2017 (1) TMI 1192 - HC - Income Tax

Reopening of assessment - addition made in respect of on-money received - Held that - From the reasons recorded to reopen the assessment for A.Y 2006-2007, it appears that the same is sought to be reopened by the Assessing Officer on the basis of observations made by Assessing Officer, while framing the assessment for A.Y 2007-2008 with respect to the flats sold during the year under consideration, wherein it was found that the assessee had received on-money with respect to the flats sold and in the A.Y 2007-2008 and therefore, the Assessing Officer while issuing the Notice for reopening has presumed and assumed that with respect to the flats sold in AY 2006-2007, the assessee must have received on-money. From the record available, it appears that there is no further tangible material available with the Assessing Officer to form a belief that the assessee had received on-money with respect to the flats sold in A.Y 2006-2007 and/or had received any on-money in the AY 2006-2007. With respect to addition made in respect of on-money received in A.Y 2007-2008, the same has been subsequently set-aside by the learned CIT A , against which an appeal was preferred which has been dismissed on the ground of low tax effect. Considering the aforesaid facts and circumstances of the case and solely on the observations made by another Assessing Officer with respect to the subsequent assessment years ie., 2007-2008, the reopening was not permissible, more particularly in absence of any other tangible material available with the Assessing Officer that in the year 2006-2007, the assessee had received any on-money. Under the circumstances, it was not open for the Assessing Officer to re-open the assessment for A.Y 2006-2007, that too beyond the period of four years and more particularly when the original assessment was done under Section 143 (3) of the I.T Act. - Decided in favour of assessee

Summary

Issues:
1. Validity of reopening assessment for AY 2006-2007 beyond the four-year period.
2. Allegation of income escaping assessment due to non-disclosure of true facts.
3. Challenge against the impugned Notice dated 26th March 2012 under Section 148 of the Income-tax Act, 1961.
4. Petitioner's objection against reopening based on observations in subsequent assessment years.
5. Argument regarding change of opinion by Assessing Officer.
6. Dispute over the necessity of reopening assessment for AY 2006-2007.
7. Assessment of on-money receipts with respect to flats sold in AY 2006-2007.
8. Lack of tangible material to support the belief of on-money receipt by the assessee.
9. Legal validity of the reasons for reopening the assessment beyond the four-year period.

Analysis:

The High Court of Gujarat addressed the issue of reopening the assessment for AY 2006-2007 beyond the four-year period under Section 147 of the Income-tax Act, 1961. The petitioner-assessee challenged the impugned Notice dated 26th March 2012 issued under Section 148, alleging that the income chargeable to tax had escaped assessment due to non-disclosure of true facts. The petitioner contended that the Assessing Officer lacked sufficient material to conclude that income had escaped assessment in AY 2006-2007 based on observations from a subsequent assessment year. The Court noted that during the original scrutiny assessment, specific queries were raised regarding the sale of flats, indicating a detailed inquiry into the matter. Therefore, the subsequent reopening was considered a change of opinion by another Assessing Officer, which was impermissible.

Furthermore, the Court observed that there was no tangible material available to support the belief that the assessee had received on-money in AY 2006-2007. Even the addition made for on-money in AY 2007-2008 had been set aside by the CIT [A] and dismissed on grounds of low tax effect. The Court emphasized that solely relying on observations from subsequent assessment years was insufficient grounds for reopening the assessment for AY 2006-2007, especially when the original assessment was conducted under Section 143(3) of the Income-tax Act.

In conclusion, the Court ruled in favor of the petitioner, quashing and setting aside the impugned Notice dated 26th March 2012 issued under Section 148 of the Income-tax Act, 1961. The Court found the reopening of the assessment for AY 2006-2007 beyond the four-year period unjustified, given the lack of substantial evidence and the absence of non-disclosure of material facts by the assessee during the original assessment.