Re-Opening Is Not Permissible As It Falls Within The Purview Of A ‘Change Of Opinion’: Bombay High Court

The Bombay High Court has held that re-opening is not permissible as it clearly falls within the purview of a ‘change of opinion’ which is impermissible in law.

The bench of Justice K. R. Shriram and Justice Neela Gokhale have observed that the basis on which the AO issued notice alleging that there was "information" that suggests escapement of income was an internal audit objection. Information is explained in Section 148 of the Act to mean "any objection raised by the Comptroller and Auditor General of India..." and no one else. It itself makes the reopening of assessments impermissible.

The petitioner/assessee is in the business of undertaking real estate projects and sold a plot of land by a registered agreement dated October 7, 2011, for a consideration of Rs. 18 crore. The property was valued at Rs. 16.50 crore for the purpose of stamp duty. It was agreed between the petitioner and the purchaser that, in case the petitioner was unable to discharge any obligation under the agreement, damages would be settled.

Thus, on non-fulfilment of some obligations on the part of the petitioner, the consideration was reduced by Rs. 6 crores, making the consideration payable for the land at Rs. 12 crores. Petitioner e-filed its return of income, declaring income and booked profits under Section 115JB. An assessment order was passed accepting the petitioner's figure of Rs. 12 crore. In the assessment order, the sale of the property and resultant capital gains have been elaborately discussed.

The petitioner submitted before the AO in the original assessment proceedings in respect of the sale of land that Section 50C was not applicable as the sale consideration of Rs. 18 crore was higher than the stamp valuation of Rs. 16.50 crore.

The petitioner received notice under Section 148 from the Assessing Officer (AO), and the petitioner filed a return of income in response to the said notice. The petitioner received a copy of the recorded reasons and filed its objections to the re-opening. The objections were disposed of by the AO. The AO issued a notice under Section 142(1), which was responded to by the petitioner.

The Assessing Officer passed an order under Section 148A(d) of the Income Tax Act holding that the sale consideration offered of Rs. 12 crore was less than the stamp duty valuation of Rs. 16.50 crore, inviting the applicability of Section 50C. The order was passed with prior approval of the PCCIT, Mumbai, followed by a notice dated July 30, 2022, under Section 148.

The petitioner contended that the AO, in the original assessment order, had dealt with in detail the taxability of the transaction or sale of the plot of land. In paragraph 5 of the order, the AO has recorded his findings on the issue of long-term capital gains, including the fact of a deduction of compensation of Rs. 6 crore.

The department contended that while the AO had already dealt with the issue of long-term capital gains relating to the sale of the plot of land and the consideration involved, an audit objection was raised, which was also rebutted by the AO. However, ultimately, in view of the remarks of the ACIT, the AO, on the basis of re-verification, has reviewed its earlier decision and accepted the audit objection raised in the case of the petitioner. If an audit objection is raised that the finding or decision of an AO is not in consonance with the provisions of the Act, the assessment can be reopened.

The court has held that the ACIT has once again maintained its objections. The AO did not properly examine the allowability of the Rs. 6 crore expense under the long-term capital gains head. Hence, the audit objection was accepted, leading to the re-opening of the assessment of the income of the petitioner.

Counsel For Petitioner: K. Shivaram

Counsel For Respondent: Suresh Kumar

Case Title: Hasmukh Estates Pvt. Ltd. Versus ACIT

Case No.: Writ Petition No.4574 Of 2022

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