The Bombay High Court ruled against the reopening of a tax assessment related to the sale of a plot of a real estate company stating that the reopening was impermissible as it amounted to a 'change of opinion,' which is not allowed under the law.
Brief Facts of the Case:
The case involves a writ petition filed by Hasmukh Estates Pvt. Ltd., a real estate company, against the reopening of its tax assessment. The petitioner had sold a plot of land to Regency Nirman Limited under a registered agreement dated October 7, 2011, for a consideration of Rs. 18 crores. The property's stamp duty valuation was Rs. 16.50 crores. The agreement allowed for a reduction in consideration by Rs. 6 crores if the petitioner failed to fulfill certain obligations.
The petitioner filed its income tax return, declaring income and profits under Section 115JB of the Income Tax Act, 1961 (hereinafter referred to as 'the Act'). The assessing officer (AO) passed an assessment order, accepting the declared figures. Subsequently, the AO issued a notice under Section 148 of the Act, seeking to reopen the assessment, based on an internal audit objection.
Contentions of the Parties:
The petitioner challenged the notice dated July 30, 2022, issued under Section 148 of the Act, approval under Section 151 of the Act dated July 29, 2022, and the order dated July 29, 2022, passed under Section 148A(d) of the Act. The petitioner contended that the AO had already considered the issue of long-term capital gains during the original assessment proceedings. The petitioner argued that the re-opening was impermissible as it amounted to a 'change of opinion,' which is not allowed under the law. The petitioner questioned the validity of the internal audit objection as the objection was raised by the internal audit of the department and not by the Comptroller and Auditor General of India, as required by law.
The Revenue Department, represented by Mr. Suresh Kumar, relied on the audit objection raised and argued that if an audit objection questions the findings of an AO, it provides grounds for reopening the assessment. Mr. Kumar asserted that the AO, upon re-verification, accepted the audit objection, justifying the reopening of the assessment. While opposing the petitioner's arguments, Mr. Kumar conceded that the audit objection was raised by the internal audit and not by the Comptroller and Auditor General of India, as required by law. The Revenue Department did not address the petitioner's contentions regarding the change of opinion and the impermissibility of reopening the assessment based on internal audit objections.
Observations by the Court:
The Court observed that the AO had already considered the issue of long-term capital gains in the original assessment. The reopening was based on an internal audit objection, not the required objection by the Comptroller and Auditor General of India.
Citing the Supreme Court’s decision in Union of India v. Ashish Agarwal, the Court concluded that the internal audit objection did not constitute valid "information" within the ambit of Section 148 of the Act. The High Court, further, held that the re-opening of the assessment amounted to a change of opinion and was impermissible under the law. Consequently, the Court allowed the writ petition, quashing the impugned order and notice.
Decision of the Court:
The Court ordered the quashing of the notice under Section 148, the approval under Section 151, and the order under Section 148A(d), among other related documents.
In light of these considerations, the Court allowed the writ petition, issuing a writ of certiorari to quash and set aside the notice, approval, and order issued by the income tax authorities.
Case Title: Hasmukh Estates Pvt. Ltd. vs. Assistant Commissioner of Income-tax
Coram: Hon’ble Justices Neela Gokhale and K.R. Shriram
Case No.: Writ Petition No.4574 of 2022
Advocates of the Petitioner: K. Shivaram and Rahul Hakani
Advocate of the Respondents: Suresh Kumar
Read Judgment @LatestLaws.com
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