2018 (10) TMI 366 - HC - Income Tax

Reopening of assessment - scope of reasons recorded for reopening of assessment - allegation of non filing of return to disclose income from house property but actual the return was filed - reference to section 50C for valuation of property was not mentioned in the notice - Held that - AO may be correct in pointing out that when the sale consideration as per the sale deed is ₹ 50 lakhs but the registering authority has valued the property on the date of sale at ₹ 1,18,95,000/for stamp duty calculation, section 50C of the Act would apply, of course, subject to the riders contained therein. However, this is not the cited reason for reopening the assessment. The reasons cited are that the assessee filed no return and that 1/3rd share of the assessee from the actual sale consideration of ₹ 1,18,95,000/ therefore, was not brought to tax. These reasons are interconnected and interwoven. In fact, even if these reasons are seen as separate and severable grounds, both being factually incorrect, Revenue simply cannot hope to salvage the impugned notice. Through the affidavit-in-reply a faint attempt has been made to entirely shift the center of the reasons to a completely new theory viz. the possible applicability of section 50C of the Act. The reasons recorded nowhere mentioned this possibility. Reasons recorded, in fact, ignored the fact that the sale consideration as per the sale deed was ₹ 50 lakhs and that the assessee had by filing the return offered his share of such proceeds by way of capital gain. - Decided against revenue

Issues:
1. Challenge to notice for reopening assessment for AY 2010-11.
2. Validity of reasons recorded by Assessing Officer.
3. Dispute over factual grounds in the reasons.
4. Rejection of objections raised by the petitioner.
5. Application of section 50C of the Income Tax Act.
6. Compliance with legal requirements for reopening assessment.

Issue 1: Challenge to notice for reopening assessment for AY 2010-11

The petitioner challenged a notice issued by the Assessing Officer for reopening the assessment for the assessment year 2010-11. The notice was based on the belief that income chargeable to tax had escaped assessment. The petitioner contended that the reasons for reopening the assessment were erroneous and lacked validity.

Issue 2: Validity of reasons recorded by Assessing Officer

The Assessing Officer's reasons for reopening the assessment were based on incorrect factual premises. The reasons stated that the petitioner had not filed a return for the relevant year and had not offered the capital gain arising from the sale of property for taxation. However, the petitioner had indeed filed a return and offered the capital gain for taxation. The Assessing Officer's reliance on these incorrect grounds was found to be impermissible.

Issue 3: Dispute over factual grounds in the reasons

The Assessing Officer's reasons incorrectly stated the sale consideration of the property as ?1,18,95,000, whereas the actual sale deed showed it to be ?50 lakhs. The Assessing Officer also failed to acknowledge that the petitioner had filed the return and declared the capital gain. The incorrect factual grounds formed the basis for the notice of reopening, which was deemed invalid by the court.

Issue 4: Rejection of objections raised by the petitioner

The petitioner raised objections to the notice of reopening, highlighting the errors in the Assessing Officer's reasons. However, the objections were rejected by the Assessing Officer, who maintained that the market value of the property determined for stamp valuation was ?1,18,95,000. The rejection was primarily based on the discrepancy between the declared sale consideration and the market value.

Issue 5: Application of section 50C of the Income Tax Act

The Assessing Officer attempted to justify the reopening of the assessment by citing section 50C of the Income Tax Act, which deals with the substitution of sale consideration for computing capital gains tax. However, the court found that this argument was not the basis for the original reasons recorded by the Assessing Officer, rendering it impermissible to introduce new grounds after the notice was issued.

Issue 6: Compliance with legal requirements for reopening assessment

The court emphasized that even though the petitioner's return was not scrutinized, the Assessing Officer must have valid reasons to believe that income chargeable to tax had escaped assessment. The court highlighted the necessity for the Assessing Officer to have accurate and valid grounds for reopening an assessment, which was lacking in this case due to the incorrect factual premises relied upon.

In conclusion, the court quashed the impugned notice for reopening the assessment, as the reasons recorded by the Assessing Officer were found to be factually incorrect and invalid. The court emphasized the importance of accurate and valid grounds for reopening assessments to ensure compliance with legal requirements.

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