Case Law Details
PCIT-1 Vs K R Jayaram (Supreme Court of India)
Supreme Court of India recently addressed a case concerning the reopening of income tax assessments, specifically in Principal Commissioner of Income Tax-1 (PCIT-1) vs. K.R. Jayaram. The apex court upheld the decision of the Madras High Court and the Income Tax Appellate Tribunal, which had ruled against the revenue department’s attempt to reopen the assessment of K.R. Jayaram for the assessment year 2009-10. The core issue revolved around the interpretation of “reason to believe” under Section 147 of the Income Tax Act, 1961, and whether the reopening constituted a legitimate reassessment or a mere change of opinion.
The case originated from the assessment of Jayaram, an individual involved in the real estate business. He had initially filed his return declaring income, which was subsequently assessed under Section 143(3). Later, the assessment was reopened based on the valuation of a sale deed as determined by the District Revenue Officer under the Indian Stamp Act. The revenue department argued that Jayaram had undervalued the property, leading to an underassessment of capital gains. Jayaram contested this, asserting that the reopening was based on a change of opinion by the Assessing Officer, which is not permissible.
The Madras High Court, in its judgment, focused on the distinction between “reason to believe” and “change of opinion.” Citing the Supreme Court’s decision in CIT vs. Kelvinator India Ltd., the High Court emphasized that the Assessing Officer’s power to reassess is not a power to review. The “reason to believe” must be based on tangible material and not a mere change of opinion. The court noted that the sale deed, which formed the basis of the reopened assessment, was already available to the Assessing Officer during the original assessment. Therefore, the reopening was deemed to be a review, which is beyond the scope of Section 147.
Additionally, the High Court addressed the revenue’s reliance on Section 50C of the Income Tax Act, which deals with the valuation of property for capital gains. The court clarified that the relevant amendment to Section 50C, which inserted the words “or assessable,” was prospective and did not apply to the assessment year in question. This interpretation was supported by a Central Board of Direct Taxes (CBDT) circular and a previous decision of the Madras High Court in CIT vs. R. Sugantha Ravindran.
The Supreme Court of India has dismissed the Special Leave Petition (SLP) filed by the Principal Commissioner of Income Tax-1 (PCIT-1) against K R Jayaram, ruling that the reopening of assessment under Section 147 of the Income Tax Act was invalid. The case involved a tax dispute amounting to ₹62,52,661, which falls below the ₹5 crore threshold set by the CBDT circulars dated March 15, 2024, and September 17, 2024. Given this, the Court disposed of the petition without examining its merits, while keeping the legal question open for future cases.
FULL TEXT OF THE SUPREME COURT JUDGMENT/ORDER
[Arising out of impugned final judgment and order dated 22-07-2020 in TCA No. 440/2018 passed by the High Court of Judicature at Madras]
From the listing proforma and from the synopsis, it is very clear that the tax effect is in the sum of Rs.62,52,661/- (Rupees Sixty Two Lakhs Fifty Two Thousand and Six Hundred and Sixty One).
Our attention is invited to circulars dated 15th March, 2024 and 17th September, 2024. The threshold limit for challenging orders before this Court is Rs.5 crores. In view of the said circulars, the Special Leave Petition is disposed of.
However, question of law, if any, is kept open.
Pending application is also disposed of.
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