2023 (9) TMI 437 - HC - Income Tax

Court Rules Reopening of Tax Assessment Unjustified Due to Lack of New Facts, Favors Petitioner.

Darshana Anand Damle Versus Deputy Commissioner of Income Tax, Central Circle 3 (4), Mumbai, Pr. Commissioner of Income Tax (Central) – 2, Mumbai, The Union of India,

The HC quashed the notice under Section 148 and the order disposing of the Petitioner's objections, ruling in favor of the Petitioner. The Court found ... Reopening of assessment u/s 147 - Notice issued after the expiry of four years - gain on sale of land - treating the land in question as ‘stock in trade’ or ‘capital asset’ - Petitioner had misrepresented the facts by treating the land as ‘stock in trade’ in her books of accounts instead of treating it as a ‘capital asset’ within the meaning of Section 2(47) - HELD THAT:- As during the assessment proceedings a query had been raised by the AO and Petitioner had submitted copy of agreement relating to joint development at Chikhloli vide its Chartered Account’s letter dated 17th March 2016. By a further undated letter, Petitioner, after referring to the ongoing scrutiny assessment proceedings and referring to the query that was raised during the assessment proceedings as to why the Development Agreement entered into by Petitioner with Sai Ashray should not be treated as ‘transfer of land’ and taxed accordingly, explained in detail as to why there was no ‘transfer of land’. Thus the issue as to whether there was a transfer of land or otherwise was the subject of consideration before the AO during the assessment proceedings. As seen in Aroni Commercials Ltd. 2014 (2) TMI 659 - BOMBAY HIGH COURT] once a query is raised during the assessment proceedings and the assessee has replied to it, it follows that the query raised was the subject of consideration of the AO while computing the assessment. It is not necessary that an assessment order should contain reference and/or discussion to disclose its satisfaction in respect of the query raised. This would also indicate that there was no failure to disclose any material fact. On that ground alone the notice issued under Section 148 of the Act has to be quashed and set side. Issues involved:The issues involved in the judgment are re-opening of assessment under Section 147 of the Income Tax Act, 1961 based on alleged escapement of income and whether there was a failure on the part of the Petitioner to fully and truly disclose material facts required for assessment.Details of the judgment:Issue 1: Re-opening of assessment under Section 147:- The Petitioner filed a return of income for Assessment Year 2013-14, which was selected for scrutiny.- The Petitioner had entered into a Development Agreement for developing land and explained to the Assessing Officer that it did not amount to a transfer of land.- The assessment order was passed without adding any capital gains but making other additions to the total income.- Subsequently, the Petitioner received a notice under Section 148 of the Act stating that income had escaped assessment for the relevant year.- The Petitioner contended that the re-opening was not permissible as there was no failure to disclose material facts.- The AO believed that the Petitioner had transferred the land based on the Development Agreement terms and the consideration received.- The Court noted that the issue of transfer of land was already considered during the original assessment proceedings and the notice under Section 148 was based on a change of opinion, not on new facts.- Citing a previous case, the Court held that the re-opening of assessment was not justified, and the notice under Section 148 was quashed.Issue 2: Failure to disclose material facts:- The Respondent argued that the Petitioner misrepresented the land as 'stock in trade' instead of a 'capital asset' in the books of accounts.- However, the Court found that the Petitioner had disclosed the Development Agreement during the assessment proceedings, and the issue of transfer of land was discussed with the AO.- The Court referred to a similar case where it was held that granting a license for development did not amount to transferring possession of the land.- Based on this, the Court quashed the notice under Section 148 and the order disposing of the Petitioner's objections.Conclusion:The Court made the rule absolute, quashing the notice under Section 148 and the order disposing of the objections. The judgment was in favor of the Petitioner, and the petition was disposed of accordingly.