2013 (3) TMI 562 - HC - Income Tax

Reopening of assessment - rent receipt from leasing of property - Till A.Y. 2007-08, the rental income was declared by the assessee under the head of business income but from A.Y. 2008-09 the rental income was declared as income from house property - AO was of opinion that the same view needs to be taken for A.Ys. 2006-07 and 2007-08 as taken in A.Y. 2008-09 since the facts of the case for the subsequent years and the two years in question are the same - notice issued to the assessee u/s 142(1) calling upon the assessee to clarify - Held that - The failure of the assessee to issue a clarification before the AO and to explain how the facts for A.Ys. 2006-07 and 2007-08 were different from those of A.Y. 2008-09 and subsequent years was a circumstance which led the AO to believe that the rental income has been wrongly assessed under the head of income from business rather than as income from house property. Before the AO it was contended that the assessee had followed the judgment of this Court for A.Ys. 2006-07 and 2007-08. However, as the AO noted, the returns for those two years were filed on 29 November 2006 and 27 October 2007 whereas the decision of this Court had been pronounced much later on 12 January 2012. Thus AO was justified in purporting to reopen the assessments for A.Ys. 2006-07 and 2007-08. Sufficient opportunity was given to the assessee during the course of the assessment for A.Y. 2009-10 to explain to the satisfaction of the Assessing Officer how the facts for A.Ys. 2006-07 and 2007-08 were different. In this view of the matter, the formation of opinion by the AO that income has escaped assessment cannot be regarded as a mere subjective satisfaction & reopening of assessments cannot be held to be contrary to law - against assessee.

Summary

Issues:
1. Legality of notices issued by the Assessing Officer under Section 148 of the Income Tax Act, 1961 seeking to reopen assessments for A.Ys. 2006-07 and 2007-08.

Analysis:
The judgment concerns the legality of notices issued by the Assessing Officer under Section 148 of the Income Tax Act, 1961, to reopen assessments for A.Ys. 2006-07 and 2007-08. The Assessing Officer sought to reopen the assessments based on the assessee's change in declaring rental income from business income to income from house property starting from A.Y. 2008-09. The Assessing Officer believed that the same treatment should apply to A.Ys. 2006-07 and 2007-08 due to similar circumstances. The petitioner contended that the reopening was based on subjective satisfaction without scrutinizing the differences in facts between the relevant years. The Revenue argued that the assessee failed to provide clarifications despite multiple opportunities during the assessment proceedings for A.Y. 2009-10, indicating that the rental income was incorrectly assessed under business income. The court noted that there was no assessment under Section 143(3) for the relevant years, and the conditions for reopening under Section 147 did not apply since the returns were accepted under Section 143(1).

The court referred to a previous decision for A.Y. 2005-06 where income from the business center was treated as business income. From A.Y. 2008-09, the assessee declared rental income as income from house property. The Assessing Officer repeatedly asked the assessee to explain the change in treatment of rental income, but the responses were vague and lacked material details. Despite several hearings, the assessee failed to provide a satisfactory explanation. The court acknowledged that the Assessing Officer considered the previous court decision and the lack of material facts provided by the assessee in forming the opinion that income had escaped assessment for A.Ys. 2006-07 and 2007-08. The court found the Assessing Officer's decision to reopen the assessments justified, as the assessee failed to substantiate the differences in circumstances between the relevant years. The court concluded that the Assessing Officer's opinion was not merely subjective satisfaction, and the reopening of assessments under Section 148 was not contrary to the law.

In summary, the court dismissed the petition challenging the legality of the notices issued by the Assessing Officer to reopen assessments for A.Ys. 2006-07 and 2007-08 under Section 148 of the Income Tax Act, 1961. The court found that the Assessing Officer had provided sufficient opportunities for the assessee to explain the differences in circumstances, but the responses were inadequate. Considering the lack of material particulars and the failure to substantiate the variations in facts, the court upheld the Assessing Officer's decision to reopen the assessments.