2018 (11) TMI 1007 - AT - Income Tax

Reopening of assessment - addition towards Income from house property - reasons to believe - Held that - The condition precedent to the invocation of the jurisdiction is clearly absent since there is not even an averment to the effect that there was failure on the part of the assessee to disclose fully and truly all material facts necessary for assessment. Hon ble Supreme Court in the case of CIT vs Kelvinator of India Ltd (2010 (1) TMI 11 - SUPREME COURT OF INDIA) held that the power to re-assess cannot be exercised on the basis of mere change of opinion, i.e. if all facts are available on record and a particular opinion is formed, then merely because there is change of opinion on the part of the AO notice u/s 147 / 148 of the Act is not permissible Reopening of assessment is bad in law as the AO has reopened the assessment on change of opinion without there being any fresh material which suggests escapement of income and also there is no allegation by the AO that there is a failure on the part of the assessee to disclose fully and truly all the material facts necessary for assessment. Hence, we quash the re-assessment proceedings and consequent addition made by the AO towards income from house property. - decided in favour of assessee.

Summary

Issues Involved:
1. Reopening of assessment under Section 147 of the Income Tax Act, 1961.
2. Assessment of income from house property.

Issue-wise Detailed Analysis:

1. Reopening of Assessment under Section 147:
The appellant challenged the reopening of the assessment on several grounds, arguing that the reassessment was based on a mere change of opinion without any tangible material suggesting income escapement. The assessee contended that there was no failure on their part to disclose fully and truly all material facts necessary for the assessment. The assessee cited the decisions of the Hon’ble Bombay High Court in the cases of Sriram Foundry Ltd vs DCIT and Aroni Commercials Ltd vs DCIT to support their argument that reopening after four years requires a specific allegation of failure to disclose material facts.

The Tribunal observed that the assessment was reopened after four years from the end of the relevant assessment year, and the original assessment had been completed under Section 143(3). The Tribunal noted that the reasons recorded for reopening did not indicate any failure on the part of the assessee to disclose fully and truly all material facts necessary for the assessment. The Tribunal emphasized that the jurisdictional condition for reopening an assessment after four years requires a clear indication of such failure, which was absent in this case. The Tribunal referenced the Hon’ble Bombay High Court's decisions, which assert that reassessment cannot be based on a mere change of opinion and must be supported by tangible material suggesting income escapement.

The Tribunal concluded that the reopening of the assessment was invalid as it was based on a change of opinion without any fresh material indicating income escapement. Consequently, the reassessment proceedings and the resultant addition towards income from house property were quashed.

2. Assessment of Income from House Property:
The assessee contested the addition made by the Assessing Officer (AO) towards the deemed let-out value of the house property. The assessee argued that they owned only 50% of the flat, with the remaining 50% owned by the assessee's mother, who resided in the flat until her death. Additionally, the assessee claimed that the cooperative society had imposed a condition that the flat could not be let out and was to be used only for self-occupation.

The CIT(A) upheld the AO's determination of the annual letting value of the property based on the prevailing market rent in the locality, as reported by the Inspector. The CIT(A) dismissed the assessee's arguments, stating that the cooperative society is not an authority to determine the rental or municipal value of the property. The CIT(A) found it implausible that a flat in a prime location could fetch a negligible monthly rent.

However, since the Tribunal quashed the reassessment proceedings on the grounds of invalid reopening, the grounds related to the merits of the addition towards income from house property became academic and were not adjudicated upon.

Conclusion:
The appeal filed by the assessee was allowed, with the Tribunal quashing the reassessment proceedings and the consequent addition made by the AO towards income from house property. The Tribunal emphasized that reopening of assessment based on a change of opinion without fresh material and without alleging failure to disclose material facts is invalid. The detailed legal reasoning and reliance on judicial precedents were key aspects of the Tribunal's judgment.