2024 (4) TMI 752 - HC - Income Tax

Validity of reopening of assessment - appeals for Assessment Years 2011-2012 2013-2014 and 2014-2015 were pending before the ITAT and as the assessment was getting time barred and to safeguard the interest of the Revenue the assessment was reopened on 3 issues i.e. 8% profit treating contractor Proportionate income and Capital gain - HELD THAT - Admittedly the ITAT has now held against the Revenue. Therefore the entire basis for reopening has collapsed. The Revenue s case that an appeal has been filed in this Court challenging the orders passed by the ITAT for Assessment Years 2011-2012 2013-2014 and 2014-2015 will not be of any help because admittedly there is no stay. As held in Union of India v/s. Kamlakshi Finance Corporation Ltd. 1991 (9) TMI 72 - SUPREME COURT the principles of judicial discipline require that the orders of the higher appellate authorities should be followed unreservedly by the subordinate authorities and the order is the subject matter of an appeal can furnish no ground for not following it unless its operation has been suspended by a competent Court. Admittedly the order of the ITAT which is challenged in appeal in this Court has not been suspended. Therefore the order of the ITAT is certainly binding on the Revenue. Respondents also submitted that assessment can be opened on the basis of order passed in another assessment year which is a settled position in law. Though we will not enter into a debate with him/Respondents on this aspect still to issue notice itself the Revenue has to in the facts of the case cross the first hurdle of the proviso u/s 147 of the Act and if they do not as we have observed above the reopening will be bad in law. We hereby quash and set aside the impugned notice. Consequently the order on objections also is hereby quashed and set aside.

Summary

Issues Involved:
1. Profit on the percentage completion method.
2. Transfer of proportionate undivided rights in the land.
3. Profits from the project.
4. Gains from extinguishment of property rights.
5. Reopening of assessment u/s 148 of the Income Tax Act, 1961.

Summary:

Issue 1: Profit on the percentage completion method
The Petitioner, engaged in land development and real estate construction, filed a return for AY 2012-2013 declaring an income of Rs. 1,52,974/-. The return was scrutinized, and notices were issued u/s 143(2) and 142(1) of the Income Tax Act, 1961. The Assessing Officer (AO) issued a show cause notice questioning why profit on the percentage completion method should not be taxed.

Issue 2: Transfer of proportionate undivided rights in the land
The AO also questioned why the transfer of proportionate undivided rights in the land to buyers should not be taxed as profit from the project constructed by the Petitioner.

Issue 3: Profits from the project
Further, the AO questioned why the overall profits from the project should not be taxed as profit from the project constructed by the Petitioner.

Issue 4: Gains from extinguishment of property rights
The AO inquired why the right on the property, as per an agreement dated October 2009, should not be treated as extinguished in favor of the buyers, and gains from such extinguishment should not be taxed.

Issue 5: Reopening of assessment u/s 148
The AO passed an assessment order dated 31st March 2015 u/s 143(3) of the Act, making additions on account of income from the sale of "Lodha Supremus." The Petitioner appealed to the CIT(A), who allowed the appeal, preventing double taxation. The Revenue's appeal to the ITAT was dismissed. Subsequently, a notice dated 29th March 2019 u/s 148 was issued to reopen the assessment for AY 2012-2013, alleging an escapement of income amounting to Rs. 18,12,64,756/-. The Petitioner's objections to this reopening were rejected, leading to the filing of a writ petition.

The Court examined whether the proviso to Section 147, which restricts reopening after four years unless there is a failure to fully and truly disclose material facts, was applicable. The Court found no allegation or indication of such failure by the Petitioner in the reasons for reopening. It was noted that the issues raised were already considered during the original assessment proceedings.

The Court held that reopening the assessment was based on a change of opinion, which is not permissible. The Court also noted that the entire basis for reopening had collapsed as the ITAT had ruled against the Revenue for the relevant assessment years, and there was no stay on the ITAT's order. Consequently, the impugned notice dated 29th March 2019 and the order on objections dated 22nd March 2022 were quashed and set aside.

Conclusion:
The Court quashed the reopening notice and the order on objections, stating that the Revenue could issue a fresh notice u/s 148 if it succeeds in its appeal against the ITAT's order. The petition was disposed of with all rights and contentions kept open.