2019 (9) TMI 198 - HC - Income Tax

Reopening of assessment u/s 147 - reopening on the basis of the information obtained during the course of assessment of earlier assessment year under section 143(3) - HELD THAT - We find that the reopening notice has been issued on the basis of the information obtained during the course of assessment of earlier assessment year u/s 143(3). Such information can form a valid basis for issuing reopening notice. In the facts of the present case, the assessment for the subject assessment year was by virtue of intimation under section 143(1) of the Act. Therefore the Assessing Officer had no occasion to examine the claim of the Petitioner. It is on the basis of tangible information now received that the impugned reopening notice has been issued, as is evident from the reasons recorded. Therefore the reasons do make out a prima facie case that income chargeable to tax for the subject assessment year has escaped assessment. This of-course is subject to the Petitioner's pointing out in the re-assessment proceeding that on merits such addition as proposed is not permissible in law. Petition dismissed.

Summary

Issues:
Challenge to notice under section 148 of the Income Tax Act, 1961 for reopening assessment for the assessment year 2017-18 based on inflated land cost in earlier assessment years.

Analysis:
The petition under Article 226 of the Constitution challenges a notice dated 15 March 2019 issued under section 148 of the Income Tax Act, 1961, seeking to reopen the assessment for the assessment year 2017-18. The reasons for reopening the assessment state that the assessee, a domestic company engaged in the business of 'builder,' declared a total income of ?12,08,820 for the year. The notice alleges that the assessee inflated the land cost to ?25 crores in previous assessment years, whereas the market value was significantly lower at ?1,32,46,000. The notice contends that the assessee is entitled to proportionate land cost based on the market value and farm development expenses. The notice concludes that income chargeable to tax has escaped assessment for the year under consideration, justifying the reopening under Section 147 of the Income Tax Act.

The petitioner filed its return of income for the subject assessment year on 1 November 2017, which was processed under section 143(1) of the Act. The Assessing Officer had previously held in the assessment order for the year 2015-16 that the cost of land was inflated to ?25 crores, whereas the actual value was ?1.32 crores. This discrepancy formed the basis for issuing the impugned notice. The petitioner's counsel argued that the Assessing Officer lacked the power to substitute the land value based on the purchase consideration and that there was no material to support the conclusion that the declared land value was incorrect. However, the court found that the reopening notice was based on information obtained during the assessment of the earlier year under section 143(3) of the Act, which can validly support issuing a reopening notice.

The court noted that since the assessment for the subject year was done through an intimation under section 143(1) of the Act, the Assessing Officer did not examine the petitioner's claim. The tangible information received subsequently justified the reopening notice, indicating a prima facie case of escaped income assessment. The court dismissed the petition, finding no merit in the arguments presented.