Reopening of assessment which is completed u/s 143(1) not sustainable without there being any tangible material coming to the knowledge of AO – ITAT
ABCAUS Case Law Citation:
ABCAUS 2650 (2018) (11) ITAT
Important Case Laws Cited/relied upon:
Orient Craft Ltd 354 ITR 536 (Delhi),
The assessee’s appeal was directed against the order of the CIT(A) in confirming the order of the Assessing Officer (AO) disallowing the claim for deduction u/s 80IB of the Income Tax Act, 1961 (the Act).
The assessee was a partnership firm, engaged in the business of ‘real estate development’. During the relevant assessment year, the assessee was constructing independent residential units.
The assessee filed its return of income after claiming deduction u/s 80IB(10) of the Act. The return was processed u/s 143(1) of the Act and subsequently reopened u/s 147 of the Act after recording reasons. Accordingly notice u/s 148 of the Act was issued to the assessee.
The assessee filed its reply requesting to treat the return filed as having been filed in response to notice u/s 148 of the Act and sought for the reasons recorded.
Later, the assessee filed its objections to proceedings u/s 147 of the Act which were disposed of by the AO vide a separate order.
Thereafter, the AO proceeded to consider the assessee’s claim of deduction u/s 80IB(10) of the Act. He observed that the assessee had constructed independent duplex villas comprising of ground and 1st floors in each of the villas and that the ground floor comprises living room, dining area, one bed room and attached toilet, kitchen, a covered portico and a garden while the 1st floor comprises of two bed rooms with attached toilet, study room, stair case and a balcony.
The AO observed that the built up area measurement reported by the assessee did not include the covered portico of the ground floor and the balcony on the 1st floor. According to the A.O., these two also form part of the built up area and if these are added, the area of each villa exceeded 1500 sq. ft and therefore, the assessee is not eligible for deduction u/s 80IB(10) of the Act.
He accordingly, disallowed the same.
The assessee inter alia submitted that since the initial assessment was completed u/s 143(1) of the Act, the AO could not have reopened the assessment unless he had fresh tangible material before him to believe that the income of the assessee has escaped assessment and that such a reopening u/s 147 of the Act would be on a mere change of opinion.
The assessee also drew attention to the fact that the reopening of the assessment was on account of audit objection raised by the CAG and therefore, according to him the AO had not independently formed any opinion that the income of the assessee had escaped assessment and hence, reopening of the assessment u/s 147 of the Act was not sustainable.
The Tribunal observed that the reopening of the assessment was within a period of 4 years from the end of the relevant assessment year and the initial assessment was u/s 143(1) and not u/s 143(3) of the Act.
As regards the change of opinion the Tribunal found that the AO had perused the assessment record to observe that the built up area of each of the residential units is more than 1500 sq. ft and that the assessee is not eligible for deduction u/s 80IB(10) of the Act. Therefore, it was clear that the formation of belief was drawn from the material on record only and that no fresh tangible material had come to the knowledge of the AO to reopen the assessment.
The Tribunal noted that the Hon’ble High Court had clearly held that even an assessment done u/s 143(1) of the Act, can be reopened u/s 147 of the Act, only if the Assessing Officer had tangible material which has come to his knowledge, subsequent to such an assessment u/s 143(1) of the Act.
Therefore, following the judgment of the Hon’ble High Court the Tribunal held that the reopening of the assessment which was completed u/s 143(1) of the Act was not sustainable without there being any tangible material that has come to the knowledge of the Assessing Officer (AO).