Bombay HC Cancels Re-assessment Order in the Absence of Any New Information
The Bombay High Court has invalidated the reassessment order, which was made solely due to a change of opinion without presenting any substantial new evidence.
A panel of judges, including Justice K. R. Shriram and Justice N. K. Gokhale, has noted that the petitioner had provided complete and accurate information required for the assessment process. The Assessing Officer (AO) issued the initial assessment order after a thorough examination of the petitioner’s submitted materials. However, the department in question failed to provide any legally mandated reasons for reopening the assessment. Throughout the communication chain, there is no indication of what information was not disclosed.
The petitioner, who is the taxpayer, challenged a notice issued by the Deputy Commissioner of Income Tax under Section 148 of the I-T Act 1961, which aimed to reopen the assessment for the fiscal year 2015-16 (dated March 24, 2022). The petitioner sought a court order to prevent the respondents from taking any actions based on the contested orders.
The petitioner argued that they had not failed to disclose all relevant information accurately and completely. The reassessment was solely based on a change in the tax authority’s opinion, as there was no new substantial evidence presented. Even when considering the merits of the case, there was no unreported income. Additionally, the income tax notice under Section 148 was issued after four years had passed, making the first proviso to Section 147 applicable.
Subsequently, the assessee filed a suit in the Bombay High Court, demanding damages. A consent decree was issued by the court based on terms agreed upon by the parties. Under this consent decree, Aadi Properties LLP agreed to compensate for its failing to provide the commercial space, if the assessee would retain the “right to sue.”
The case was selected for scrutiny under the E-assessment Scheme 2019 to determine eligibility for exemption. During the assessment process, the Assessing Officer(AO) sent periodic notices inquiring about the taxability of the compensation received under the consent decree.
The Assessing Officer concluded the assessment under Section 143(3), accepting the income tax return and affirming that the capital receipt of Rs. 7,65,26,000 was not eligible for taxation.
The Principal Commissioner of Income Tax (PCIT) reviewed the issue of the taxability of the Rs. 7,65,26,000 compensation in his revisionary jurisdiction. In the show-cause notice, the PCIT stated that the AO’s assessment order was erroneous and prejudicial to the revenue’s interests as per clause (d) of Explanation 2 to Section 263.
The tribunal recognized that enforcing the Memorandum of Understanding (MOU) through particular performance was not possible, and it had been agreed that damages would be paid by the defendant to the plaintiff in lieu of the plaintiff’s right to sue.
However, the expression ‘property of any kind’ is used in the context of the transferability of any property, as per Section 6 of the Transfer of Property Act, of 1882. Section 6 of the Transfer of Property Act, of 1882 outlines an exception for a right to sue while explaining property of any kind. Consequently, the right to sue for damages is not an actionable claim and cannot be assigned.
