2022 (3) TMI 788 - HC - Income Tax

Reopening of assessment u/s 147 - eligibility of deduction under Section 54 - HELD THAT - There can be no doubt in the facts of the present case that the issue of deduction under Section 54 of the Act was a subject matter of consideration by the Assessing Officer during the assessment proceedings leading to passing of the assessment order dated 15th December 2018. It would therefore follow that the reopening of the assessment by impugned notice dated 11th March 2021 is merely on the basis of change of opinion of the Assessing Officer from that held earlier during the course of assessment proceedings. This change of opinion does not constitute justification and/or reason to believe that income chargeable to tax has escaped assessment. In an undated objections to reopening petitioner has expressly provided that the flat when purchased by the assessee in auction under Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act 2002 (SARFAESI Act) was one flat comprising of an area of approximately 7500 sq. ft. alongwith four car parking spaces. Petitioner has also provided all evidences to justify that when petitioner purchased the flat it was one residential unit/flat comprising of around 7500 sq. ft. having common kitchen and common areas. Documentary evidence to that effect was also provided. These facts have not been denied or disputed by the Assessing Officer in the order dated 8th December 2021 which is also impugned in the petition alongwith notice issued under Section 148 of the Act. In the objections petitioner has also relied upon certain judgments where it says that Section 54/54F only requires the assessee to acquire a residential house and so long as the assessee acquires a building which may be constructed for the sake of convenience in such a manner as to consist of several units which can if the need arises be conveniently and independently used as an independent residence the requirement of the Section should be taken to have been satisfied - Even during the course of submissions today Mr. Narayanan did not disagree with the proposition submitted by petitioner. Thus quash and set aside the Notice u/s 148.

Issues:
1. Scrutiny assessment under CASS for exemption from long term capital gains.
2. Reopening of assessment under Section 147 based on the claim of exemption under Section 54 of the Income Tax Act.
3. Justification for reopening assessment within four years after the relevant assessment year.
4. Consideration of tangible material for reopening assessment.
5. Change of opinion as a basis for reopening assessment.
6. Assessment order lacking specific discussion on deduction claimed under Section 54.
7. Relevance of documents submitted during assessment proceedings in the reopening of assessment.
8. Interpretation of Section 54/54F regarding acquisition of residential house.

Analysis:
1. The petitioner filed a return of income for the Assessment Year 2016-2017, declaring an income and claiming an exemption under Section 54 of the Income Tax Act. The return was selected for scrutiny assessment to examine the exemption claim from long term capital gains. The Assessing Officer accepted the return of income after scrutiny under CASS, which included income from various sources and the claimed exemption under Section 54.

2. Subsequently, the petitioner received a notice for reopening the assessment under Section 147 for the same assessment year, based on the belief that income had escaped assessment due to the claimed deduction under Section 54. The Assessing Officer questioned the validity of the exemption claim as the new property purchased consisted of multiple residential flats, potentially disqualifying the exemption under Section 54.

3. The legality of reopening the assessment within four years after the relevant assessment year was questioned, emphasizing the requirement of tangible material for such actions. The assessment cannot be reopened based on a mere change of opinion without substantial grounds for reassessment.

4. The petitioner argued that all relevant details and documents supporting the exemption claim under Section 54 were provided during the initial assessment proceedings, questioning the necessity of reopening the assessment based on the same information already available to the Assessing Officer.

5. Legal precedents were cited to support the argument that the Assessing Officer cannot rely on Section 147 for reassessment due to their failure to consider existing material during the initial assessment. The lack of additional material or substantial grounds for reassessment was highlighted to challenge the reopening of the assessment.

6. The court found that the Assessing Officer's decision to reopen the assessment was a mere change of opinion from the initial assessment proceedings, lacking justification for reassessment based on the same facts and documents already considered during the scrutiny under CASS.

7. The petitioner's objections to the reopening of the assessment, supported by relevant judgments and documentary evidence, emphasized the interpretation of Section 54/54F regarding the acquisition of a residential house. The court upheld the petitioner's arguments and allowed the petition, quashing the notice for reopening the assessment and the order disposing of objections.

8. The judgment concluded by granting the relief sought by the petitioner, highlighting the importance of legal principles and factual evidence in challenging the reopening of assessments and interpreting tax laws related to exemptions under Section 54 of the Income Tax Act.

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