No reopening tax case on opinion change

Source – dnaindia.com

The Income Tax Act, 1961 (‘the Act’) empowers the tax officer to re-open and re-assess a taxpayer’s case, where an order has been passed after conducting scrutiny proceedings. Technically termed as ‘reassessment’ under the Act, if the tax officer has reasons to believe that any income chargeable to tax has escaped assessment for a particular year (within the period defined as 4/6 years under the Act), he may issue a notice to the taxpayer for re-opening the case and conducting proceedings to tax the untaxed income. The statutory provisions state that the tax officer has to record his reasons for such a reopening of proceedings. There are numerous judicial precedents in the income-tax history, which have repeatedly stressed on the fact that a mere change of opinion by the tax officer should not become the reason for re-opening of assessment, to avoid inconvenience for taxpayers.

In a case that came up before the Bombay High Court for decision, the taxpayer had disclosed long-term capital gains of Rs 60,35,865 on sale of land at Thane, during the year 2004-05. The taxpayer had calculated long-term gains on the basis of the sale consideration of Rs 2,24,00,000, as recorded in the sale deed of the land. The tax officer had completed the assessment for the said year on December 26, 2007 under the respective provisions of the Act. Thereafter, on March 11, 2010, the officer issued a notice seeking to re-open the assessment citing the reason that the taxpayer had failed to furnish a copy of the sales deed of the land during the assessment proceedings. The tax officer had information on hand that the value as per stamp duty valuation (commonly known as ready-reckoner value) as on the date of sale was Rs 2.83 crore. The Act provides that capital gains have to be calculated on the sale consideration, as per the agreement or the ready-reckoner value, whichever is higher. The tax officer presented his case citing that the omission on part of the tax payer resulted in escapement of the capital gain income of Rs 59,71,938.

The taxpayer objected to the re-opening and submitted that the sale transaction was the subject matter of the previous assessment proceedings and the reassessment proceedings are merely based on change of opinion. The tax officer, however, passed the reassessment order and recalculated the long-term capital gains on the basis of the ready reckoner value.

At the first appellate level, the authority found on examination of facts, that a copy of the sale deed was duly filed during the regular assessment proceedings. Further, it was also found that the subject of long-term capital gains on sale of land was duly discussed during the regular assessment proceedings and on the basis of these disclosures itself, the tax officer had completed the proceedings. The authority accordingly rejected the reassessment order passed by the tax officer.

The tax officer filed an appeal against the above order with the tax tribunal, which in turn conferred with first appellate authority’s order.

Before the Bombay High Court, the tax officer pleaded about his omission to apply the relevant provisions of the Act, for adopting the higher value in computing capital gains. The High Court observed that the reasons recorded by the tax officer for re-opening did not state the failure of the tax officer to apply the correct valuation provision, but referred to the non-submission of the sale deed, which was incorrect. The High Court held that once the sale deed was submitted before the officer and enquiries, as deemed relevant by him, were made during the assessment proceedings, then it can be regarded that the tax officer had passed the order after consideration of all facts and held that the re-opening was indeed incorrect.