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February 27, 2023

It is unacceptable to reopen an assessment on the grounds of a change of opinion

It is unacceptable to reopen an assessment on the grounds of a change of opinion

Fact and issue of the case

Admittedly, the initiation of re-assessment was on account of the audit objection. The said query raised by the audit team does not form a part of the reasons stated for re-opening. The sanction accorded by the PCIT in terms of Section 151 of the Act is also not placed on record.

Joshi, the learned counsel for the assessee submitted that the Petitioner had made submissions before the assessing officer as narrated at paragraph no. 3.3 of the Petition as well as at Exh. E and Exh. H annexed to the Petition which evinces that the very basis of the reasons recorded namely, that the facts and figures in the entire transaction of the sale of the property were the part of the assessment record. He contended that once an assessing officer conducted enquiry on an issue but the order of assessment is silent thereon, the assessing officer is deemed to have applied his mind to the material before him, has formed an opinion and also accepted the view canvassed by the petitioner. He submitted that there is no material much less tangible material brought on the record by the Respondents to support their action of initiation of re-assessment. It was submitted that another officer is not entitled to review the matter from the same material without bringing on record fresh material / reasoning, to form a belief, that income has escaped assessment. The learned counsel submitted that since the reassessment proceeding was initiated after 4 years from the end of the assessment year under the proviso to Section 147 of the IT Act, no reassessment could be made unless the alleged escapement of income was on account of failure on the part of the assessee to disclose “fully and truly all material facts” for its assessment which the first respondent had failed to assert and prove. He submitted that the first respondent was required to specifically point out which material facts were not truly and fully disclosed by the petitioner. He submitted that the petitioner had not only disclosed the particulars of capital gains but also the corresponding claim of exemption under Section 54EC and 54(2) of the Act in his return of income hence there was no such failure. He submitted that the Petitioner had also placed on record all relevant material and explanation during the course of scrutiny of the original assessment taken up to investigate the issue of capital gain. He submitted that the AO had not found any adverse material or any discrepancy and had fully verified this aspect.

The learned counsel submitted that a mere bald and mechanical averment in the reasons recorded could not fulfill the important jurisdictional condition and would render the initiation ex facie bad, illegal and without jurisdiction. In support of his contention

The learned counsel submitted that the belief that an income has escaped assessment ought to have been based on “tangible material” which alone would be the basis for arriving at satisfaction of escapement of income. He submitted that the first respondent had failed to fulfill the basic preconditions of Section 147 of the IT Act inasmuch as the basic facts that were brought on record by the petitioner were not disputed/controverted. He further submitted that a perusal of the reasons as provided, revealed that the initiation of reassessment proceeding was solely on the same material that was a part of the assessment records. He submitted that the transfer deed itself revealed the following facts;

(i) That the late Subhadra had wished to bequeath her right and interest in the land to her two sons and only a formal writing remained to be executed during her lifetime.

(ii) The daughters had orally released their rights.

(iii) Consequently, after death of Subhadra, her husband, in his capacity as Administrator of her Estate, took out the procedure to ransfer the property in the name of the two sons, which ultimately resulted into the society transferring the share certificate in favour of the two sons and changes in property card.

(iv) Most importantly, the building was constructed by the sons after the death of the mother, Subhadra, which was constructed in their own name and our their own efforts and funds.

Observation of the court

The learned counsel submitted that the return of income was processed u/s 143 (1) of the Act. Subsequently, the case was selected for scrutiny under CASS – Limited Scrutiny for examining issues with regard to mismatch of the Sale of Property, Income/Capital Gain on sale of land and building and deduction claimed under the head Capital Gain. He submitted that the assessment was completed u/s143 (3) of the Act, after the Petitioner reconciled the differences with the AIR provided to him by the respondent on 25th September 2017 accepting the returned income of ₹ 1,22,980/-.

The learned counsel submitted that internal audit vide appeal memo no. CIT (Audit)-2 Mumbai/2018-19/ITO Audit 2(10) 10805 dated 18th March 2019, had raised the objection based on their working of capital gains according to which the Petitioner was liable for Short Term Capital Gains (STCG) of ₹ 6,16,40,000/-. It was submitted that on account of a remedial action to settle the major audit objection, reopening of assessment by action u/s 148 of the Act was done after taking due approval from the Principal Commissioner of Income Tax-19, Mumbai as per the provisions of section 151 of the Act.

The learned counsel submitted that after taking necessary approvals from the Principal Commissioner of Income Tax-19 Mumbai as per the provisions of section151 of the IT Act, a notice u/s 148 dated 31st March 2021 was issued to the Petitioner. Pursuant to the notice u/s 148 the Petitioner filed return of income on 3rd April 2021. The reasons for reopening the scrutiny assessment was provided to the Petitioner by letter dated 28th August 2021 to which objection was filed on 10th October 2021.

The learned counsel submitted that the Jurisdictional Assessing Officer (JAO) 19(1)(1), Mumbai who took charge on 21 st December 2021 had this case on his ITBA – Assessment worklist and the case was getting time barred on 31 st March 2022. Since he had no jurisdiction over the said assessment, he made a requisition to NaFAC to assign the case to the Assessment unit of NaFAC. Under the DCIT 2(2)’s direction vide email dated 29th December 2021 the objections filed by the Petitioner were addressed and notice u/s143(2) of the Act was issued on 5th January 2022 to assign the case to NaFAC.

The learned counsel submitted that since the AO had restricted scope of assessment, the original order of assessment had not opined on the issue of short term capital gain when assessment was completed u/s 143 (3) of the Act and consequently the Petition deserves to be dismissed.


In the result, appeal of the assessee is allowed and ruled in favour of the assessee

Read the full order from here


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