2025 (11) TMI 159 - AT - Income Tax

Reopening under section 147 invalid where AO relied on same material from 143(3) and 54F scrutiny

ITAT held that reopening of assessment was invalid because the AO relied on the same material available at original 143(3) assessment and there was no ... Validity of reopening of assessment - Reasons to believe - change of opinion - deduction claimed u/s. 54F - Scope of information which was considered by him before passing the assessment u/s. 143(3) HELD THAT:- There is no dispute with regard to the fact that the original assessment u/s. 143(3) of the Act has been completed on 18.12.2018 where the AO has restricted his verification on the issue of deduction claimed u/s. 54F of the Act from the capital gains, which is evident from the reasons recorded for selection of case for limited scrutiny and subsequent notice u/s. 142(1) of the Act. In fact, the AO has issued specific notice u/s. 142(1) of the Act and called for details in respect of exemption claimed u/s. 54F of the Act against the capital gains derived from sale of property, for which the assessee has furnished complete details of computation of LTCG along with relevant evidences including copies of sale deed, deduction claimed u/s. 54F of the Act along with copies of property purchase deed. From the above, it is very clear that the case has been specifically taken up for scrutiny to verify the LTCG computed by the assessee and exemption claimed u/s. 54F of the Act. AO formed reasonable belief of escape of income and reasons recorded for reopening of assessment on the basis of very same material which were available in the assessment records while completing the assessment u/s. 143(3) of the Act. If we go through the relevant record including computation of total income, it is very clear that the assessee has disclosed the relevant facts with regard to sale of property and consideration received for sale of property in the statement of total income indicating the amount of LTCG and deduction claimed u/s. 54F of the Act. Assessing Officer has reopened the assessment on ‘ mere change ’ of opinion without there being fresh tangible material which came to the possession of the Assessing Officer subsequent to completion of original assessment u/s. 143(3) of the Act. In the absence of any fresh tangible material, reopening, amounts to ‘change of opinion’ which is not permissible under the law - Assessing Officer does not have any power to review his own assessment. Appeal filed by the assessee is allowed. ISSUES PRESENTED AND CONSIDERED 1. Whether reopening of assessment under section 147/148 (reassessment) was valid where the Assessing Officer relied on material that was already before him at the time of original assessment (i.e., whether the reassessment was a mere change of opinion). 2. Whether the Assessing Officer correctly brought to tax an amount as long-term capital gains under section 45 by holding that capital gains were not utilized for purchase or construction of a new residential asset and that requirements of section 54F(1) read with section 54(4) were not satisfied (including related issue of appropriateness of deposit under the capital gains scheme). 3. Whether credit for tax deducted at source (TDS) required rectification where Assessing Officer allegedly failed to verify Form 26QB and short-credited TDS. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Validity of reopening assessment under section 147/148 (change of opinion v. fresh tangible material) Legal framework: Reassessment under section 147/148 can be initiated only when the Assessing Officer has reason to believe that income chargeable to tax has escaped assessment; such reason must be based on information/material which was not available to the AO at the time of the original assessment. Reopening is impermissible where it amounts to a mere change of opinion or a review of the original assessment on materials already considered. Precedent treatment: The Tribunal relied on higher court decisions holding that reassessment cannot be used to review an assessment based on the same material already considered (cases treated as authoritative in the orders below were applied to the facts). The decision refers to principles in authorities that disallow reopening where there is no fresh tangible material subsequent to the original assessment. Interpretation and reasoning: The Tribunal examined the course of the original assessment and the reasons recorded for reopening. It found that (a) the original assessment under section 143(3) was a scrutiny assessment expressly directed to verification of the capital gains exemption claimed under section 54F, (b) the assessee had furnished full particulars, supporting sale deeds, computation of capital gains and purchase documents during original scrutiny, and (c) the AO's reasons for reopening relied on the same sale deed/agreement and related material that were already on record at the time of the original assessment. The Tribunal concluded that the Assessing Officer had no fresh tangible material which came into possession after completion of the original assessment; the reasons therefore amounted to re-examination of the same material and constituted a mere change of opinion. The Tribunal emphasized that the Assessing Officer's power to reassess cannot be exercised as a power to review his own findings reached after considering the same documents and submissions during original assessment. Ratio vs. Obiter: Ratio - where original scrutiny assessment considered and accepted the same material, reopening on identical material amounts to a prohibited change of opinion; reassessment under section 147/148 requires new tangible material not previously available. Obiter - references to policy considerations and the broader admonition that reopening must be based on fresh information to prevent arbitrary review of accepted assessments. Conclusions: The reopening was invalid. Reassessment order passed pursuant to the invalid reopening was quashed. The Tribunal allowed the appeal on this ground. Issue 2 - Legality of addition under section 45 on grounds of non-utilisation of capital gains for purchase/construction (section 54F/54(4)) Legal framework: Section 54F provides exemption from long-term capital gains where an individual/HUF purchases or constructs a residential house within the specified time limits; section 54(4) requires deposit of the unappropriated net consideration in an approved capital gains account by the time of filing the return, and treats deposited/used amounts as cost of new asset; failure to appropriate/utilize amounts within prescribed periods can render the excess chargeable under section 45 in the relevant year. Precedent treatment: The assessee relied on authorities (including a Supreme Court precedent) for the proposition that the statute does not mandate literal 'cash-and-carry' tracking of the exact corpus and that purchase in satisfaction/adjustment of debt may qualify; the lower authorities considered those precedents but distinguished them on facts. Interpretation and reasoning: The Assessing Officer and the first appellate authority held that only part of the capital gain was deposited in the capital gains scheme and that the balance was not appropriated or utilized for purchase/construction as required by section 54F(1) read with section 54(4). They found that the property was taken in satisfaction/adjustment of a pre-existing loan advanced to a third party (GPA holder) and that the capital gain corpus was therefore not shown to have been applied in compliance with the statutory scheme. The first appellate authority considered the assessee's contention that purchase by adjustment or transfer in kind should qualify, but concluded the facts were distinguishable from the precedents relied upon and affirmed the addition. However, the Tribunal did not decide the substantive correctness of the addition on merits because it quashed the reassessment as based on change of opinion (see Issue 1); thus the Tribunal did not adjudicate the addition substantively and remitted no further direction on this ground. Ratio vs. Obiter: Obiter with respect to the substantive capital gains point - lower authorities' findings on non-utilization and inapplicability of relied precedents form their reasoning but the Tribunal's quashing of reassessment means those findings are not sustained as binding ratio by the Tribunal. The Tribunal's operative ratio is limited to invalidity of reopening; it did not authoritatively resolve the section 54F interpretation dispute on final merits. Conclusions: Because reassessment was quashed as invalid, the addition under section 45/claim rejection under section 54F was set aside implicitly; the Tribunal did not rule on the substantive capital gains question after finding reassessment invalid. Issue 3 - Credit for TDS and Form 26QB verification Legal framework: Credit for TDS must be given as per record/returns and statutory procedure; where TDS is claimed but not credited in assessment, AO must verify documentary proof (e.g., Form 26QB) and give credit if legitimately shown. Precedent treatment: The first appellate authority directed the Assessing Officer to verify facts and grant TDS credit per law; this was treated as a record/administrative direction rather than a substantive contested legal principle. Interpretation and reasoning: The assessee produced Form 26QB showing deduction/deposit of TDS at the rate claimed. The first appellate authority found that TDS credit was a matter of record and remitted the limited issue of credit to the AO for verification and to grant lawful credit. The Tribunal's quashing of reassessment does not disturb the appellate direction that the AO should verify and give TDS credit in accordance with law. Ratio vs. Obiter: Ratio - direction to verify and grant TDS credit where documentary evidence (e.g., Form 26QB) is produced; this is an operative administrative direction ancillary to the main decision quashing reassessment. Obiter - none material beyond the administrative directive. Conclusions: The matter of TDS credit was remitted for verification and lawful adjustment; the Tribunal did not find fault with the appellate direction and left the AO to give credit in accordance with law.