2015 (12) TMI 198 - HC - Income Tax

Reopening of assessment - disallowance of a portion of the claim under section 80IB(10) - Held that - While considering the claim for deduction under section 80IB(10) of the Act, the Assessing Officer has called for details of the land in question which was brought as capital of Shri Babubhai Desai, the amount of land brought as capital and the value considered, the detailed working of profit/gain offered for income-tax when land was brought as capital asset, as well as copy of the return of income with computation of income of Shri Babubhai Desai for financial years 2006-07 and 2007-08. In response thereto, the petitioner has submitted copies of the revenue record pertaining to the lands in question, the purchase deed of the land, copy of the capital account of Shri Babubhai Desai for financial years 2006-07 and 2007-08, supplementary deed and copy of the capital account of Shri Babubhai Desai and his income tax return for the above years which clearly showed that capital gain on such lands amounting to ₹ 1,08,60,381/- was offered for tax in assessment year 2007-08. Thus, the Assessing Officer, after calling for the above material, did not deem it fit to assess capital gain under section 45(2) of the Act nor has the aspect of capital gains been discussed in the assessment order. Therefore, it is evident that while examining the claim under section 80IB(10) of the Act, the Assessing Officer has also called for material relating to the lands in question and as to whether profit/gain was offered for income tax when the land was brought as capital, but has not assessed capital gain under section 45(2) of the Act in relation to conversion of the capital assets to stock in trade, under the circumstances, the reopening of assessment for the purpose of examining such issue is clearly based on a change of opinion. - Decided in favour of assessee.

Issues Involved:
1. Legality of reopening the assessment under Section 148 of the Income Tax Act, 1961.
2. Whether the reopening is based on a mere change of opinion.
3. Examination of capital gains under Section 45(2) of the Income Tax Act.
4. Whether the original assessment order merged with the order of the Commissioner (Appeals).

Issue-wise Detailed Analysis:

1. Legality of Reopening the Assessment under Section 148 of the Income Tax Act, 1961:
The petitioner challenged the notice dated 31st March 2014, issued under Section 148 of the Income Tax Act, 1961, seeking to reopen the assessment for the assessment year 2009-2010. The petitioner argued that the reopening was based on a mere change of opinion, as the original assessment under Section 143(3) had already examined the claim under Section 80IB(10) thoroughly. The court noted that the reopening was within four years, so the question of failure to disclose material facts was irrelevant. The court emphasized that the reopening should not be based on a mere change of opinion.

2. Whether the Reopening is Based on a Mere Change of Opinion:
The petitioner contended that the reopening was based on a mere change of opinion, as the Assessing Officer (AO) had already scrutinized the details of the land and the claim under Section 80IB(10) during the original assessment. The court referred to several precedents, including Cliantha Research Ltd. v. Deputy Commissioner of Income-Tax, H.K. Buildcon Ltd. v. Income-tax Officer, and others, to support the principle that reassessment based on the same set of facts without new tangible material constitutes a change of opinion. The court concluded that the AO sought to re-examine the same material from a different angle, which is impermissible.

3. Examination of Capital Gains under Section 45(2) of the Income Tax Act:
The respondent argued that the AO had not considered the aspect of capital gains arising from the conversion of land from capital asset to stock-in-trade under Section 45(2) during the original assessment. The court observed that the AO had issued notices under Section 142(1) calling for details regarding the land brought as capital by a partner and had received responses from the petitioner. The court noted that the AO had all the material before him but did not assess the capital gains under Section 45(2). The court held that the reopening to examine the same issue from a different angle was based on a change of opinion.

4. Whether the Original Assessment Order Merged with the Order of the Commissioner (Appeals):
The petitioner argued that the original assessment order had merged with the order of the Commissioner (Appeals) regarding the partial disallowance of the claim under Section 80IB(10). The court noted that the issue of capital gains had not arisen out of the assessment order and, therefore, could not be said to have merged with the appellate order. The court held that the reopening of the assessment on the same set of facts was not justified.

Conclusion:
The court concluded that the reopening of the assessment was based on a mere change of opinion and was not justified. The impugned notice under Section 148 of the Income Tax Act was quashed and set aside. The petition was allowed, and the rule was made absolute with no order as to costs.

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