2014 (8) TMI 644 - HC - Income Tax

Reopening of assessment quashed by Tribunal Reason to believe Assessment of LTCG Held that - It is well settled in view of the decision in the case of CIT v. Kelvinator of India Ltd. 2010 (1) TMI 11 - SUPREME COURT OF INDIA that u/s 147, an assessment cannot be reopened merely on the basis of mere change of opinion, but there must be tangible material before the AO to come to a conclusion that there is an escapement of income from assessment - the only reason which was given by the AO for initiating reassessment proceedings was that the property was sold by the assessee for ₹ 31 lacs but its value for the purpose of stamp duty as per the circle rate was ₹ 82.54 lacs, resulting in an escapement of income of ₹ 51.54 lacs - The validity of the reopening of the assessment has to be determined on the basis of reasons which are disclosed by the AO - The legality of the notice reopening the assessment has to be determined, when it is questioned, on the basis of the reasons which are recorded by the AO - the Tribunal was justified in assessing the correctness of the notice for reopening the assessment u/s 148 on the basis of the reasons which were disclosed by the AO the reasons could not give rise to a reason to believe that income had escaped assessment for the simple reason that in the computation of income, the assessee had adopted the circle rate which is higher than the sale consideration Decided against revenue.

Issues:
1. Validity of reopening of assessment under Section 148 based on reasons to believe income has escaped assessment.
2. Justification of Tribunal's decision to quash the reopening of assessment.
3. Consideration of circle rate for property valuation in assessment proceedings.
4. Requirement for Assessing Officer to have tangible material before reopening an assessment under Section 147.

Analysis:

1. The High Court addressed the issue of the validity of reopening the assessment under Section 148 of the Income Tax Act, 1961. The Tribunal allowed the appeal filed by the assessee, emphasizing that the Assessing Officer must have a valid reason to believe that income has escaped assessment before issuing a notice under Section 148. The Court highlighted the importance of tangible material to support the decision to reopen an assessment, citing the precedent set by the Supreme Court in the case of CIT v. Kelvinator of India Ltd.

2. The Tribunal's decision to quash the reopening of assessment was challenged by the revenue, raising questions regarding the justification of the Tribunal's actions. The Court examined the grounds on which the assessment was reopened, emphasizing the need for a rational and intelligible nexus between the reasons and the belief that income had escaped assessment. The Court upheld the Tribunal's decision, stating that the reasons provided by the Assessing Officer did not establish a valid basis for believing that income had escaped assessment.

3. The issue of considering the circle rate for property valuation in assessment proceedings was also discussed. The Assessing Officer sought to reopen the assessment based on the variance between the sale consideration and the circle rate for the property. The Tribunal observed that the assessee had already taken into account the higher circle rate in the computation of income, rendering the grounds for reopening the assessment insufficient. The Court emphasized the importance of adhering to the reasons disclosed by the Assessing Officer when determining the validity of reopening an assessment.

4. The Court reiterated the requirement for the Assessing Officer to have tangible material before proceeding to reopen an assessment under Section 147. The decision highlighted the significance of reasons to believe that income had escaped assessment and the need for a rational connection between the reasons and the belief. The Court emphasized that the legality of reopening an assessment must be assessed based on the reasons recorded by the Assessing Officer, without allowing subsequent supplementation of those reasons.

In conclusion, the High Court dismissed the appeal, affirming the Tribunal's decision to quash the reopening of assessment. The Court emphasized the importance of adhering to the legal requirements for reopening assessments under the Income Tax Act and the necessity for tangible material to support such decisions.

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