Section 148 Reopening Quashed as Reduced WIP Could Not Cause Income Escapement

Siddhivinayak Buildcon Vs ACIT (Gujarat High Court)

Summary: The Gujarat High Court considered a petition challenging a notice issued under Section 148 of the Income Tax Act, 1961 dated 13.03.2019 for A.Y. 2015-16 and the order dated 27.09.2019 rejecting the petitioner’s objections. The petitioner, a partnership firm engaged in real estate development and sales, had filed its return declaring total income of Rs.64,01,500/-. The return was processed under Section 143(1), and the petitioner subsequently revised its return declaring the same income.

The reopening was based on the Assessing Officer’s recorded reason that the petitioner had calculated closing Work In Progress (WIP) at Rs.13,71,58,102/- instead of Rs.13,07,69,637/-, thereby allegedly inflating WIP by Rs.63,88,466/- and causing income to that extent to escape assessment. The petitioner contended that reduction in closing WIP would reduce, rather than increase, taxable income and therefore could not result in escapement of income. It also submitted that the Assessing Officer had subsequently shifted the basis by stating, while disposing of the objections, that inflation of closing stock had resulted in suppression of sales or other income by Rs.63,88,466/-.

The petitioner further contended that the invocation of Clause (b) of Explanation 2 to Section 147 was misplaced, that the reopening amounted to a change of opinion, and that the method of valuing closing WIP had consistently been followed since A.Y. 2013-14. It was also submitted that the valuation had not been challenged in A.Ys. 2013-14 and 2014-15 and that the issue had subsequently been considered by the CIT (Appeals).

The Revenue opposed the petition, submitting that the notice was issued within four years from the end of the relevant assessment year and that no scrutiny assessment under Section 143(3) had previously been undertaken. It contended that information arising from assessment proceedings for A.Y. 2016-17 had revealed the difference in the WIP valuation and that the reasons recorded validly supported reopening.

The High Court held that if the WIP was reduced by Rs.63,88,466/-, the profit shown by the petitioner would stand reduced to that extent and, consequently, the question of escapement of income would not arise. It further held that the subsequent stand taken by the Assessing Officer that inflation of closing stock resulted in suppression of sales or other income was beyond the scope of the reasons recorded in the notice and was impermissible.

The Court also noted that the Assessing Officer had shifted his stand in the order disposing of the objections by introducing a new ground that had never formed part of the recorded reasons. Relying upon the position of law referred to in the judgment, the Court held that the reopening had to be sustained on the reasons recorded and that those reasons could not be substituted by a fresh basis.

The Court further noted that the petitioner had followed the method of closing WIP since its incorporation in A.Y. 2013-14 and that it had not been challenged in A.Ys. 2013-14 and 2014-15. The Court recorded that, for A.Y. 2015-16, the Assessing Officer’s challenge to the valuation was found unsustainable and the CIT (Appeals) had deleted the additions made.

Accordingly, the Gujarat High Court quashed and set aside the notice under Section 148 dated 13.03.2019 and the order dated 27.09.2019 rejecting the petitioner’s objections. The petition was allowed and Rule was made absolute.

Challenge to Section 148 Reopening Notice

The petitioner challenged the issuance of the notice under Section 148 of the Income Tax Act, 1961 for A.Y. 2015-16 and the subsequent order rejecting its objections.

The petitioner had originally filed its return of income on 29.09.2015 declaring total income of Rs.64,01,500/-. The return was processed under Section 143(1), with intimation dated 17.10.2015. The petitioner thereafter revised its return on 07.06.2016, declaring the same income.

The petitioner was liable to get its books of account audited under Section 44AB and had furnished a tax audit report in Form No.3CB along with its audited financial statements. The audited financial statements disclosed inventory of Rs.30,01,00,538/- as on 31.03.2015, comprising inventory of land, material and hardware and work in progress.

The petitioner’s significant accounting policies also disclosed that closing stock of raw material, stores, spares and packing materials was valued at cost and work in progress was valued at cost of completion worked out as on the balance-sheet date.

Reasons Recorded for Reopening

The notice under Section 148 dated 13.03.2019 stated that the petitioner had calculated closing WIP at Rs.13,71,58,102/- instead of Rs.13,07,69,637/-. According to the recorded reasons, this resulted in inflation of WIP by Rs.63,88,466/- and income to that extent had escaped assessment.

The petitioner filed a return pursuant to the notice and sought the reasons recorded for reopening. After receiving the reasons, the petitioner filed objections challenging the proposed reopening.

The petitioner subsequently reminded the Assessing Officer to dispose of the objections by passing a speaking order. The Assessing Officer passed the order dated 27.09.2019 rejecting the objections.

Petitioner’s Submissions

Mr. Manish Shah, learned advocate appearing for the petitioner, submitted that the condition precedent for issuance of a notice under Section 148 was escapement of income. According to the petitioner, the recorded reason could not establish escapement because reduction in the value of closing WIP would reduce taxable income.

The petitioner submitted that the Assessing Officer subsequently sought to change the reason for reopening by alleging that inflation of closing stock resulted in suppression of sales or other income by Rs.63,88,466/-. It contended that this amounted to a change of opinion.

The petitioner also submitted that Clause (b) of Explanation 2 to Section 147 had been wrongly invoked because the circumstances contemplated therein were not present. According to the petitioner, there was no understatement of income and, on the stated basis, there was instead an overstatement of income.

It was further submitted that the petitioner had consistently followed the method of valuing closing WIP since its incorporation in A.Y. 2013-14 and that the same had not been challenged in A.Ys. 2013-14 and 2014-15.

Revenue’s Submissions

Mr. Maunil Yajnik, learned Senior Standing Counsel appearing for the respondent authority, submitted that the petition was premature because only notice under Section 148 read with Section 147 had been issued and the petitioner would have statutory remedies against any reassessment.

The Revenue submitted that the notice related to A.Y. 2015-16 and had been issued within four years from the end of the relevant assessment year. It also pointed out that no scrutiny assessment under Section 143(3) had been undertaken and only an intimation under Section 143(1) had been issued.

According to the Revenue, information arising from assessment proceedings for A.Y. 2016-17 showed that the assessee had calculated closing WIP for A.Y. 2015-16 at Rs.13,71,58,102/- instead of Rs.13,07,69,637/-, resulting in inflation of closing WIP by Rs.63,88,466/-.

The Revenue further submitted that the order disposing of the objections had explained that inflation of closing stock had resulted in suppression of sales or other income by the same amount and therefore the reasons recorded supported reopening.

High Court’s Findings on Escapement of Income

The High Court examined the reasons recorded for reopening and found that the Assessing Officer had proceeded on the basis that the petitioner had inflated closing WIP by Rs.63,88,466/-.

The Court held that if the work in progress was reduced by Rs.63,88,466/-, the profit shown by the petitioner would stand reduced to that extent. Therefore, the Court held that the question of escapement of income would not arise.

The Court specifically observed that reduction in closing stock of work in progress would not result in escapement of income.

Assessing Officer Could Not Substitute the Recorded Reasons

After the petitioner raised objections, the Assessing Officer took the position that inflation of closing stock by Rs.63,88,466/- resulted in suppression of sales or other income by the same amount.

The High Court held that this order and the reasons assigned by the Assessing Officer were beyond the scope of the show cause notice, unsustainable and impermissible in law.

The Court noted that the reasons recorded in the Section 148 notice did not allege that the petitioner had suppressed sales or any other income. The new basis was introduced only while disposing of the objections.

The Court held that the respondent had shifted his stand by taking an altogether new stand which was never the case of the Assessing Officer at the time of recording the reasons.

Reasons for Reopening Must Support the Reassessment

The Court referred to the oral judgment dated 06.12.2017 passed in Special Civil Application No. 16171 of 2017. The judgment, as reproduced in the present order, dealt with a situation where the Assessing Officer proceeded with reassessment on a fresh ground which did not find place in the reasons recorded in the notice.

The Court referred to G.K.N. Driveshafts (India) Ltd. v. ITO (2003) 1 SCC 72 in explaining the procedure concerning objections to reopening. The judgment notes that after reasons are supplied, the noticee is entitled to file objections and the Assessing Officer is required to dispose of them by passing a speaking order before proceeding further.

The Court recorded the principle that the filing of objections and passing an order on them is not an empty formality. The purpose is to enable the assessee to satisfy the Assessing Officer that there is no reasonable ground for reopening so that the proceedings may be dropped where appropriate.

The Court further noted that the reopening has to be maintainable on the reasons recorded and that such reasons cannot be substituted. Where the original basis for reopening does not survive, proceeding further on totally different grounds was held to be impermissible in law.

Method of WIP Valuation and Earlier Years

The High Court also considered the petitioner’s contention concerning its method of valuing closing WIP.

The Court noted that the petitioner had followed the method of closing WIP since its incorporation in A.Y. 2013-14 and had never been challenged in A.Ys. 2013-14 and 2014-15.

The Court further noted that for A.Y. 2015-16, the Assessing Officer challenged the valuation of closing WIP and that the CIT (Appeals) had deleted the additions made, finding them unsustainable.

The Court observed that the issue had attained finality and required no interference on that ground also.

Final Decision

For the foregoing reasons, the Gujarat High Court held that the impugned notice issued under Section 148 of the Income Tax Act, 1961 dated 13.03.2019 for A.Y. 2015-16 could not be sustained.

The Court also quashed and set aside the order dated 27.09.2019 passed by the respondent rejecting the objections filed by the petitioner.

Accordingly, the present petition was allowed and Rule was made absolute.

Cases Discussed

• G.K.N. Driveshafts (India) Ltd. v. ITO, (2003) 1 SCC 72 – Supreme Court

FULL TEXT OF THE JUDGMENT/ORDER OF GUJARAT HIGH COURT

1. Issue Rule, returnable forthwith. Learned Standing Senior Counsel Mr. Maunil Yajnik, waives service of Rule for and on behalf of the respondent.

2. With the consent of the learned counsel appearing for the respective parties, matter is taken-up for final hearing.

3. Heard learned advocate Mr. Manish J. Shah appearing for the petitioner and Learned Standing Senior Counsel Mr. Maunil Yajnik appearing for the respondent.

4. By way of present petition, the petitioner herein is aggrieved by the issuance of the impugned notice under Section 148 of the Income Tax Act, 1961 (for short ‘the Act’) dated 13.03.2019 for the Assessment Year (for short ‘A.Y.’) 2015-16 as well as order dated 27.09.2019 passed by the respondent, rejecting the objections filed by the petitioner. The same having been issued without valid reasons, and prayed for the following reliefs:

“10. In the premises aforesaid, the petitioner prays that:-

A) this Hon’ble Court be pleased to call for the records of the proceedings, look into them and be pleased to issue a writ of certiorari or any other appropriate writ, order or direction quashing the impugned 148 notice at Annexure-C and the order disposing the objections at Annexure-J.

B) this Hon’ble Court be pleased to issue a writ of mandamus or any other appropriate writ, order or direction asking the respondent not to proceed further in pursuance of section 148 notice at Annexure-C and the order rejecting the objections at Annexure-J.

C) Pending the hearing and final disposal of this application, this Hon’ble Court be pleased to stay any further proceedings in pursuance of section 148 notice at Annexure-C.

D) This Hon’ble Court be pleased to grant any further or other relief as this Hon’ble Court deems just and proper in the interest of justice, and

E) This Hon’ble Court be pleased to allow this application with costs against the respondent.”

5. The brief facts leading to the filing of the present petition read as:

5.1. The petitioner herein is a partnership firm engaged in business of real estate development and sales thereof and an income tax assessee being assessed to tax at PAN: ACEFS0364H under the Act. The petitioner herein filed return of income on 29.09.2015 for A.Y. 2015-16 declaring total income of Rs.64,01,500/-. Thereafter, the said return was processed under Section 143(1) of the Act and accordingly, intimation dated 17.10.2015 was issued to the petitioner. The petitioner revised its return of income on 07.06.2016 declaring the same income.

5.2. The acknowledgment of original return of income and revised return of income alongwith intimation issued under Section 143(1) of the Act and computation of revised income are duly produced at Annexure A.

5.3. The petitioner being liable to get the books of account audited under Section-44AB of the Act, has furnished tax audit report in Form No.3CB alongwith audited financial statement of the firm for the period from 01.04.2014 to 31.03.2015. In the said audit report in Form No.3CB, the Chartered Accountant, who conducted the tax audit of the petitioner, in Column 13 A to D has mentioned that there is no deviation/change in method of accounting employed by the petitioner compared to the method employed immediately preceding year. In the audited financial statement, it was shown that the valuation of inventory on balance-sheet date, i.e. 31.03.2015 comes to Rs.30,01,00,538/-, which comprises of inventory of land Rs.3,39,94,650/-, material and hardware Rs.63,452/-, and work in progress of Rs.10,31,00 ,000/-. All the figures have specifically been shown in Schedule-4 of the financial statement.

5.4. The petitioner firm at Schedule-19, i.e. ‘significant accounting policies’, has specifically made a disclosure that closing stock of raw material, stores, spares, and packing materials are valued at cost and work in progress is valued at cost of completion worked out as on balance sheet date. The Chartered Accountant of the petitioner firm, who conducted the audit, has not found any fault with the method of valuation of closing stock and hence, he has not made any specific adverse observation or qualification with regard to valuation of closing stock.

5.5. The petitioner herein was issued Notice under Section-148 of the Act on 13.03.2019 (Annexure-C), for A.Y. 2015-16, stating that the respondent authority has reason to believe that income has escaped assessment and asking the petitioner to file its income tax return within 30 days from the receipt of the said notice. In response to the said Notice, the petitioner filed return of income on 10.04.2019 (Annexure-D), declaring the income as declared in return filed under Section-139 of the Act. On even date, the petitioner addressed a letter to the Assessing Officer informing him about filing of return and also asking for copy of reasons recorded in the order. The Assessing Officer supplied the copy of reasons recorded which are duly produced at Annexure-F. The petitioner herein filed objections against the reasons recorded for reopening of the assessment by communication dated 28.05.2019, which was submitted on 06.06.2019 (Annexure-G).

5.6. Thereafter, certain Notices under Section-142(1) of the Act are issued to the petitioner asking for certain information without disposing of the objections taken by the petitioner. The petitioner submitted its responses to the aforesaid. All the notices and replies thereto are duly produced at Annexure-H to the Petition (collectively). On even date, i.e. on 20.09.2019, the petitioner addressed a communication to the Assessing Officer reminding about the objections raised by the petitioner to the reopening of the assessment proceedings, by filing objections by letter dated 28.03.2019, submitted on 06.06.2019 which were not disposed of.

5.7. It was further submitted by the petitioner that to continue the proceedings without disposing of the objections raised by the petitioner, results in gross violation of principles of natural justice and requested the Assessing Officer, to dispose of the objections by passing a speaking order. The respondent passed the impugned order dated 27.09.2019 (Annexure-J), disposing of the objections of the petitioner, wherein, in the said order, it is stated that due to inflation of closing stock by Rs.63,88,466/-, the petitioner suppressed the sale and other income equivalent amounting to Rs.63,88,466/- and hence the reasons are correctly recorded by the Assessing Officer. Thereafter the petitioner by letter dated 02.10.2019 (Annexure-K) informed the respondent that it is contemplating to prefer a writ-petition before the High Court against the issuance of the allegedly illegal Notice under Section-148 of the Act and order rejecting the objections raised by the petition. The aforesaid has given rise to the filing of the present petition for the prayers as referred to herein-above.

6. Mr. Manish Shah, learned advocate appearing for the petitioner, at the outset referred to the interim order dated 23.10.2019 passed in the present petition and reiterated the submissions that the reasons recorded for reopening of the assessment on the ground that petitioner had calculated the closing work in progress at Rs.13,71,58,102/- instead of Rs.13,07,69,637/- and resultantly inflated the closing work in progress by Rs.63,88,466/- and consequently income to that extent has escaped assessment. It is submitted that, issuance of notice under Section-148 of the Act can be invoked, if the income has escaped assessment. That condition precedent for issuing Notice under Section-148 of the Act is that there should be an escapement of income. In the facts of the present case, clearly, there cannot be said to be any escapement of income on the reasons recorded by the Assessing Officer. The reason states that the closing stock of the petitioner is required to be reduced, can never result into escapement of income. On the contrary, once the value of closing stock decreases, it directly reduces the taxable income, and hence assessment would have to be made at a lower figure than the existing one.

6.1. Placing reliance on the aforesaid submissions, it is submitted that in absence of any escapement of income, Notice issued under Section-148 of the Act by the Assessing Officer to reopen the assessment fails to fulfill the condition precedent of there being escapement of income for the concerned A.Y. 2015­16. It is submitted that, the Assessing Officer seeks to change the reason for reopening stating inflation of closing stock by an amount of Rs.63,88,466/-, resultantly, sale or other income has been suppressed by that amount. It is submitted that the aforesaid is nothing but change of opinion.

6.2. It is submitted that the assessing officer invoked Clause-(b) to explanation-2 of section-147 of the act to issue notice under section-148 of the act. The same being misplaced, as it can only be invoked, in case of understatement of income or any excess of claim of loss, deduction, allowance or relief in return. In the facts of the present case, none of the ingredients of Clause-(b) of Explanation-2 to Section-147 of the Act are present, as there is no understatement of income. On the contrary, in the facts of the present case, there is overstatement of income. Thus, invocation of Clause-(b) of Explanation2 to Section-147 of the Act has been erroneously invoked to issue reassessment Notice under Section-148 of the Act.

6.3. It is submitted that the petitioner herein consistently followed the method of valuing closing WIP (Work In Progress) since its incorporation in the A.Y. 2013-14 and has been never challenged in A.Y. 2013-14 and 2014-15. It is submitted that the aforesaid exercise is undertaken by following the Standard Accounting Method. It is submitted that, for the first time in A.Y. 2016-17, the Assessing Officer challenged the valuation of closing work in progress, which was found to be unsustainable by the CIT (Appeals), having deleted the additions made by the Assessing Officer in the Appeal, against the order of assessment in the A.Y. 2016-17. The said order has also attained finality. In view thereof also, the impugned order passed under Section-148 of the Act is unsustainable in the eye of law, and the same is required to be quashed and set aside.

7. Mr. Maunil Yajnik, the learned Senior Standing Counsel appearing for the respondent authority, submitted that the petition is filed at a premature stage, inasmuch as only notice under Section-148 read with Section 147 of the Act has been issued. In the event, the petitioner herein would be aggrieved by the reassessment, the petitioner would have statutory remedy by way of Appeal and thereafter Tribunal, as per the provisions of the Act. On the aforesaid ground alone, the present petition may not be entertained.

7.1. It is submitted that the impugned Notice is issued for A.Y 2015-16, the same is issued within a period of 4 years from the end of the relevant A.Y. No scrutiny assessment under Section-143(3) of the Act was undertaken and only an intimation under Section-143(1) of the Act was issued.

7.2. Pursuant to the information received, from the assessment proceedings for the subsequent year, i.e. 2016-17, it was noticed that for the year under consideration, i.e. A.Y. 2015-16, the assessee calculated the closing work in progress at Rs.13,71,58,102/- instead of Rs.13,07,69,637, which has resulted in inflating the closing stock in work in progress by Rs.63,88,466/-.

7.3. In the objections raised by the petitioner, the assessee has contended that inflating closing WIP would decrease the profit. However, the Assessing Officer while disposing of the objections negated the stand, observing that due to reason of inflating of closing stock, sale or other income has been suppressed by that amount. It is submitted that the aspect of suppression of sale and other income by the assessee- petitioner is manifestly present in the reasons recorded and in view thereof, no interference is called for in the impugned order passed by the Assessing Officer.

7.4. It is further submitted that the present is not a case of change of stand by the Assessing Officer in the order disposing of the objections. It is submitted that, in the instant case, during assessment proceedings under Section-143(3) of the Act of A.Y. 2016-17, on perusal of working of WIP for the year 2015-16, the aforesaid was noticed and in view thereof, the reasons are valid for reopening the case of the petitioner.

7.5. Placing reliance on the aforesaid submissions, it is submitted that the present petition is required to be dismissed.

8. Having heard the learned advocates appearing for the respective parties, the facts as referred to herein-above are not in dispute and the same are not repeated.

8.1. On perusal of the impugned order passed by the Assessing Officer under Section 148 of the Act for A.Y. 2015-16, the reasons recorded for reopening the assessment are to the effect that the petitioner calculated the closing Work In Progress (WIP) at Rs.13,71,58,102/- instead of Rs.13,07,69,637/-, resultantly, inflated the WIP by Rs.63,88,466/-, and therefore, the income to that extent, has escaped the assessment. In our opinion, as submitted by Mr. Manish Shah, learned advocate, if the work in progress is reduced by Rs.63,88,466/-, the profit shown by the petitioner would stand reduced to that extent and hence, the question of any escapement of income would not arise. The reduction in closing stock of work in progress would not result into escapement of income.

8.2. Upon objections filed by the petitioner, bringing the aforesaid aspect to the notice of the Assessing Officer, it is held that due to inflation of closing stock by Rs.63,88,466/-, the petitioner has suppressed the sale or other income equivalent amounting to Rs.63,88,466/-. Such order and the reasons assigned by the Assessing Officer, in our opinion, are beyond the scope of the show cause notice, are unsustainable and impermissible in the eye of law.

8.3. It is pertinent to note that, the reasons assigned in the show cause notice under Section 148 of the Act dated 13.03.2019 for reopening of the assessment for A.Y. for 2015-16, having noticed that the petitioner has calculated the closing WIP at Rs.13,71,58,102/- instead of Rs.13,07,69,637/- and therefore the petitioner has inflated the closing WIP by Rs.63,88,466/-. The impugned order dated 27.09.2019 while disposing of the objections held that the objections raised by the petitioner are misplaced, wherein, only consequence of calculating closing stock by inflating it would not be a proportionate reduction in income. Due to the reasons for inflation of closing stock by an amount of Rs.63,88,466/-, the sale or other income has been suppressed by that amount.

8.4. The respondent has shifted his stand in his objection disposal order by taking all together a news stand, which was never the case of Assessing Officer at the time of recording the reasons. In the reasons recorded, it was never alleged by the Assessing Officer that the petitioner indulged in suppression of sales or any other income. On pointing out that reduction in closing stock of work-in-progress can never result into escapement of income and on the contrary, it results into decrease in income already assessed, held that reducing the value of closing WIP, the petitioner has suppressed the sale or other income.

9. At this stage, it is apposite to refer to the oral judgment dated 06.12.2017 passed in Special Civil Application No. 16171 of 2017, wherein, it is held that, the Assessing Officer, instead of dropping the assessment proceedings by order rejecting the objection, proceeded with the reassessment proceedings on a fresh ground, which did not find place in the reasons recorded in the show cause notice, was held to be impermissible. Relevant Paragraph nos.7 to 12 read thus:

“7. Besides, the facts of the present case are quite gross, inasmuch as, in the reasons recorded the Assessing Officer has based his belief on the fact that the assessee has not filed any return of income on account of which there is escapement of income on account of sale of the immovable property. After obtaining the reasons, the assessee has pointed out to the Assessing Officer that he had filed the return of income disclosing sale of the immovable property valued at Rs.40,00,000/, and the same had been duly accepted by the then Assessing Officer. However, the respondent Assessing Officer, instead of dropping the assessment proceedings, by the order rejecting the objections, seeks to proceed with the reassessment proceedings on a fresh ground which does not find place in the reasons recorded, viz. that “on perusal of copy of the assessment u/s 143(3) read with section 147 and computation of income, satisfaction of the AO while recording satisfaction is found based on fact as genuinity of deduction availed u/s 54 and discharge of liability of LTCG in the case is not found any reflection through the assessment order.

8. In the case of GK_N Driveshafts (India) Ltd. v. ITO, (2003) 1 SCC 72, the Supreme Court held that when a notice under section 148 of the Income Tax Act, 1961 is issued, the proper course of action for the noticee is to file return and if he so desires, to seek reasons for issuing notices. The Assessing Officer is bound to furnish reasons within a reasonable time. On receipt of reasons, the noticee is entitled to file objections and the Assessing Officer is bound to dispose of the same by passing a speaking order before proceeding further.

9. The filing of objections and passing an order thereon, is not an empty formality. The object behind the assessee filing objections and the Assessing Officer passing a speaking order thereon is to ensure that if the assessee is in a position to impress upon the Assessing Officer that there is no reasonable ground for reopening the assessment, the Assessing Officer may drop the proceedings and not proceed further. In the facts of the present case, despite the fact that the assessee had duly pointed out to the Assessing Officer that he had, in fact, filed his return of income, wherein this very issue had been gone into, instead of acting fairly and reasonably and dropping the proceedings, the respondent Assessing Officer seeks to proceed further for reasons which are alien to the reasons recorded for reopening the assessment. Thus, the very intent and purpose behind submitting objections and passing a speaking order thereon is frustrated.

10. As is apparent on a plain reading of the reasons recorded, the very basis for reopening the assessment is that the petitioner had not filed any return of income disclosing such sale of the immovable property valued at Rs.40,00,000/. The record of the case shows that earlier, pursuant to a notice under section 148 of the Act, the petitioner had, in fact, filed return on income disclosing the sale of such immovable property, and the Assessing Officer after duly applying his mind to the issue had accepted the return of income. Considering the fact that a return of income had been filed disclosing sale of the immovable property, the very foundation on which the reopening is based in the reasons recorded by the Assessing Officer for reopening the assessment, collapses. Therefore, on the reasons recorded, the Assessing Officer could not have formed the belief that income had escaped assessment, inasmuch as such belief had been formed on a factually incorrect premise. It is settled legal position, that the reopening of the assessment has to be maintainable on the reasons recorded for reopening the same, and that such reasons cannot be substituted. In the facts of the present case, when the original ground for reopening the assessment does not survive, the Assessing Officer seeks to proceed further with the assessment on totally different grounds, which is impermissible in law. Moreover, what the Assessing Officer now seeks to do is to sit in judgment over the assessment framed by his predecessor Assessing Officer, which again, is not permissible in law.

11. In the light of the fact that very basis for reopening no longer survives, the assumption of jurisdiction under section 147 of the Act by the Assessing Officer by issuing notice under section 148 of the Act is without authority of law and cannot be sustained.

12. For the forgoing reasons, the petition succeeds and is accordingly allowed. The impugned notice dated 31.03.2007 issued by the respondent — Income Tax Officer under section 148 of the Act is hereby quashed and set aside. RULE is made absolute accordingly with no order as to costs.”

10. Considering the position of law, as referred to herein-above and the facts of the present case, we have also noted that the petitioner herein has followed the method of closing WIP since its incorporation in A.Y. 2013-14 and has never been challenged in the A.Ys. 2013-14 and 2014-15. For the first time in the A.Y. 2015-16, the Assessing Officer challenged the valuation of closing WIP, which was found to be unsustainable, wherein, the CIT (Appeals) has deleted the additions made. On the aforesaid ground also, the aforesaid issue has attained finality which requires, no interference.

11. For the foregoing reasons, the impugned notice issued under Section 148 of the Income Tax Act, 1961 dated 13.03.2019 for the Assessment Year 2015-16 as well as order dated 27.09.2019 passed by the respondent, rejecting the objections filed by the petitioner, are required to be quashed and set aside and the same are hereby quashed and set aside. Accordingly, the present petition stands allowed. Rule is made absolute.