2017 (6) TMI 603 - HC - Income Tax

Reopening of assessment - reasons to believe - nature of land sold - agriculture land or capital gain - change of opinion - Held that - As upon perusal of the very first response issued by the petitioner to the 148 notice served upon him, which was received by the Department on 01.05.2015, that he had indicated in no uncertain terms that no specific reasons had been furnished for issuing the said notice. This was reiterated by the petitioner in his communication dated 02.02.2016. The respondent, instead of placing on record, the communication, whereby, reasons were furnished, in his communication dated 04.02.2016, simply states that reasons for reopening the communication were furnished to the AR of the petitioner. The petitioner, by a return communication dated 17.02.2016, which was issued via his Chartered Accountants, refuted this fact. It was stated that nothing was furnished by the respondent by way of reasons in writing and that, this fact was brought about to the notice of the respondent orally by the AR at the time of his appearance before the respondent. The counter affidavit filed in this Court, as well, does not shed any light on this aspect of the matter. Specific ground, i.e., ground No.VII, has been raised in that behalf by the petitioner. The respondent, in its counter affidavit, has not been able to refute this assertion of the petitioner. The respondent has violated the mandate of law, as enunciated by the Supreme Court in the matter of GKN Driveshafts 2002 (11) TMI 7 - SUPREME Court as clearly, expounds that once, notice under Section 148 of the Act is received by an Assessee, he is entitled to seek reasons for issuance of such notice, and that, the Assessing Officer is bound to furnish reasons within a reasonable time. The respondent s stand that reasons were communicated to the AR is, really, sidestepping the issue. For a moment even one were to accept the stand taken by the respondent that the petitioner was told that income received by him, upon the sale of Kovalam property would be treated as capital gains, because, the nature of the said land was not agricultural, in my view, would not suffice, as the reasons, which, the respondent was obliged to furnish, due to the mandate of law, would, ordinarily, have to state as to why he had proposed to treat the Kovalam property as non-agricultural land. The purpose of furnishing reasons is to enable the Assessee to effectively meet the charge levelled against him. Therefore, in so far as this aspect is concerned, the submission advanced on behalf of the Revenue cannot be accepted. The record shows that, it is only thereafter, the assessment order dated 30.11.2010, was passed under Section 148 of the Act. Therefore, quite clearly, the queries were raised to which, the petitioner had furnished his answers. The respondent, now, oblivious to the queries raised and answers received, chooses to tax the gains made by the petitioner qua his share of the sale consideration on the ground that the Tahsildar, had reported that between 2003 and 2007, that, no agricultural activity was carried out on the Kovalam property. The aforesaid facts, clearly, establish that the respondent is having a second shot at unravelling the tax impact of the subject transaction. Since, the petitioner furnished all the information which was available with him, qua the Kovalam property and the subject transaction, the respondent was, distinctly, acting beyond the ambit of the provisions of Section 147 of the Act, which vested upon him the power to reassess the income and not review the subject transaction. Thus even with regard to the second aspect, the stand on behalf of the respondent that this was not a case of change of opinion cannot be accepted. - Decided in favour of assessee.

Summary

Issues Involved:
1. Whether reasons were furnished by the respondent for reopening the assessment.
2. Whether the reopening of the assessment was based on a mere change of opinion.

Issue-wise Detailed Analysis:

1. Whether reasons were furnished by the respondent for reopening the assessment:

The petitioner contested the reopening of the assessment on the grounds that no reasons were provided for issuing the notice under Section 148 of the Income Tax Act. The petitioner cited the Supreme Court's judgment in GKN Driveshafts (India) Limited Vs. Income Tax Officer, which mandates that reasons for reopening an assessment must be furnished upon request. The petitioner argued that despite multiple requests, no specific reasons were provided in writing, and this was reiterated in communications dated 01.05.2015 and 02.02.2016. The respondent claimed that reasons were communicated to the petitioner’s Authorized Representative (AR), but this was refuted by the petitioner, who asserted that nothing was provided in writing. The court found that the respondent had violated the mandate of law as enunciated in the GKN Driveshafts case by failing to provide written reasons, thereby preventing the petitioner from effectively addressing the charge against him.

2. Whether the reopening of the assessment was based on a mere change of opinion:

The petitioner argued that the reopening of the assessment was based on a mere change of opinion, which is impermissible in law. The original assessment order under Section 143(3) was passed on 30.11.2010, after the petitioner had provided all relevant details about the Kovalam property, including its agricultural nature and the sale transaction. The respondent later issued a notice under Section 148 on 30.03.2015, claiming that the income from the sale of the Kovalam property had escaped assessment due to the petitioner’s failure to disclose material facts fully and truly. The petitioner contended that all necessary information had already been furnished during the original assessment, and the reopening was merely an attempt to reexamine the same facts. The court agreed with the petitioner, stating that the respondent was having a second shot at the transaction, which constituted a change of opinion. The court cited the Full Bench of the Delhi High Court in CIT V. Usha International Limited, emphasizing that if the assessee has disclosed all material particulars fully and truly, the assessing officer cannot reassess the same transaction based on a change of opinion.

Conclusion:

The court found in favor of the petitioner on both issues. It held that the respondent failed to furnish reasons for reopening the assessment, violating the mandate of law. Additionally, the reopening of the assessment was based on a mere change of opinion, which is not permissible. Consequently, the impugned order was set aside, and the pending application was closed. The court also dismissed the respondent's preliminary objection regarding the availability of an alternative remedy, stating that the respondent acted beyond his jurisdiction. There was no order as to costs.