2016 (9) TMI 857 - HC - Income Tax

Reopening of assessment - Entitlement to claim u/s.54F - Held that - For initiation of action under section 147(a) (as the provision stood at the relevant time) fulfilment of the two requisite conditions in that regard is essential. At that stage, the final outcome of the proceeding is not relevant. In other words, at the initiation stage, what is required is reason to believe , but not the established fact of escapement of income. At the stage of issue of notice, the only question is whether there was relevant material on which a reasonable person could have formed a requisite belief. Whether the materials would conclusively prove the escapement is not the concern at that stage. This is so because the formation of belief by the Assessing Officer is within the realm of subjective satisfaction. Merely an audit report, in our opinion, would not authorize the Assessing Officer to reopen the assessment even within the period of 4 years from the end of the relevant assessment year, when the said material was already before him when the original assessment was made. Any such attempt on his part would be based on mere change of opinion. To reiterate when a claim was processed at length and after calling for detailed explanation from the assessee, the same was accepted, merely because a certain element or angle was not in the mind of the Assessing Officer while accepting such a claim, cannot be a ground for issuing notice for reassessment. Therefore, in our view, the Assessing Officer cannot change his opinion, which he has already accepted in his assessment order. We are of the opinion that the Tribunal has committed an error in reversing the finding of CIT (A). Accordingly, we answer the question posed for our consideration in favour of the assessee and against the revenue and the Tribunal has committed an error in holding that the reopening proceedings are valid, legal and within the jurisdiction of the Respondent. Even otherwise, the method of valuation is in order and since the valuations are made under two different Acts, they cannot be made basis for reopening of valuation. - Decided in favour of assessee.

Issues Involved:
1. Validity of reopening assessment under Section 147 of the Income Tax Act.
2. Justification for denying deduction under Section 54F of the Income Tax Act.
3. Consideration of audit objections as a basis for reassessment.
4. Difference in valuation under Wealth Tax Act and Income Tax Act.

Issue-wise Analysis:

1. Validity of Reopening Assessment under Section 147:
The primary issue was whether the reopening of assessment proceedings under Section 147 was valid. The Tribunal upheld the reopening, but the High Court scrutinized whether the Assessing Officer (A.O.) had "reason to believe" that income had escaped assessment. The Court emphasized that the belief must be honest and reasonable, based on tangible material, and not merely a change of opinion. The Court noted that the original assessment had already considered the capital gains and the valuation report, which were available to the A.O. at that time. The reopening was deemed invalid as it was based on the same materials, thus constituting a mere change of opinion.

2. Justification for Denying Deduction under Section 54F:
The A.O. denied the deduction under Section 54F, arguing that the assessee owned another property at the time of transfer, disqualifying them from the deduction. The assessee contended that they had released their share in the additional property before the transfer date. The Court found that the A.O.'s reassessment was based on an incorrect interpretation of the transfer date and the nature of the property ownership. The original assessment had already allowed the deduction after considering these facts, and there was no new information to justify the reassessment.

3. Consideration of Audit Objections as a Basis for Reassessment:
The Court examined whether audit objections could form the basis for reopening the assessment. It was highlighted that audit objections alone do not constitute "reason to believe" unless the A.O. independently applies their mind to the information. The Court referred to several judicial precedents, including the Supreme Court's decision in Indian and Eastern Newspaper Society Vs. CIT, which held that reopening based solely on audit objections is not permissible. The Court concluded that the A.O. had not independently verified the audit objections, rendering the reopening invalid.

4. Difference in Valuation under Wealth Tax Act and Income Tax Act:
The Court addressed the issue of differing valuations under the Wealth Tax Act and the Income Tax Act. The A.O. had reopened the assessment based on a significant difference in property valuation for wealth tax and income tax purposes. The Court observed that the methods of valuation under the two Acts are distinct and cannot be directly compared. It was noted that the valuation report used for wealth tax purposes was already available during the original assessment. Therefore, using it as a basis for reopening the assessment was unjustified and constituted a change of opinion.

Conclusion:
The High Court concluded that the reopening of the assessment was invalid as it was based on a mere change of opinion without any new tangible material. The original assessment had already considered all relevant facts, and the A.O. could not rely solely on audit objections or differences in valuation under different tax laws. The Court ruled in favor of the assessee, setting aside the Tribunal's order and holding that the reassessment proceedings were not within the jurisdiction of the A.O.

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