2017 (6) TMI 878 - HC - Income Tax

Court invalidates assessment reopening under Section 147, citing merger principle.

The court invalidated the reopening of assessment under Section 147, emphasizing that the issue of the receipt's taxability was already under appeal, ... Reopening of assessment - Long term capital gain addition - Held that:- The assessee had in return itself offered the receipt to tax as capital gain. In the context of the assessee's further expectation that the same may not be taxed at all, issue was examined by the Assessing Officer. Thus, on the question of taxability of such receipt, there was a scrutiny by the Assessing Officer. May be at that time, the Assessing Officer had not noticed that the Collector had passed an order on 20.12.2008 terminating the lease. The reference to the order was very much in the document in the nature of panchnama dated 13.05.2009. According to the assessee, this was the date on which his right to use the land got extinguished. If the Assessing Officer held a different belief or desire to inquire into the effect of the order of the Collector, he could and should have done so during the course of assessment. Yet another reason on which we cannot permit reopening on the grounds stated in the reasons is that the assessee carried the issue in appeal before the Appellate Commissioner and canvassed that to tax the income as capital gain was wrong. The Commissioner having dismissed the appeal, the issue is pending before the Tribunal in assessee's appeal. Section 147 of the Act as is well known, empowers the Assessing Officer to reopen the assessment, subject to certain conditions. When the subject matter viz. the receipt of transfer of rights in land and the income relatable to such matter was the subject matter of appeal and thereafter second appeal, the principle of merger would apply. There cannot be two separate considerations to the same subject matter relatable to the income. One by the appellate authority or forum and another by the Assessing Officer in fresh assessment. Had material particulars concerning the income been withheld by the assessee, issue perhaps would stand on a different footing. Since such facts are not presented before us, we would not comment any further in this respect. While disposing of an appeal filed by an assessee against the order of assessment, the Commissioner after following the requirement of hearing provided in subsection (2) of section 251 may even enhance the assessment. The question of correct taxability of the receipt by the assessee was thus at large before the Commissioner (Appeals) and now is open before the Tribunal. At that stage, it would not be open for the Assessing Officer to reopen the assessment on this matter which is a subject matter of the appeals. - Decided in favour of assessee. Issues Involved:1. Nature of the receipt from CGPL: Capital Gain vs. Income from Other Sources.2. Validity of reopening the assessment under Section 147.3. Applicability of the principle of merger due to pending appeals.Detailed Analysis:1. Nature of the Receipt from CGPL: Capital Gain vs. Income from Other SourcesThe petitioner, a partnership firm, had received Rs. 29.92 crores from Coastal Gujarat Private Limited (CGPL) in two installments. Initially, the petitioner declared this amount as long-term capital gain in its return for the assessment year 2010-11. However, during the assessment proceedings, the petitioner contended that the receipt was a non-taxable capital receipt. The Assessing Officer (AO) treated the receipt as a taxable long-term capital gain. The AO later issued a notice to reopen the assessment, arguing that the receipt should be classified as 'Income from Other Sources' rather than a capital gain. The AO reasoned that the petitioner, being a leaseholder, did not have the right to transfer the land or any rights therein to CGPL, as the land belonged to the Government of Gujarat and was merely leased to the petitioner for salt production. Consequently, the payment from CGPL was not for the transfer of any capital asset but should be treated as income from other sources.2. Validity of Reopening the Assessment under Section 147The AO issued a notice to reopen the assessment within four years from the end of the relevant assessment year, citing reasons that the initial assessment had under-assessed the income. The petitioner opposed this reopening, arguing that the issue was already scrutinized during the original assessment, and the reopening was prompted by the audit party's insistence rather than the AO's independent judgment. The court noted that the AO had examined the taxability of the receipt during the original assessment. The AO's failure to notice the Collector's order terminating the lease was not a valid ground for reopening, as the reference to this order was present in the documents available during the original assessment.3. Applicability of the Principle of Merger due to Pending AppealsThe petitioner had appealed the AO's decision to treat the receipt as a long-term capital gain, and this appeal was dismissed by the Commissioner (Appeals). A further appeal was pending before the Tribunal. The court held that since the issue of the receipt's taxability was already under appeal, the principle of merger applied. According to Section 147, the AO cannot reassess income that is the subject matter of an appeal, reference, or revision. The court emphasized that allowing the AO to reopen the assessment on an issue already under appellate consideration would lead to dual adjudication on the same subject matter, which is impermissible.In conclusion, the court set aside the impugned notice dated 20.09.2012, invalidating the reopening of the assessment. The court clarified that it did not express any opinion on the nature of the receipt or its tax treatment, leaving this determination to the pending appellate proceedings.