Reassessment only on account of ‘change of opinion’ is liable to be struck down

Rampal Samdani Vs Union of India (Rajasthan High Court)

Rajasthan High Court held that reassessment resorted only on account of ‘Change of opinion’ of AO and without there being any fresh tangible evidence for reopening the assessment proceedings is liable to be struck down.

Facts- The petitioner did not furnish his return of income for A.Y. 2013-14 for the reason that he was having income lower than the basic exemption limit prescribed under the Income Tax Act and Rules. A notice dated 08.04.2016 was issued by the ITO proposing to initiate assessment proceedings u/s. 147 of the Income Tax Act.

Based on the return furnished, the cash was taken up for scrutiny assessment and notice dated 07.02.2017 u/s 142(1) was served upon him. Thereafter, an order under Section 156 of the Income Tax Act was issued on 26.04.2017 indicating that the petitioner was required to pay ‘NIL’ amount towards income tax.

In the year 2021, the petitioner was served with a notice dated 30.03.2021 issued under Section 148 of the Income Tax Act whereby, the assessment of the petitioner for the Assessment Year 2013-14 was sought to be reopened.

The petitioner has approached this Court by way of this writ petition for assailing the impugned notice/order and proposed reassessment proceedings for the Annual Year 2013-14.

Conclusion- Held that the reassessment is being resorted to only on account of ‘change of opinion’ of AO without there being any fresh tangible evidence for reopening the assessment proceedings. Hence also, the impugned notice dated 30.03.2021 under Section 148 of the Income Tax Act runs foul of the Supreme Court Judgment in the case of Commissioner of Income Tax vs. Kelvinator of India Limited and thus, the same cannot be sustained and is liable to be struck down.

FULL TEXT OF THE JUDGMENT/ORDER OF RAJASTHAN HIGH COURT

1. The instant writ petition has been preferred by the petitioner Rampal Samdani under Article 226 of the Constitution of India for assailing the reassessment notice (Annexure-5) dated 30.03.2021 issued under Section 148 of the Income Tax Act, 1961 for the Assessment Year 2013-14 and the notice (Annexure-7) dated 17.06.2021 issued under Section 143(2) read with Section 147 of the Income Tax Act for the same assessment year.

2. Brief facts relevant and essential for disposal of the writ petition are noted herein below:

The petitioner did not furnish his return of income for the Assessment Year 2013-14 for the reason that he was having income lower than the basic exemption limit prescribed under the Income Tax Act and Rules. A notice dated 08.04.2016 issued by the ITO Ward No.3, Chittorgarh was received by the petitioner proposing to initiate assessment proceedings under Section 147 of the Income Tax Act. While complying with the said notice, the petitioner filed return of the income in the prescribed format on 09.05.2016 and declared his income for the said assessment year i.e. 2013-14 as Rs.45,000/-. While declaring his income in the return, the petitioner claiming loss of Rs.2,21,429/- on the sale of a residential property located at Ambe Vihar Colony, Chittorgarh.

On receiving this return of the petitioner, a notice dated 24.05.2016 under Section 143(2) of the Income Tax Act was served to him seeking further information with regard to certain points in connection with return of income submitted on 09.05.2016. The petitioner was also required to appear before the ITO, Chittorgarh and to furnish information regarding the registered sale deed; all connected bank accounts details and documents pertaining to the claim of expenses and losses in return of income. The case of the petitioner was taken up for scrutiny assessment and notice dated 07.02.2017 under Section 142(1) of the Income Tax Act was served upon him In response, the petitioner appeared before the ITO, filed written submissions and furnished all requisite details alongwith supporting documents. The Long Term Capital gain tax and total income of the petitioner for the Assessment Year 2013-14 was computed as Rs.1,04,591/- and an order under Section 156 of the Income Tax Act was issued on 26.04.2017 indicating that the petitioner was required to pay ‘NIL’ amount towards income tax. The assessment order dated 26.04.2017 and the notice under Section 156 of the Income Tax Act have been annexed with the writ petition as Annexure-4.

In the year 2021, the petitioner was served with a notice dated 30.03.2021 issued under Section 148 of the Income Tax Act whereby, the assessment of the petitioner for the Assessment Year 2013-14 was sought to be reopened. It was stated in the notice that income chargeable to tax for the Assessment Year 2013-14 had escaped assessment within the meaning of Section 147 of the Income Tax Act. The petitioner filed reply to the said notice and requested the respondent department to provide reasons for issuing the notice under Section 148 of the Act of 1961. The acknowledgment of the return of income filed earlier was annexed with the reply. In response, another notice dated 17.06.2021 under Section 143(2) read with Section 147 of the Act of 1961 (Annexure-7) was issued to the petitioner. But as per the petitioner, the said notice does not disclose the reasons for reopening of assessment. The petitioner kept on pursuing the matter with the respondent department and again requested to provide the reasons for reopening of assessment. Consequent thereto, the letter (Annexure-8) dated 19.06.2021 was served upon the petitioner wherein, reasons have been assigned for the proposed reassessment. As per the petitioner, the reasons so indicated amount to “change of opinion” which is not permissible under law. Thus, the petitioner has approached this Court by way of this writ petition for assailing the impugned notice/order and proposed reassessment proceedings for the Annual Year 2013-14.

3. The respondents have filed reply to the writ petition wherein, the submissions made by the petitioner have been controverted It has been asserted that the claim of loss towards Long Term Capital gains set out in the previous return of the petitioner was found to be incorrect and thus, the re-assessment notice was rightly issued. A particular instance has been given that claim for expenses on account of construction of boundary wall on the land in question is contradicted by the valuation made by the Sub-Registrar in the sale deed.

4. Shri Vikas Balia, learned Senior Counsel assisted by Shri Priyansh Arora, Advocate representing the petitioner, placed reliance on the Supreme Court Judgment in the case of Commissioner of Income Tax vs. Kelvinator of India Limited reported in (2010)2 SCC 723 and urged that reopening of assessment cannot be undertaken on mere change of opinion. Shr Balia further submitted that the reasons for re-assessment which have been assigned by the respondents in the communication dated 19.06.2021 are without any foundation. In this letter itself, at para No.4, it has been mentioned that “the tool of 360 degree maintained with ITBA portal/ITS was used, however, no fruitful information was received. Shri Balia thus urged that the impugned action is without any foundation and has been taken purely on ‘change of opinion’ and is thus unsustainable in the eyes of law.

It was also submitted that the impugned notice under Section 148 of the Income Tax Act is time barred as the reopening is attempted for assessment year beyond the period of 4 years which is impermissible in view of proviso to Section 147 of the Act which reads as below:

“Provided that where an assessment under sub-section (3) of section 143 or this section has been made for the relevant assessment year, no action shall be taken under this section after the expiry of four years from the end of relevant assessment year, unless any income chargeable to tax has escaped assessment for such assessment year by reason of the failure on the part of the assessee to make a return under section 139 or in response to a notice issued under sub- section (1) of section 142 or section 148 or to disclose  fully and truly all material facts necessary for his  assessment for that assessment year.”

(Emphasis Supplied).

He urged that the case set up by the respondents that the reopening beyond 4 years is permissible because the petitioner failed to disclose fully and truly the material facts in the return filed for the assessment year 2013-14, is absolutely unjustified because even in the reopening notice and the letter of reasons dated 19.06.2021, there is not a whisper about the material facts not truly and fully disclosed by the petitioner in the return filed earlier. He thus urged that the impugned reassessment proceedings are liable to be quashed as being bad in the eyes of law and so also as being time barred.

5. Per contra, Shri Bissa, learned counsel representing the respondents, vehemently and fervently urged that the petitioner wrongly claimed the Long Term Capital gain losses in the return filed for the assessment year 2013-14. Before issuing the reassessment notice, close scrutiny was made and it was concluded that losses claimed by the petitioner towards Long Term Capital Gain regarding the property transaction in question were found unjustified and thus, it was considered necessary to reopen the assessment proceedings. However, Shri Bissa was not in a position to point out as to what precisely was the untrue or incomplete disclosure made by the petitioner in the return filed for the Assessment Year 2016-17 which could justify reopening of the proceedings beyond four years by taking recourse to the proviso under Section 147 of the Income Tax Act.

At this stage, we would like to mention that in the notice issued to the petitioner under Section 148 of the Income Tax Act (Annexure-5) dated 30.03.2021, there is not a whisper that the petitioner made non-disclosure or untrue disclosure of material facts in the return filed for the Assessment Year 2013-14. The relevant extracts of the letter of reasons (Annexure-8) dated 19.06.2021 are reproduced herein below for ready reference:

“1. The assessee is an individual and filed his ITR on 08.04.2016 u/s 148 for the A. Y.2013-14 at Total Income of Rs.45000/-. The assessment u/s 147 of the Act had been completed on 26.04.2017 at Total Income Of Rs. 1,04,591/-

2. On perusal of assessment records, during the year under consideration, the assessee sold immovable property being land to Shri Mohd. Sher Khan for total sale consideration of Rs.32,00,000/-. The assessee claimed index cost of purchase, index cost of conversion and index cost of improvement etc., on the said transaction as under:-

3. The above issue has been examined along with assessment record, ITR filed by the assessee and other relevant documents. As per section 45 the IT Act, any profit or gains arising from the transfer of a capital asset effected in previous year shall be chargeable to Income-tax under head Capital gain and shall be deemed to be the income of the previous year in which the transfer took place.

4. The tool of 360 degree maintained with ITBA portal/ITS details was used, however, no fruitful information was received.

5. On verification of records, it is notified that the assessee has received sale consideration Rs.32,00,000/- in regard of capital gain arising on sale of residential property. The assessee claimed addition or alterations expenses of Rs. 31,40,409/- on the said land as described in para 2 above. But on the contrary, there were no any additions of alterations making work found on sold property, which was certified by valuation information of authorized sale deed (Sub-Registrar, Registration and Stamp, Chittorgarh, Rajasthan). As, it is noticed that there was no any addition alteration found as per valuation information of Sub-Registrar in the deed and expenditure amounting to Rs.28,70,823/- incurred on sold property is not allowable as per the Registered deed. [i.e. land filing Rs.1,23,837/, land conversion and boundary Rs.1599977/-, tube-well Rs. 182051/-, road and other development expenses Rs.944335/- and conversion charges Rs.20,623/-].

6. Accordingly, income the chargeable amounting to Rs.28,70,823/- to tax in the case of the assessee has escaped the assessment within the meaning of provision of section 147 of the IT Act, 1961 by reason of the failure on the part of the assessee for the assessment year 2013-14.

7. In this case return of income was filed for the year under consideration on 08.04.2016 and assessment u/s 143(3)/147 was made on 26.04.2017. Since, four years from the end of the relevant year has expired in this case, the only requirements to initiate proceedings u/s 147 of the Act are reason to believe that income for the year under consideration has escaped assessment because of failure on the part of the assessee to disclose fully and truly all material facts necessary for his assessment. It is pertinent to mention here that reasons to believe that income has escaped assessment for the year under consideration have been recorded above in preceding Paras.

I have carefully considered the assessment records containing the submission made by the assessee in response to various notices issued during the assessment proceeding. It is evident from the above facts that the assessee had not truly and fully disclosed material facts necessary from his assessment for the year under consideration thereby necessitating reopening u/s 147 of the Act.

(Emphasis supplied)

8. In view of the above foregoing facts, I have reasons to believe that income of Rs.28,70,823/- has escaped from assessment within the meaning of the provisions of section 147 of the IT Act 1961. The provisions of clause (c) of Explanation 2 to section 147 are applicable to facts of this case and the assessment year under consideration is deemed to be a case where income chargeable to tax has escaped assessment. In this case more than four years have lapsed from the end of assessment year under consideration. Hence necessary sanction to issue notice u/s 148 has been obtained separately from Principal Commissioner of Income Tax as per the provision of section 151(1) of the Act.”

A bare perusal of this letter is sufficient to convince us that the phraseology used therein by the ITO that the income of the assessee for the Assessment Year 2013-14 escaped assessment because of failure on the part of the assessee to disclose fully and truly material facts necessary for assessment, is absolutely unfounded and self contradictory. Para 4 of this very letter states that the tool of 360 degree maintained with ITBA portal/ ITS details was used, however no fruitful information was received. Observations made at paras No.2, 5 and 7 of the letter dated 19.06.2021 when comparatively considered with the assessment order (Annexure-4) dated 26.04.2017, makes it clear that all these facts were unquestionably disclosed and under consideration of the ITO who passed the assessment order dated 17.06.2021. Hence, the reasoning assigned by the ITO for reopening the proceedings on the ground that the material facts were not fully and truly disclosed by the petitioner and thus, his income escaped assessment, is absolutely unfounded. A clear perusal of the proviso to Section 147 of the Income Tax Act (supra) makes it clear that reassessment proceedings after expiry of four years from the end of the relevant assessment year can only be initiated in case, there is tangible material with the A.O. to show that the assessee had failed to fully and truly disclose all material facts necessary for his assessment for that assessment year. This Court, after analysis of material facts available on record, is of a categoric opinion that the assessee disclosed all material facts truly and fully while furnishing the return for the Assessment Year 2013-14 and hence, there was no justification for invoking the proviso to Section 147 of the Income Tax Act so as to initiate reassessment proceedings after a period of 4 years. Thus, the reassessment notice is definitely time barred. In addition thereto, the reassessment notice has been issued only on account of ‘change of opinion’, plain and simple, without any tangible fresh material being available to the ITO for reopening the assessment proceedings.

6. Resultantly, the impugned notice (Annexure-5) dated 30.03.2021 is declared to time barred and cannot be saved by proviso to Section 147 of the Income Tax Act reproduced supra.

7. In addition thereto, the reassessment is being resorted to only on account of ‘change of opinion’ of the Assessment Officer without there being any fresh tangible evidence for reopening the assessment proceedings. Hence also, the impugned notice dated 30.03.2021 under Section 148 of the Income Tax Act runs foul of the Supreme Court Judgment in the case of Commissioner of Income Tax vs. Kelvinator of India Limited (Supra) and thus, the same cannot be sustained and is liable to be struck down.

8. Consequently, the impugned notice (Annexure-5) dated 30.03.2021 issued by the Income Tax Officer, Ward-1 Chittorgarh and all proceedings sought to be undertaken in pursuance thereof deserve to be and are hereby quashed and set aside.

9. The writ petition is allowed accordingly.

10. No order as to costs.