2018 (5) TMI 1435 - HC - Income Tax

High Court rules in favor of diamond company, sets aside assessment year 2012-13 reopening notice.

The High Court set aside the notice of reopening for the assessment year 2012-13, ruling in favor of the petitioner, a private limited company engaged in ... Reopening of assessment - reason to believe under section 147 of the Income tax Act, 1961 - change of opinion - scope of reopening where the Assessing Officer previously examined the issue in original assessmentReopening of assessment - change of opinion - reason to believe under section 147 of the Income tax Act, 1961 - scope of reopening where the Assessing Officer previously examined the issue in original assessment - Validity of the notice to reopen assessment for A.Y. 2012-13 on the ground of alleged escapement of income arising from claimed long term capital loss - HELD THAT: - The Assessing Officer issued notice to reopen the assessment within three years, recording that the assessee had wrongly claimed a long term capital loss of Rs.11.62 lakhs and that in fact a long term capital gain of Rs.9.92 lakhs had escaped assessment. However, during the original scrutiny assessment the Assessing Officer had specifically queried the working of capital gains/loss, received detailed computations and explanations from the assessee, and despite that made no disallowance in the assessment order. The Court held that where the Assessing Officer has examined an issue in the original assessment, invited and considered the assessee's explanations, and then made no adjustment, a subsequent attempt to reopen on the same self same material amounts to a change of opinion and is impermissible. Therefore the recorded reason to believe could not sustain reopening in these facts, and the notice was set aside. [Paras 6, 7, 8]Notice to reopen under section 147 was invalid on facts; reopening quashed as amounting to impermissible change of opinion.Final Conclusion: Impugned notice of reopening for A.Y. 2012-13 set aside; petition allowed and disposed of. Issues:Challenge to notice of reopening for assessment year 2012-13.Analysis:The petitioner, a private limited company engaged in diamond cutting and polishing, challenged a notice of reopening dated 31.03.2017 for the assessment year 2012-13. The original assessment under section 143(3) of the Income Tax Act, 1961, was completed on 31.03.2015 with additions to the returned income. The notice to reopen was based on the claim of a capital loss of Rs. 11.62 lakhs by the petitioner on the sale of an industrial plot. The Assessing Officer believed that the petitioner had actually earned a capital gain of Rs. 9.92 lakhs. The petitioner had responded to queries during the original assessment, providing detailed workings of the capital gain/loss. The petitioner's explanation included combining the cost of construction and land purchase value to justify the claimed loss. Despite this, no adjustment was made by the Assessing Officer in the final assessment order.The High Court found that the Assessing Officer had examined the issue of capital gain/loss during the original assessment proceedings. The petitioner had responded to queries and provided detailed workings of the capital gain/loss. The petitioner's explanation for the claimed loss was based on the total indexed value of the asset sold, which was higher than the sale consideration. The Assessing Officer's attempt to reopen the assessment based on the same issue was deemed impermissible as it would amount to a change of opinion. Since the Assessing Officer had already scrutinized the issue and made no adjustment in the final assessment, reopening the assessment on the same basis was not allowed.Therefore, the High Court set aside the impugned notice of reopening, allowing the petition and disposing of the matter in favor of the petitioner.