2017 (1) TMI 1261 - HC - Income Tax

Reopening of assessment - sale of flats - Held that - With respect to flats sold in AY 2005-2006, as a detailed questionnaire was asked by the Assessing Officer before framing the scrutiny assessment under section 143 3 which was supplied by the assessee and only thereafter, the Assessing Officer framed the scrutiny assessment for AY 2005-2006. From the reasons recorded to reopen the assessment for A.Y 2005-2006, 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 2005-2006, 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 2005-2006 and/or had received any on-money in the AY 2005-2006. Even 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 2005-2006, 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 2005-2006, 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

Issues:
1. Validity of reopening assessment for AY 2005-2006 beyond the four-year period under Section 147 of the Income-tax Act.
2. Allegation of income escaping assessment due to non-disclosure of true and correct facts by the assessee.
3. Challenge against the impugned Notice dated 26th March 2012 under Article 226 of the Constitution of India.
4. Argument regarding the assessment being a scrutiny assessment under Section 143 [3] of the Act.
5. Objections raised by the assessee against the reasons for reopening the assessment.
6. Contentions of the petitioner-assessee against the reopening of the assessment.
7. Opposition by the Revenue regarding the petition.
8. Interpretation of proviso to Section 147 of the Income-tax Act.
9. Analysis of material available on record for the assessment reopening.
10. Consideration of observations made in subsequent assessment years for reopening the assessment.
11. Legal implications of the observations made by another Assessing Officer for a different assessment year.
12. Conclusion and decision on the validity of the impugned Notice.

Analysis:

The High Court analyzed the validity of reopening the assessment for AY 2005-2006 beyond the four-year period under Section 147 of the Income-tax Act. The petitioner-assessee challenged the impugned Notice dated 26th March 2012 under Article 226 of the Constitution of India, alleging that the income chargeable to tax had not escaped assessment due to non-disclosure of true and correct facts. The original assessment for AY 2005-2006 was a scrutiny assessment under Section 143 [3] of the Act, where necessary particulars were provided before finalization. The Assessing Officer issued the impugned Notice based on observations made for AY 2007-2008, assuming non-disclosure of on-money receipts by the assessee for the year in question.

The petitioner raised objections against the reasons for reopening the assessment, arguing that the issue had been thoroughly examined during the initial scrutiny assessment. The petitioner contended that the subsequent reopening was a change of opinion and not based on new material. The Revenue opposed the petition, stating that observations from a later assessment year justified the reopening based on the assumption of non-disclosure of on-money receipts in AY 2005-2006. The Court emphasized the conditions under the proviso to Section 147, requiring the income chargeable to tax to have genuinely escaped assessment due to non-disclosure.

The Court found that there was no tangible material available to support the belief that the assessee had received on-money for the relevant year. Even the addition made for on-money in AY 2007-2008 had been set aside, further weakening the basis for the reopening. The Court concluded that the reopening was not permissible solely based on observations from subsequent years, especially when no concrete evidence existed for on-money receipts in AY 2005-2006. Consequently, the impugned Notice was quashed and set aside, ruling in favor of the petitioner-assessee.

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