A judgment can not be a basis / ground for reopening an assessment under section 147 – ITAT

Merely a judgment rendered can not be a basis / ground for reopening an assessment u/s 147 unless assessee fails to disclose material facts truly & fully

ABCAUS Case Law Citation:
ABCAUS 3108 (2019) (08) ITAT

Important case law relied upon by the parties:
CIT vs. M/s. Ansal Housing Finance & Leasing Co. Ltd. 354 ITR 180 (Del.)
Kartikeya International vs. CIT, 329 ITR 539 (All.)
Cadila Healthcare Ltd. Vs ACIT (2017) 85 Taxmann.com (257) (Guj)
Oracle India (P) Ltd. Vs. CIT (2017) 83 taxmann.com 368 (Del)
CIT vs, Hindustan Zinc Ltd. (2016) 70 taxmann.com 262 (Raj)
Akshar Developers vs. ACIT (2018) 95 taxmann.com 104 (Bom)
Madras Suspensions Ltd. Vs DCIT (2017) 88 taxmann.com 256 (Madras)

The instant batch of appeals was filed by the Revenue against orders of the CIT (Appeals) in quashing the reassessment proceedings whereby the AO had made an addition on the basis of Hon’ble High Court’s decision.

The assessee company was a builder and developerwho had filed its original returns of income under section 139(1) of the Income Tax Act, 1961 (the Act) and scrutiny assessments under section 143(3) had been passed by the AO.

Subsequently the AO has reopened the assessments by recording the reasons to reassess the income from house property in respect of the closing stock of a commercial complex in view of the finding of Hon’ble High Court.

The AO completed the reassessments under section 147 read with section 143(3) and made additions on account of income from house property by determining the annual letting value of the closing stock.

The assessee challenged the action of the AO before the CIT (A) and also objected to the validity of the reopening of the assessments. The CIT (A) held that reopening was not valid and quashed the reassessments. The CIT (A) also decided the issue of assessment of income from house property by applying notional rent on the closing stock in favour of the assessee by following the decision of this Tribunal in assessee’s own case.

Before the Tribunal the Revenue submitted that a subsequent decision of Hon’ble High Court would constitute a tangible material for forming the belief that income assessable to tax has escaped assessment. It was also submitted that the Hon’ble High Court had held that court declares the law as it stood right from the beginning. The interpretation of a provision relates back to the date of law itself and cannot be mere prospective of the judgment.

Accordingly, the Revenue submitted that when the provisions of sections 22 and 23 had been interpreted by the Hon’ble High Court whereby it was held that the unsold closing stock of builder and developer is assessable to tax under the head Income from House Property, the vacant space was accordingly liable to be assessed as Income from House Property in terms of provisions of section 23(1)(c) of the Act.

On the other hand, the assessee submitted that the reopening of the assessment for all the three years was after the expiry of four years from the end of the relevant assessment year, therefore, in the absence of any allegation that the income assessable to tax had escaped assessment due to failure on the part of the assessee to disclose fully and truly all relevant facts necessary for the assessment, such reopening after expiry of four years was not valid.

A judgment can not be a basis for reopening an assessment u/s 147 

The Tribunal noted that in the reasons recorded, the AO had made reference to the decision of Hon’ble High Court. However, the Tribunal stated that it was not a relevant reason for initiation of the proceedings u/s 147 of the Act as the judgment rendered by even the Hon’ble Supreme Court is an expression of opinion on the interpretation of Statute. The power u/s 147 have to be invoked by the AO in accordance with the provisions. Merely because a judgment has been rendered,t he same could not be a ground for reopening the assessment  

The Tribunal observed that the reasons recorded by the AO did not indicate that the he had received any fresh factual information but all the relevant facts, information and record were available with the AO at the time of framing the scrutiny assessment.

However, the Tribunal opined that even if the decision of Hon’ble High Court and the assessment order passed under section 143(3) may constitute tangible material for forming the belief, the same shall be subject to the fulfillment of the conditions as prescribed in the first proviso to section 147 of the Act.

The Tribunal observed that that there was no allegation by the Assessing Officer in the reasons recorded that the income proposed to be assessed in the reassessment proceedings had escaped assessment due to the failure on the part of the assessee to disclose fully and truly all material facts necessary for assessment. Even otherwise, all the relevant material in respect of the issue of assessment of rental income of the unsold stock was already available with the Assessing Officer at the time of scrutiny assessment. Hence, when the original assessment was framed under section 143(3) and the reopening is after the expiry of four years from the end of the relevant assessment year then the Assessing Officer is not permitted to reopen the assessment until and unless the conditions prescribed in the proviso to section 147 are satisfied.

Accordingly, the Tribunal held that initiation of proceedings u/s 147 was not in conformity with the provisions of section 147 of the Act.

Further, the Tribunal opined that unsold portion of the closing stock was stated in the tax audit report and “notes to the accounts” and thus there was no failure on the part of the assessee to disclose truly and fully all material facts. Hence the reassessment proceedings as stipulated in the proviso to section 147 of the Act were not satisfied. The reassessment proceedings were bad in law and consequently, the assessment order based on such bad initiation can not be allowed to be sustained.

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