2022 (11) TMI 549 - HC - Income Tax

Reopening of assessment u/s 147 - whether the issue of the impugned notice is occasioned by a possible change of opinion and seeks to review the assessment order? - computation of long-term capital gains arising from sale of immovable property - cost of assets and expenses in connection with transfer of the Property and for perfecting title - HELD THAT - The Sale Deed clearly indicated that the value of the Property at the circle rate was ₹68,08,00,000/- (Rupees sixty-eight crores and eight lacs only). Although, the assessment order does not refer to the fact that the value of the Property as per the circle rate was higher than the consideration received, it is apparent that the AO had examined the computation of capital gains, including the question as to the fair market value of the Property. The assessee had explained why, according to him, ₹60 crores were required to be considered the fair market value. It is apparent that the AO had accepted the said explanation as he did not raise any further query regarding the same. AO was not satisfied with the cost of acquisition of the Property and had undertaken a detailed investigation in that regard including by retrieving information from the Delhi archives. Given the nature of enquiry, it is difficult to accept that the AO had not considered the question of the fair market value. The cost of assets and expenses in connection with transfer of the Property and for perfecting title were also subject matter of a detailed scrutiny during the assessment proceedings. The assessee was specifically called upon to furnish the documentary evidence in support of cost of land, cost of construction and cost of improvement. The assessee had responded to the same by providing details and the manner in which costs of acquisition had been computed. AO had examined the statements and elaborately dealt with the question whether indexation was available in respect of the amount paid by the assessee to his sisters. AO had recomputed the capital gains by making an addition by reducing the costs of acquisition as claimed by the assessee. The question whether the AO was correct in accepting that the amount of ₹19,20,00,000/- paid by the assessee was required to be deducted from the total consideration received from the vendee, is not material. The principal question is whether the AO had examined the computation of income by way of long-term capital gains. Undisputedly, he had. The assessment cannot be reopened only for the reason that the AO has changed his view on the question of the fair market value or whether the amount paid by the assessee to his sisters was deductible from the total consideration. The assessee had made full disclosure regarding the facts and circumstances in which the said amount was paid. It is obvious that the AO had considered the allowability of such deduction. The AO now seeks to re-assess the assessee s income on the ground that the amount paid by the assessee to his sisters was not deductible from the sale consideration for the purpose of computing capital gains. This is clearly a case of change of opinion. It is now impermissible for the AO to seek reopening of the assessment to review its decision regarding the fair market value of the Property or deduction on account of the amount of ₹19,20,00,000/- paid by the assessee to his sisters or the expenses incurred by him. - Decided in favour of Assessee.

Summary

Issues Involved:
1. Validity of the notice issued under Section 148 of the Income Tax Act, 1961.
2. Whether the notice constitutes a change of opinion.
3. The computation of capital gains from the sale of immovable property.
4. Deductibility of expenses incurred in connection with the transfer of the property.
5. The applicability of the circle rate for determining the sale consideration.

Issue-wise Detailed Analysis:

1. Validity of the notice issued under Section 148 of the Income Tax Act, 1961:
The petitioner (assessee) challenged the notice dated 31.03.2021 issued under Section 148 of the Income Tax Act, 1961, which required the assessee to file a return of income for the Assessment Year 2016-17 on the grounds that income chargeable to tax had escaped assessment. The court examined whether the notice was occasioned by a change of opinion and sought to review the assessment order.

2. Whether the notice constitutes a change of opinion:
The court noted that the Assessing Officer (AO) had previously scrutinized the assessee's return under Section 143(3) of the Act, including detailed examination of the capital gains arising from the sale of property. The AO had accepted the assessee's explanation regarding the fair market value and costs of acquisition. The court held that reopening the assessment merely because the AO had changed his view on the fair market value or the deductibility of expenses constituted a change of opinion, which is impermissible.

3. The computation of capital gains from the sale of immovable property:
The controversy revolved around the long-term capital gains arising from the sale of a property in Vasant Vihar, New Delhi. The AO had initially accepted the assessee's computation of capital gains, which included the costs of acquisition and expenses incurred in connection with the transfer. The court found that the AO had already examined the computation of capital gains and the fair market value during the original assessment proceedings.

4. Deductibility of expenses incurred in connection with the transfer of the property:
The assessee claimed deductions for amounts paid to his sisters as per a settlement deed, legal expenses, and brokerage charges. The AO had scrutinized these expenses during the original assessment and allowed certain deductions. The court held that the AO could not reopen the assessment to reassess the deductibility of these expenses, as it would amount to a change of opinion.

5. The applicability of the circle rate for determining the sale consideration:
The AO sought to recompute the capital gains by taking the circle rate of the property as the sale consideration, which was higher than the actual consideration received. The court observed that the AO had accepted the assessee's explanation regarding the fair market value during the original assessment. Reopening the assessment to apply the circle rate would constitute a change of opinion.

Conclusion:
The court concluded that the reopening of the assessment was not permissible as it was based on a mere change of opinion. The court relied on precedents, including CIT v. Kelvinator of India Ltd., which held that reassessment cannot be initiated on the basis of a change of opinion. The petition was allowed, and the impugned notice dated 31.03.2021 was set aside.