2022 (9) TMI 1332 - HC - Income Tax

Court quashes reassessment notices for lack of tangible material, exceeding jurisdiction.

The court held that the notices for reopening the assessment under Section 147/148 of the Income Tax Act were issued based on a mere change of opinion ... Reopening of assessment - change of opinion - tangible material - reasons recorded at the time of issuing notice - supplementation of reasons - conscious application of mind - deduction in computation of capital gains - concealment or suppression of material factsReopening of assessment - change of opinion - tangible material - Validity of notices issued under Sections 147/148 for reopening the assessment - HELD THAT: - The Court held that reassessment must be founded on tangible material demonstrating escapement of income and not on a mere change of opinion. The reasons recorded at the time of issuance of the impugned notices do not disclose any fresh tangible material that would justify reopening; instead they reflect a change of opinion about the allowability of a deduction previously accepted. Reopening on the basis of such change of opinion amounts to impermissible review and is not an exercise of reassessment jurisdiction under Sections 147/148. [Paras 21, 24, 25, 26]Notices under Sections 147/148 are invalid as they are founded on a mere change of opinion and not on tangible material; therefore reopening is not justified.Reasons recorded at the time of issuing notice - supplementation of reasons - Permissibility of supplementing or amending reasons for reopening after issuance of notice - HELD THAT: - Applying settled precedent, the Court reiterated that the validity of a reopening notice is to be judged by the reasons recorded at the time the notice was issued. Reasons cannot be supplemented, improved, or augmented subsequently by affidavit, communication, or oral submissions to cure defects in the original reasons. The Respondents relied on additional grounds in the objection disposal which were not part of the recorded reasons; such post hoc additions cannot sustain the reopening. [Paras 21, 22]Reasons recorded with the impugned notices cannot be supplemented or amended later to validate the reopening; post-issuance additions are impermissible.Conscious application of mind - deduction in computation of capital gains - Whether the Assessing Officer had applied mind in the original scrutiny assessment when allowing the deduction under Section 48 - HELD THAT: - The record shows the petitions were selected for limited scrutiny specifically to examine the claimed deductions from capital gains; the Assessing Officer considered the documents and, by a speaking order, accepted the deduction. A regular assessment order arising from such scrutiny raises a presumption of application of mind. The contention that there was no conscious application of mind is therefore rejected on these facts. [Paras 15, 16, 17, 27]Assessment under Section 143(3) involved conscious application of mind and the deduction was considered and allowed; absence of application of mind is not established.Concealment or suppression of material facts - reasons recorded at the time of issuing notice - Whether there was concealment or suppression of material facts (sale deed/MOU) justifying reopening under the proviso to Section 147 - HELD THAT: - The reasons recorded with the impugned notices do not allege suppression or concealment of the sale deed or MOU. The record indicates that these documents were produced during limited scrutiny and the deduction was granted after considering them. The subsequent claim of concealment in the objection-disposal communication is inconsistent with the contemporaneous reasons for reopening and cannot supply a valid ground for reassessment. [Paras 18, 19, 23]No concealment or suppression of material facts is established; the reopening cannot be sustained on that ground.Final Conclusion: The impugned notices under Sections 147/148 are quashed and set aside as issued without jurisdiction because they rest on a mere change of opinion and not on tangible material, the reasons recorded at issuance cannot be supplemented later, and the original scrutiny order shows application of mind and no concealment; writ petitions are allowed and there is no order as to costs. Issues Involved:1. Reopening of assessment under Section 147/148 of the Income Tax Act, 1961.2. Deduction of compensation paid under Section 48 of the Income Tax Act, 1961.3. Allegation of non-disclosure of material facts.4. Concept of 'change of opinion' in tax reassessment.Detailed Analysis:1. Reopening of Assessment under Section 147/148:The Petitioners filed their income tax returns for the Assessment Year 2016-2017, which were initially accepted by the Assessing Officer after a limited scrutiny. However, the Assessing Officer later issued notices under Section 148 to reopen the assessment, citing reasons related to the deduction of compensation paid. The Petitioners challenged these notices, arguing that there was no tangible material to justify the reopening and that it was merely a 'change of opinion.'2. Deduction of Compensation Paid under Section 48:The core issue revolved around the deduction of Rs. 1,64,45,000/- claimed by the Petitioners under Section 48 of the Income Tax Act. This amount was paid as compensation to previous buyers due to the cancellation of a sale agreement. The Assessing Officer initially allowed this deduction, but later questioned its validity, arguing that the compensation was not directly related to the transfer of the property and should not be deducted from the capital gains.3. Allegation of Non-Disclosure of Material Facts:The Respondents contended that the Petitioners had not disclosed the sale deed and the memorandum of understanding (MOU) during the initial assessment, which constituted fresh or tangible material sufficient for reopening the assessment. However, the court observed that there was no allegation of suppression or concealment of these documents in the reasons recorded at the time of issuing the notice for reopening the assessment.4. Concept of 'Change of Opinion':The court emphasized that the reassessment was based on a mere change of opinion, which is not permissible. The court cited several precedents, including the Supreme Court's ruling in Commissioner of Income Tax Vs Kelvinator of India Ltd., which held that a mere change of opinion cannot justify reopening an assessment. The court reiterated that the Assessing Officer has no power to review his own order under the guise of reassessment.Conclusion:The court concluded that the impugned notices for reopening the assessment were issued in excess of the jurisdiction conferred upon the Respondents. The reassessment was based on a mere change of opinion, and there was no tangible material to justify the reopening. Consequently, the court quashed and set aside the impugned notices, making the rule absolute in terms of the prayer clauses (a) and (b) in both petitions. There was no order for costs in both petitions.