Court Quashes Reassessment Notice for AY 2009-10: No Grounds for Reopening

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Case Name:

Parimal Sureshbhai Patel Vs. Deputy Commissioner of Income Tax (High Court of Gujarat)

Special Civil Application No. 15867 of 2016

Date: 18th January 2017

Key Takeaways:

• The court emphasized that reopening an assessment beyond four years requires proof of the assessee’s failure to disclose material facts.
• The decision highlights the importance of the original assessment process and the limitations on reassessment based on a change of opinion.
• The ruling reinforces the legal principle that reassessment cannot be initiated merely due to a subsequent change in the assessing officer’s opinion.

Issue

Was the reopening of the tax assessment for AY 2009-10 justified under Section 147 (of Income Tax Act, 1961)?

Facts

• The petitioner, Parimal Sureshbhai Patel, filed his original tax return for AY 2009-10, declaring a total income and claiming an exemption under Section 54B (of Income Tax Act, 1961) for the sale of agricultural land.
• The original assessment was completed under Section 143(3) (of Income Tax Act, 1961), and the exemption was not disturbed.
• A notice under Section 148 (of Income Tax Act, 1961) was issued to reopen the assessment, alleging that the income had escaped assessment due to the land being sold for non-agricultural purposes.

Arguments

• Petitioner: Argued that the reopening was based on a change of opinion, which is not permissible. The original assessment had already considered the exemption under Section 54B (of Income Tax Act, 1961), and there was no failure to disclose material facts.
• Respondent (Revenue): Contended that the land was sold for non-agricultural purposes, making the exemption under Section 54B (of Income Tax Act, 1961) inapplicable, thus justifying the reopening of the assessment.

Key Legal Precedents

• Section 147 (of Income Tax Act, 1961): Allows for reassessment if income has escaped assessment, provided there is a failure to disclose material facts by the assessee.
• Section 54B (of Income Tax Act, 1961): Provides exemption for capital gains arising from the transfer of agricultural land.

Judgement

The court ruled in favor of the petitioner, quashing the notice under Section 148 (of Income Tax Act, 1961). It held that the conditions for reopening the assessment were not satisfied, as there was no failure on the part of the assessee to disclose material facts. The court found that the reassessment was based on a change of opinion, which is not a valid ground for reopening.

FAQs

Q1: What does this judgment mean for taxpayers?

A1: It underscores the importance of full disclosure in tax returns and limits the grounds on which assessments can be reopened.

Q2: Why was the reassessment notice quashed?

A2: The court found no failure by the assessee to disclose material facts, and the reassessment was based on a change of opinion, which is not permissible.

Q3: Can the tax department reopen assessments at any time?

A3: No, reopening beyond four years requires specific conditions, such as failure to disclose material facts, which were not met in this case.

1.0. By way of this petition under Article 226 of the Constitution of India, the petitioner­ assessee has prayed for an appropriate writ, direction and order to quash and set aside the impugned notice under Section 148 (of Income Tax Act, 1961), by which, the Assessing Officer has sought to reopen the assessment for AY 2009­-10 alleging that income chargeable to tax has escaped assessment under Section 147 (of Income Tax Act, 1961).

2.0. The facts leading to the present petition in nutshell are as under:

2.1. That the assessee filed its original return of income for AY 2009­10 on 17.12.2009 declaring the total income of Rs. 3,47,29,400/­ and agricultural income at Rs. 78,250/­. During the year under consideration, the assessee sold the the land situated at Sarkhej after obtaining appropriate permission from the Collector, Ahmedabad to sell the said land as agricultural land. The petitioner claimed the exemption under Section 54 (of Income Tax Act, 1961) B of the Act of Rs.1,37,11,725/­ against capital gain arising out of the sale of the aforesaid land. It appears that thereafter, the original assessment came to be reopened by the Assessing Officer. One of the reasons for reassessment proceedings were initiated with respect to computation of the exemption under Section 54 (of Income Tax Act, 1961) B of the Act claimed in the return of income. That thereafter, Assessing Officer framed the assessment under Section 143(3) (of Income Tax Act, 1961) and did not disturb the exemption granted under Section 54 (of Income Tax Act, 1961) B of the Act with respect to the sale of aforesaid land. That thereafter, again the Assessing Officer has issued the impugned notice under Section 148 (of Income Tax Act, 1961) and has sought to reopen the assessment for AY 2009­10 alleging inter alia that income chargeable to tax has escaped assessment within the meaning of Section 147 (of Income Tax Act, 1961). At the request of assessee, the Assessing Officer served the reasons recorded to reopen the assessment for AY 2009­10 which reads as under:

“In this case, return of income declaring total income of Rs.3,47,29,398/­ was filed on 17.12.2009. The return of income processed u/s 143(1) (of Income Tax Act, 1961). Subsequently, the case was selected for security through CASS and order u/s 143(3) (of Income Tax Act, 1961) was passed on 29.08.2011 accepting the returned income. Subsequently, the case was re­opened u/s 148 (of Income Tax Act, 1961) and order u/s 143(3) (of Income Tax Act, 1961) r.w.s 147 (of Income Tax Act, 1961) was passed on 26.03.2015 determining total income of Rs.8,44,74,110/­ after making addition on account unexplained cash payment for purchase of land. The said addition has been deleted by the CIT(A).

On verification of case records, it is found that during the year under consideration the assessee had sold land of Sarkhej Survey No. 335 and 344. The assessee had shown short term capital gain of Rs.3,39,25,411/­ after claiming exemption u/s 54 (of Income Tax Act, 1961) B of the I.T. Act. On perusal of the sale deeds it is seen that the sale deeds are executed for non agriculture purpose. Hence, the assessee was not fulfilling the basic conditions as laid down in the Section 54B (of Income Tax Act, 1961) for claiming exemption u/s 54 (of Income Tax Act, 1961) B of the I.T. Act. Therefore, such exemption of Rs. 1,37,11,725/­ u/s 54B (of Income Tax Act, 1961) is not allowable.

In view of the above facts, I have reason to believe that by reason of failure on the part of assessee to disclose fully and truly all material facts necessary for his assessment, an amount of Rs. 1,37,11,725/­ has escaped assessment. Accordingly, I am satisfied that the income chargeable to tax has escaped assessment and hence, it is a fit case for reopening the assessment within the meaning of Section 147 (of Income Tax Act, 1961).”

2.2. The assessee raised the objections against the reasons recorded to reopen the reassessment proceedings for AY 2009­10 which has been disposed of by the Assessing Officer against the assessee and the Assessing Officer has not agreed with the objection raised by the assessee. Hence, petitioner has preferred the present Special Civil Application under Article 226 of the Constitution of India.

3.0. Shri Divatia, learned advocate for the petitioner – assessee has vehemently submitted that impugned notice under Section 148 (of Income Tax Act, 1961) to reopen the assessment for AY 2009­10 is absolutely illegal and bad in law and contrary to the provision of Section 147 (of Income Tax Act, 1961).

3.1. It is submitted that as such the sale deeds with respect to land sold in the relevant year under consideration were already before the Assessing Officer. It is submitted that not only that but subsequently AO reopened the assessment for the very AY 2009­10 for the reasons that with respect to the sale of land bearing survey nos. 335 and 344 exemption under Section 54 (of Income Tax Act, 1961) B of the Act was not allowable. It is submitted that thereafter AO framed the reassessment and did not disturb the exemption granted under Section 54 (of Income Tax Act, 1961) B of the Act. It is submitted that therefore, the impugned reopening of the proceedings is nothing but change of opinion of the subsequent Assessing Officer which is not permissible.

3.2. It is further submitted by Shri Divatia, learned advocate for the petitioner­assessee that even otherwise it cannot be said that there was any failure on the part of the assessee in not disclosing the true and correct facts while claiming exemption under Section 54 (of Income Tax Act, 1961) B of the Act. It is submitted that while framing the reassessment / assessment under Section 143(3) (of Income Tax Act, 1961), the sale deeds executed by the assessee were very much available on record with the AO. It is submitted that thereafter the AO did not disturb the exemption granted under Section 54B (of Income Tax Act, 1961). It is submitted that even otherwise belief formed by the AO that the income chargeable to tax has escaped assessment within the meaning of Section 147 (of Income Tax Act, 1961) has been vitiated inasmuch as what was sold by the assessee was the agriculture land after obtaining permission from the Collector to sell the same as agriculture land. It is submitted that therefore, the assessee was entitled to exemption under Section 54 (of Income Tax Act, 1961) B of the Act. It is submitted that merely because the subsequent AO was of the opinion that exemption under Section 54 (of Income Tax Act, 1961) B of the Act was not allowable, it cannot be a ground to reopen the assessment beyond four years. Under the circumstances, it is requested to allow the present Special Civil Application.

4.0. Present petition is opposed by Ms. Mauna Bhatt, learned advocate for the revenue. It is submitted that on verification of the case record it was found that during the year under consideration the assessee claimed exemption under Section 54 (of Income Tax Act, 1961) B of the Act on sale of land of Sarkhej Survey No. 335 and 344 treating it as an agriculture land, however it was found that the lands were sold for non agriculture purpose and therefore, the assessee was not entitled to exemption under Section 54 (of Income Tax Act, 1961) B of the Act and therefore, no error has been committed by the Assessing Officer to reopen the assessment / reassessment after forming an opinion that the income chargeable tax has escaped assessment within the meaning of Section 147 (of Income Tax Act, 1961). Making above submissions, it is requested to dismiss the present Special Civil Application.

5.0. Heard the learned advocates for the respective parties at length. At the outset, it is required to be noted that in the present case assessment for AY 2009­10 is sought to be reopened beyond the period of four years from the relevant assessment year. Therefore, unless and until, it is found that there was any failure on the part of the assessee in not disclosing the true and correct facts which has resulted into escapement of tax from assessment, reopening is not permissible. Therefore, to reopen the assessment beyond the period of four years, proviso to Section 147 (of Income Tax Act, 1961) are required to be satisfied. In the present case, it is required to be noted that after the original assessment was framed under Section 143(1) (of Income Tax Act, 1961), the same was reopened and in the reassessment proceedings specific issue with respect to exemption under Section 54 (of Income Tax Act, 1961) B of the Act was considered by the Assessing Officer and only thereafter the assessment under Section 143(3) (of Income Tax Act, 1961) was confirmed. At the stage of framing of the assessment under Section 143(3) (of Income Tax Act, 1961) relevant material i.e. the sale deeds were also before the Assessing Officer. Under the circumstances, it cannot be said that there was any failure on the part of the assessee in not disclosing the true and correct facts. In fact, the issue with respect to exemption under Section 54 (of Income Tax Act, 1961) B of the Act was gone into by the Assessing Officer while framing assessment under Section 143(3) (of Income Tax Act, 1961) and same was not disturbed in reassessment proceedings. That thereafter, again Assessing Officer is issued the impugned notice on the very ground i.e. on the ground that the assessee was not entitled to exemption under Section 54 (of Income Tax Act, 1961) B of the Act. Under the circumstances, on the ground that the subsequent reassessment proceedings have been initiated on change of opinion by the subsequent Assessing Officer and also on the ground that there was no failure on the part of the assessee in not disclosing true and correct facts and therefore, condition precedent to assume the jurisdiction under Section 147 (of Income Tax Act, 1961) are not satisfied, impugned reassessment cannot be sustained. At this stage, it is required to be noted that as mentioned in the sale deeds, the assessee sold the agriculture land after obtaining appropriate permission from the Collector to sell the agriculture land. Under the circumstances also, formation of opinion by the Assessing Officer is vitiated.

6.0. In view of the above and for the reasons stated above, more particularly, on the ground that the condition precedent to assume the jurisdiction under Section 147 (of Income Tax Act, 1961) to reopen the assessment beyond the period of four years, as per the proviso to Section 147 (of Income Tax Act, 1961) are not satisfied and also on the ground that earlier while framing the reassessment under Section 143(3) (of Income Tax Act, 1961) the aforesaid issue was specifically gone into by the Assessing Officer and exemption under Section 54 (of Income Tax Act, 1961) B of the Act was not disturbed, the impugned reassessment proceedings cannot be sustained and same deserves to be quashed and set aside. Accordingly, the impugned notice under Section 148 (of Income Tax Act, 1961) issued by the Assessing Officer to reopen the assessment for AY 2009­10 is hereby quashed and set aside. Rule is made absolute to the aforesaid extent. No costs.

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(M.R. SHAH, J.)

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(B.N. KARIA, J.)