2020 (12) TMI 990 - HC - Income Tax

Validity of reopening of assessment - year of taxation of capital gain - change of opinion or review of the earlier order - HELD THAT - Revenue points out that as the original processing of the ROI was only by way of intimation and no scrutiny assessment under Section 143(3) had been made, the assumption of jurisdiction under Section 147 is unassailable. It was only when the return of income for AY 2016-17 was taken up that the Officer gleaned that the appropriate year for taxing the capital gain would be 2014-15 and not 2016-17. The question of change of opinion or review of the earlier order would not arise insofar as no opinion was formed and no order passed at the first instance. Whether the assumption of jurisdiction in terms of Section 147 for AY 2012-13 is proper, particularly, seeing as the Officer only proposes a re-assessment, on protective basis? - Admittedly, there has been no scrutiny assessment for AY 2012-13 and only an intimation has been passed. The issue based on which the re-assessment has been initiated is whether the capital gains offered to tax in AY 2016-17 should have been offered in the earlier year i.e. AY 2012-13. Ordinarily the limitation provided for the initiation of re-assessment is four years from the end of the relevant financial year, extended to six years upon satisfaction of the conditions elaborated in the proviso to Section 147, conditional upon an order under Section 143(3) having been passed at the original instance. Since only an intimation under Section 143 (1) has been passed in this case, limitation of six years is, available. In the present case, the return of income for AY 2012-13 was not scrutinized and only the return of income of the petitioner for AY 2016-17 was taken up for scrutiny. The question of whether the capital gain is assessable in AY 2012-13 or 2016-17 is thus, a matter to be decided by the Authorities after due verification of relevant documents and in accordance with the law. Thus, while the merits of the matter relating to the year in which the instance of capital gain would fall is left entirely open for decision by the Officer, the assumption of jurisdiction is upheld. In this case the issue that arises is whether the capital gain is taxable in one year or the other and thus, it is only if the material pertaining to both years were available before the officer that a proper decision in this regard could be arrived at. Petitioner argument that the order of assessment for AY 2016-17 has been challenged in appeal only on the aspect of computation of the capital gain and thus as far as the year of taxability is concerned, the order has attained finality is misconceived since the very doubt entertained by the Officer turns on the question of whether the year of taxability adopted by the petitioner is correct or not. The finality attained by filing of the first appeal by the petitioner is subject to statutory processes such as 263 and 147 of the Act, if otherwise valid. This argument is thus rejected. - Decided against assessee.

Summary

Issues:
1. Reopening of income tax assessment for AY 2014-15 based on capital gains.
2. Validity of the jurisdiction under Section 147 for AY 2012-13.
3. Concept of protective assessment in income tax proceedings.

Analysis:

Issue 1:
The petitioner, a company, entered into a joint development agreement with a developer for a project. The income tax assessment for AY 2014-15 was reopened based on the contention that capital gains should have been taxed in that year instead of AY 2016-17. The petitioner challenged the reopening, arguing that the income had already been taxed in AY 2016-17. The court upheld the assumption of jurisdiction under Section 147, stating that the Officer had a legitimate basis for reopening the assessment protectively to determine the correct year for taxing the capital gain. The court emphasized that the merits of the matter regarding the tax year for capital gains would be decided by the authorities based on relevant documents and the law.

Issue 2:
The validity of jurisdiction under Section 147 for AY 2012-13 was questioned as there had been no scrutiny assessment for that year, only an intimation. The court held that the Officer's proposal for reassessment on a protective basis was legally sound. The court clarified that the question of whether the capital gains should have been assessed in AY 2012-13 or AY 2016-17 would be determined after due verification of documents. The court cited legal precedents supporting the concept of protective assessment in income tax proceedings.

Issue 3:
The concept of protective assessment in income tax proceedings was discussed, highlighting the need for caution when assessing income in cases of doubt or ambiguity. The court referred to legal cases where protective assessments were utilized to determine the proper entity for taxation. The court emphasized the importance of ascertaining the correct year of assessment and ensuring that only one assessment ultimately stands after due consideration by the authorities. The court directed that the reassessment be conducted promptly and the appeal filed by the petitioner be heard and decided by the Commissioner of Income Tax (Appeals) concurrently.

In conclusion, the court confirmed the impugned order, dismissed the writ petition, and instructed that the reassessment be carried out promptly and the appeal be heard within a specified timeframe.