of the Notice Dated 18.03.2011:
The impugned notice dated 18.03.2011 was issued to reopen the assessment for Assessment Year 2005-2006. The court noted that the reasons for reopening were solely based on the ground that the deduction under section 80-IB(10) was wrongly claimed by the petitioner. The court emphasized that a wrong claim made does not necessarily mean that material facts were not disclosed. The court held that the reasons recorded did not reflect any failure on the part of the assessee to disclose material facts, making the notice invalid.

3. Applicability of Section 80-IB(10) as Amended by Finance (No.2) Act, 2005:
The court considered the provisions of section 80-IB(10) as they stood in the accounting year 2004-2005 and noted that the concept of a maximum limit of commercial establishment as a condition for deduction was not provided for prior to the amendment. The amendment inserted clause (d) to sub-section (10), which prescribed that the built-up area of shops and other commercial establishments included in the housing project should not exceed five percent of the aggregate built-up area or two thousand square feet, whichever is higher. The court observed that this amendment was not applicable to the petitioner's project, which was approved before 1.4.2005.

4. Whether There Was a Failure on the Part of the Assessee to Disclose Fully and Truly All Material Facts:
The court examined the facts and concluded that the assessee had disclosed all primary facts necessary for the assessment. The court cited the Supreme Court's observation in Calcutta Discount Co. Ltd. v. ITO that once the assessee has disclosed all primary facts, the duty ends, and it is for the assessing officer to draw proper conclusions. The court held that there was no failure on the part of the assessee to disclose material facts fully and truly.

5. Whether the Reopening Was Based on a Mere Change of Opinion:
The court noted that the reopening was based on the same facts that were already considered by the Assessing Officer in the original assessment. The court emphasized that a change of opinion does not give a ground to reopen a concluded assessment. The court relied on the Supreme Court's decision in CIT v. Kelvinator of India Ltd., which held that a change of opinion cannot be a ground to exercise powers under section 147. The court concluded that the reopening was based on a mere change of opinion, making it impermissible in law.

Conclusion:
The court held that the conditions of section 147 of the Act, particularly the first proviso, were not complied with on facts, making the reopening of the assessment impermissible. The assumption of jurisdiction by the respondent-Income Tax Officer to reopen the assessment for Assessment Year 2005-2006 was beyond his powers and illegal. Consequently, the impugned notice dated 18.03.2011 under section 148 of the Act was set aside, and the petition succeeded. There was no order as to costs.

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