SHRAVAN KUMAR MALANI,HYDERABAD vs. DCIT, CIRCLE-6(1), HYDERABAD

Succinctly stated, the assessee had filed his original return of income for AY 2016-17 under Section 139(1) of the Act on 25.07.2016, declaring total income of Rs. 4,16,78,900/-. The assessee's case was thereafter selected under CASS for “limited scrutiny” to verify capital gains.

Consequent thereto, the AO framed the original assessment under Section 143(3) of the Act vide order dated 17.12.2018, determining the total income of the assessee at Rs. 4,54,41,694/-. The AO, while computing the income under the head “Capital Gains”, determined the “Long Term Capital Gain” (LTCG) at Rs. 4,11,25,695/- as against Rs. 3,73,62,791/- disclosed by the assessee, resulting in an addition of Rs. 37,62,904/-.

Subsequently, the AO, based on information that, while arriving at the capital gain, the value of construction had been arrived at by adopting a rate of Rs. 80/- per sq. ft. towards 3,422 sq. ft. of Madras style terrace/ACC terrace as on 01.04.1981, as against the approved rate chart of the Registration Department at Rs. 34.10/- per sq. ft., observed that the incorrect adoption of the rate had resulted in excess indexed cost of Rs. 10,49,326/-, with a consequential tax effect of Rs. 3,21,993/-. Accordingly, the AO, based on the aforesaid facts and holding that the assessee's income chargeable to tax had escaped assessment, reopened the assessee's case under Section 147 of the Act. Notice under Section 148 of the Act dated 30.03.2021 was issued and duly served upon the assessee.

In response to the notice issued under Section 148 of the Act, the assessee filed his return of income on 12.04.2021. On the same date, the assessee requested the AO to provide a copy of the “reasons to believe” recorded for the reopening of his concluded assessment. However, the reasons recorded by the AO were supplied to the assessee only on 28.02.2022, i.e., approximately 11 months after the assessee had requested them.

Thereafter, the assessee filed his objections to the reopening of the assessment on 15.03.2022, which was disposed of by the AO vide order dated 18.03.2022.

Subsequently, the AO completed the reassessment under Section 147 r.w. Section 144B of the Act vide order dated 31.03.2022. The AO, while completing the reassessment, withdrew the excess indexation of Rs. 10,49,326/- and determined the assessee's total income at Rs. 4,64,91,020/-.

Aggrieved, the assessee carried the matter in appeal before the CIT(A), NFAC, Delhi, but without success.

The assessee being aggrieved with the CIT(A) order has carried the matter in appeal before us.

We have heard the Ld. Authorized Representatives of both parties, perused the orders of the authorities below and the material available on record, as well as considered the judicial pronouncements pressed into service by them.

Shri Bhupesh Kumar Dand, CA, Ld. Authorized Representative for the assessee, at the outset, challenged the very assumption of jurisdiction by the AO under Section 147 of the Act. It was submitted that the concluded assessment of the assessee had been reopened by the successor AO based on a mere “change of opinion” on the very same set of facts and material which were available on record at the time of the original assessment. It was submitted that the original assessment was framed under Section 143(3) of the Act pursuant to selection of the case under CASS for “limited scrutiny” specifically for verification of capital gains and that the issue relating to computation of capital gains, including the cost of construction, was therefore within the scope of the original assessment proceedings. Elaborating further on his contention, the Ld. AR submitted that the successor AO had not referred to any fresh tangible material which had come into his possession subsequent to the completion of the original assessment. Rather, the reasons recorded for reopening the concluded assessment themselves disclosed that the AO had merely perused the assessment records and thereafter formed a different view regarding the rate adopted for determining the cost of construction. The Ld. AR submitted that such an exercise amounted to a mere “change of opinion”, which could not constitute a valid basis for assuming jurisdiction under Section 147 of the Act.

The Ld. AR further submitted that the assessee had disclosed all primary facts relating to the computation of capital gains and the cost of construction in the original assessment proceedings and that the AO, after examining the same, had completed the assessment under Section 143(3) of the Act on 17.12.2018. It was accordingly submitted that the successor AO could not reopen the concluded assessment merely because he subsequently took a different view on the same material.

As the Ld. AR has challenged the AO's assumption of jurisdiction under Section 147 of the Act, we deem it appropriate to first adjudicate the said jurisdictional issue.

Before proceeding further, it would be appropriate to examine the reasons recorded by the AO for reopening the concluded assessment, which reads as under (relevant extract):

We find on a perusal of the “reasons to believe” recorded by the AO for reopening the concluded assessment of the assessee that the basis for reopening the assessment was the alleged excess allowance of indexed cost of construction while computing the capital gains. The AO observed that the rate of Rs. 80/- per sq. ft. had been adopted towards the cost of construction as on 01.04.1981, whereas, according to him, the approved rate chart of the Registration Department prescribed a rate of Rs. 34.10/- per sq. ft. for Madras style terrace/ACC terrace. It was observed by the AO that, as per the approved rate chart of the Registration Department, the cost of construction of Madras style terrace/ACC terrace, as on 01.04.1981, was Rs. 34.10/- per sq. ft., as a result whereof, the same worked out at Rs. 91,115/-, which, after indexation, stood computed at Rs. 9,84,955/-.

We have given thoughtful consideration to the “reasons to believe” recorded by the AO for reopening the concluded assessment and considered the material available on record. As is discernible from the record, the reassessment, as mentioned in the “reasons to believe”, was initiated on the basis of a “perusal of the assessment records”, pursuant to which the successor AO formed a view that the cost of construction adopted while computing the capital gains was excessive. Ostensibly, the “reasons to believe” do not identify any fresh tangible material or information that came into the possession of the successor AO subsequent to the completion of the original assessment under Section 143(3) of the Act.

We are of the view that the aforesaid aspect assumes significance in the facts of the present case. As observed hereinabove, the original assessment was framed under Section 143(3) of the Act pursuant to selection of the case under CASS for “limited scrutiny” specifically for verification of capital gains. The AO, in the course of such assessment, examined the computation of capital gains and determined the LTCG at Rs. 4,11,25,695/- as against Rs. 3,73,62,791/- disclosed by the assessee, resulting in an addition of Rs. 37,62,904/-. Thus, the issue of capital gains, including their computation, was within the scope of the original scrutiny assessment and was deliberated upon during the said proceedings.

Coming to the subsequent reassessment, we find that it proceeds on the very same assessment record. The successor AO has not referred to any material which was unavailable to the AO at the time of the original assessment. Rather, his objection is essentially to the rate of Rs. 80/- per sq. ft. adopted for determining the cost of construction as on 01.04.1981, as against the rate of Rs. 34.10/- per sq. ft. stated to be prescribed in the Registration Department's approved rate chart. We are thus of the firm conviction that the basis for the successor AO's different conclusion was already embedded in the assessment record.

We find that the distinction between reassessment and review is well settled. In CIT vs. Kelvinator of India Ltd. [2010] 320 ITR 561 (SC), the Hon’ble Supreme Court held that although the AO has power to reassess, he does not possess the power to review an assessment. The Hon’ble Court further held that “change of opinion” constitutes an inbuilt test to check abuse of the power of reassessment, and that there must be tangible material with a live link to the formation of the belief that income has escaped assessment. Also, the “Full Bench” of the Hon’ble High Court of Delhi in CIT v. Usha International Ltd. [2012] 348 ITR 485 (Delhi) (FB) has likewise held that where an issue has been examined in the original assessment proceedings, reopening on the same material merely because the AO subsequently forms a different opinion would amount to a change of opinion. The principle was also reiterated by the Hon’ble Supreme Court in Techspan India (P.) Ltd. v. ITO [2018] 404 ITR 10 (SC).

In our view, tested on the aforesaid principles, the assumption of jurisdiction by the AO to reopen the concluded assessment in the present case cannot be sustained. We say so because the successor AO did not receive any fresh tangible material subsequent to the framing of the original assessment; rather, he reconsidered the material already forming part of the assessment record and arrived at a different conclusion regarding the cost of construction. Accordingly, the reassessment proceedings represent nothing but a fresh application of mind to the same material on which the original assessment was completed.

We may also observe that there is no allegation in the “reasons to believe” recorded by the AO that the assessee had failed to disclose fully and truly any primary fact necessary for assessment. Rather, the difference between the original assessment and the reassessment arises solely from the successor AO’s different view regarding the appropriate rate for determining the cost of construction. We are of the view that, in light of the settled position of law as examined by us hereinabove, such a “change of opinion”, in the absence of fresh tangible material, cannot confer jurisdiction on the AO to reopen a concluded assessment under Section 147 of the Act.

We thus, in terms of aforesaid deliberations, are of the view that the case of the assessee had been reopened by the successor AO based on a mere “change of opinion”, which is not permissible as per the clear mandate of law. As the power under Section 147 of the Act cannot be exercised to review an assessment already completed under Section 143(3) of the Act merely because the successor AO considers that a different view ought to have been taken on the same material, therefore, we hold that the AO in the present case had wrongly assumed jurisdiction and reopened the concluded assessment of the assessee under Section 147 of the Act. Consequently, the reassessment order passed by the AO under Section 147 r.w. Section 144B of the Act dated 31.03.2022 is quashed for want of valid assumption of jurisdiction.

As we have quashed the assessment for want of valid assumption of jurisdiction by the AO for framing the impugned assessment vide his order passed under Section 147 r.w. Section 144B of the Act dated 31.03.2022, we refrain from adverting to and adjudicating upon the other grounds raised by the assessee before us, challenging the validity of the impugned assessment order as well as the merits of the addition, which are accordingly left open.

In the result, the appeal of the assessee is allowed in terms of our aforesaid observations.