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Facts
The assessee's original assessment for AY 2015-16 was completed u/s 143(3). Subsequently, a reassessment u/s 147 was initiated, denying the deduction claimed u/s 54F on the ground that the assessee owned more than one residential house. The ld. CIT(A) upheld the reassessment and the denial of deduction, leading to the present appeal before the Tribunal.
Held
The Tribunal determined that the reassessment proceedings were initiated based solely on information already available on record and that the issue of Section 54F deduction had been examined during the original assessment. The reassessment, therefore, constituted a mere 'change of opinion' without any fresh tangible material, which is impermissible in law. The Tribunal consequently quashed the reassessment order on legal grounds.
Key Issues
Whether the reassessment proceedings initiated u/s 147 were valid, or if they amounted to a mere 'change of opinion' regarding the deduction claimed u/s 54F, an issue already examined during the original assessment.
Sections Cited
143(3), 147, 54F, 263, 148, 142(1), 56(vii)(b)(i), 271(1)(c)
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Income Tax Appellate Tribunal, ‘A’ BENCH, CHENNAI
Before: SHRI ABY T VARKEY & SHRI S. R. RAGHUNATHA
आदेश /O R D E R
PER S. R. RAGHUNATHA, AM :
This appeal by the assessee is filed against the order of the Learned Commissioner of Income Tax (Appeals) National Faceless Appeal Centre (NFAC), Delhi [‘ld. CIT(A)’] dated 11.12.2023 for the assessment year 2015-16.
The assessee has challenged the legality and validity of the assessment order passed u/s.143(3) r.w.s 147 of the Income-tax Act, 1961(hereinafter
:-2-: ITA. No:352 /Chny/2024 referred to as “the Act”) dated 24.09.2021, as well as the denial of the deduction claimed under section 54F of the Act, on the following grounds:
“1. The NFAC violated the core principles of reassessment by no disposing the objections to reopening of assessment.
2. The NFAC erred in re-opening the assessment based on mere change of opinion. The NFAC re-opened assessment based on the information already at their disposal (i.e. Submission made during original assessment proceedings) and no new information had come to their notice based on which assessment was sought to be re-opened.
The NFAC erred in not understanding that the Appellant did not “own” more than one residential house other than the new asset on the date of transfer of the original asset.
4. The NFAC erred in not appreciating that villa to be constructed on the land retained by owners is not owned by the Appellant rather it is owned by other co-owners of the land.
5. The NFAC erred in not appreciating that the construction agreement only seeks to demarcate access rights of common passage between residential complex owners and the land retained by Appellant and other owners.
6. The NFAC erred in not applying the cited judicial precedents appropriately which squarely covers the facts of the instant case.
7. The NFAC erred in not disposing Appellant’s alternative contention as to the fact that provisio to section 54F is not violated since the construction of villa was completed after a period of 3 years.
8. The NFAC erred in contradicting itself by stating that Appellant cannot segregate the assets in two parts of the land and then disallowing deduction under section 54F on the basis that Appellant owned more than one asset while claiming deduction under section 54F of the Act.
9. The NFAC erred in initiating penalty proceedings under section 271(1) (c) of the Act. The Appellant craves leave to add, alter, vary, omit, amend or delete one or more of the above grounds of appeal at any time before, or at the time of, hearing of the appeal.
:-3-: ITA. No:352 /Chny/2024 3. The assessee is an individual and during the impugned year was engaged in the business of providing finance and earning interest income. The return of income for the year under consideration was filed on 27.03.2016 declaring a total income of Rs.99,75,750/-. The case was selected for scrutiny and accordingly assessment u/s.143(3) of the Act was completed on 18.12.2017 assessing the total income of the assessee at Rs.1,04,33,030/-.
Subsequently, a letter dated 03.03.2020 was issued by the Learned Principal Commissioner of Income Tax - 9 (ld. PCIT) seeking to revise the aforementioned assessment order u/s.263 of the Act. Subsequently, ld. PCIT passed an order u/s.263 dated 23.03.2020 by setting aside the order dated 18.12.2027 and remitting the file back to the file of the AO with a direction to pass fresh assessment in accordance with law.
Thereafter, within the lapse of 4 years from the end of the AY 2015-16, reassessment proceedings were initiated u/s.147 of the Act after recording the reasons, by issue of notice u/s.148 of the Act on 23.03.2020. In response, the assessee filed his return of income on 30.01.2021. Thereafter, he filed his objections to the re-opening of assessment on 09.07.2021 & also filed responses to all the notices issued from time to time. The objections filed were disposed of vide letter dated 29.04.2021. A show cause notice dated 17.09.2021 was issued to which the assessee responded on 21.09.2021.
Thereafter, the reassessment was completed by the AO u/s.143(3) r.w.s 147 of the Act, vide order dated 24.09.2021, wherein the claim of deduction u/s.54F of the Act amounting to Rs.2,52,01,494/- was denied by the AO for the reason
:-4-: ITA. No:352 /Chny/2024 that the assessee owned more than one residential house other than the new asset, thereby determining the total income of the assessee at Rs.3,55,33,110/-.
Being aggrieved, the assessee preferred an appeal before the ld. CIT(A)
against the assessment order, dated 24.09.2021, passed u/s.147 of the Act challenging the validity of the re-assessment proceedings and as well as the denial of the deduction claimed u/s.54F of the Act, amounting to Rs.2,52,01,494/-. The ld. CIT(A) dismissed the appeal of the assessee with both on legal and on merits by the following observations: “As regard the other issue that the re-opening has been done on the basis of ‘mere change of opinion, it is a settled issue that for ‘change of opinion’, it is important that ‘opinion should be formed at the initial stage. Mere possession of some information does not mean that the AO has invariably formed an ‘opinion’ on the basis of such information. Nothing has been submitted by the Appellant in the course of present proceedings to suggest that all facts pertaining to claim made under section 54F of the Act was fully disclosed to the AO at the time of original assessment proceedings. Various Courts have held that opinion formed on the basis of certain information disclosed by the assessee can again be re-examined by invoking the provisions of section 147 if some new facts surface. In view of the above discussion, I hold that since there is nothing on record to suggest that all relevant details pertaining to the claim made by the Appellant u/s.54F was before the AO at the time of original assessment proceedings, no opinion could have been formed by the AO as regards whether the claim made by the Appellant u/s.54 is correct or not. Therefore, in the absence of any opinion being formed on the issue of claim made u/s.54 of the Act at the time of original assessment proceedings, question of any ‘change of opinion’ does not arise at all. Thus, Grounds are dismissed. On perusal of the above provisions, it is very clear that a person is not entitled to the benefits provided u/s.54F, he constructs any residential house, other than the new asset, within a period of three years after the date of transfer of the original asset. In the :-5-: ITA. No:352 /Chny/2024 case of the Appellant, the original asset is the shares which have been transferred on 11.08.2014. The Appellant has earned LTCG on the transfer of the shares. The Appellant has invested the LTCG for purchase of flat no .15002 in the building ’Osiane One’ vide agreement dated 20.11.2014. Thus, flat no 15002 is the ‘new asset’. However, his mother along with another relative entered into an agreement dated 30.09.2014 with SPR for construction of a bungalow on a piece of land which is co-owned by the Appellant, his mother, his father and the other relative. Although, the Appellant has not sold his share in the said land to any other co-owner, he has contributed the same for the construction of the bungalow. Thus, the mere fact that the Appellant continues to own a part of land on which bungalow has been constructed, he will continue to command certain ownership in the said bungalow, notwithstanding the fact that the Appellant is not a party to the agreement entered into with SPR for construction of the bungalow. These facts show that the Appellant has started construction of a new residential house vide agreement dated 30.09.2014 which is within 03 year of the transfer of the ‘original asset’ i.e. shares which was transferred on 11.08.2014. Construction of the bungalow got completed on 23.05.2018. These facts show that the Appellant has started constructing a new residential house from 30.09.2014 i.e. within 03 from the transfer of the ‘original asset’ (shares) i.e. 11.08.2014. In view of this, I am of the considered opinion that the Appellant has constructed a residential house (along with 3 other co-owners-his father, his mother and one relative namely Mrs. Sangeeta Devi Kawad) within three years after the transfer of the original asset. Thus, the Appellant is covered by the exclusion as provided in clause (a)(iii) of the provisio to section 54F and, therefore, the Appellant is not entitled to the deduction claimed u/s.54F of the Act. Accordingly, I uphold the action of the AO in denying the claim of deduction made by the Appellant u/s.54F of the Act. Grounds are, thus dismissed.”
Aggrieved by the order of the ld. CIT(A), the assessee is in appeal before us.
Before us, on the legal issue of re-opening, the ld.AR for the assessee narrated the above facts of the case and submitted that this legal issue raised in Ground no.2 relates to reopening and re-assessment and its validity. Bringing our attention to the reasons recorded for re-opening, ld.AR for the assessee
:-6-: ITA. No:352 /Chny/2024 submitted that the issue raised in the reasons was the subject matter of scrutiny in the regular assessment completed on 18.12.2017. The ld.AR submitted that the re-assessment proceedings are liable to be set aside on the ground that the same amounts to “change of opinion”, since the issue of claim of deduction u/s.54F of the Act, on the basis of which disallowance has been made in the re- assessment proceedings, was raised and discussed in detail during the course of the original assessment proceedings. The ld.AR further submitted that the AO had completed the original assessment after examining all relevant records called for. In the absence of any fresh material or tangible information coming to the AO's possession, the reopening of the assessment based on the same set of facts amounts to a mere change of opinion, which is not legally tenable.
The ld.AR drew our attention to notice u/s.142(1) of the Act dated 01.11.2017, forming part of the paper book at pages 4 – 5, which was issued to the assessee during the course of the original assessment proceedings, in which the issue of the claim u/s.54F of the Act, was raised during the course of original assessment proceedings. In response, evidenced at pages 9 – 14 of the paper book, the assessee had produced the requisite details and documents called for which were duly examined by the AO during the course of the assessment proceedings and formed an opinion. It was further submitted that only after being satisfied with the submissions and records produced, the AO completed the assessment u/s.143(3) of the Act by making certain disallowances/additions to the total income as declared by the assessee.
:-7-: ITA. No:352 /Chny/2024
Further, the ld.AR drew our attention to the reasons recorded for reopening the assessment at page 46 of the paper book and submitted that the issue relating to the assessee’s claim for deduction u/s. 54F of the Act had already been examined by the AO in the course of the original assessment proceedings. The ld. AR contended that the reasons recorded for initiation of the reassessment proceedings are founded solely on the very same issue and documents filed on account of deduction u/s. 54F, which, according to the ld.AR, amounts to a mere change of opinion. The reasons recorded for reopening the assessment are reproduced hereunder for the sake of clarity.
“The assessee has purchased apartments in the 15th floor of “OSIAN ONE” residential complex which was claimed as exemption u/s.54F against LTCG from sale of shares. It is also noticed from the construction agreement towards purchase of apartment in the 15th floor measuring 3632 sq ft of builtup area that the assessee along with 3 others were offered from the builder M/s SPR Construction Private Ltd, construction of another residential building in the remaining 8772 sq ft held by the assessee and 3 others for the exclusive ownership possession by four of them and enjoyment of the same. Thus, the assessee has received his share in this residential building free of consideration which is taxable u/s.56 (vii)(b)(i) of the I T Act, 1961. This is deemed to be income from other sources which has not been offered by assessee and hence has escaped assessment. Moreover, during the assessment year assessee offered LTCG of Rs.74,25,440/- on sale of share of SPR and RG construction Pvt Ltd amounting to Rs.83,26,26,934/- after claiming u/s.54F amounting to Rs.2,52,01,494/- towards investment in purchase of residential house at OSIAN ONE. During the same period assessee offered LTCG of Rs.16,12,573/- towards sale/transfer of UDS share of land measuring 668 sq ft (as stated in 2nd paragraph) for Rs.86,80,750/- and after claiming index cost of acquisition of Rs. 63,96,016/-. As discussed in previous paragraph (para - 4), assessee along with 3 others made agreement with the builder to construct one residential building separately on remaining land of 8772 sq ft. Relevant portion of Sec 54F (1) is reproduced here under: - [ Provided that nothing contained in this sub-section shall apply where –
:-8-: ITA. No:352 /Chny/2024 The assessee, - Owns more than one residential house, other than the new asset, on the date of transfer of the original asset. Purchase any residential house, other than the new asset, within a period of one year after the date of transfer of the original asset; or constructs any residential house, other than the new asset, within a period of three years after the date of transfer of the original asset; and In this case the assessee has purchased apartment in the 15th floor, in the multi storied residential complex named OSIAN ONE where exemption u/s.54F was claimed and also, in addition, at the same time, the assessee along with 3 others constructed another house with the same builder. Thus, the assessee is not entitled to claim exemption as per sec 54F(1) provision (a)(iii) as he has entered into agreement for purchasing/constructing of 2 residential properties. Hence, exemption u/s.54F is not allowable to assessee. Entire LTCG from sale of shares and sale of UDS in properties should be brought to tax which has escaped assessment”.
The ld. AR submitted that the AO’s initiation of reassessment proceedings regarding the deduction claimed u/s.54F of the Act was based solely on information already available on record. It was further contended that such reopening constitutes a change of opinion, which is impermissible in law, as the issue had been specifically examined and adjudicated upon during the original assessment proceedings. The assessment order was passed only after due verification and application of mind by the AO to the assessee’s claim u/s.54F of the Act. Consequently, having duly examined and accepted the assessee’s explanation and supporting evidence, the Assessing Officer did not make any disallowance in respect of the claim of deduction u/s.54F of the Act.
Accordingly, in the absence of any fresh tangible material, the AO lacked the jurisdiction to reopen the assessment u/s.147 of the Act, and in doing so would
:-9-: ITA. No:352 /Chny/2024 effectively tantamount to a review of the earlier assessment under the guise of reassessment, which is prohibited by settled judicial precedents.
Therefore, the ld.AR prayed for quashing the re-assessment order passed by the AO as invalid. In support of the legal contention challenging the validity of the re-assessment proceedings, ld.AR relied on the decision of the Hon’ble Supreme Court in the case of CIT vs. Kelvinator of India Limited reported in 320 ITR 561.
Further, ld.AR relied on the decision of the Hon’ble Madras High Court in the case of Tanmac India v DCIT [2017] 78 taxmann.com 155 (Madras) where in the Assessing Officer allowed the deduction to the assessee firm which paid certain amount to a partner who retired from the firm and claimed deduction in respect of he amount so paid, but later on, reopened the assessment on the basis of return and enclosures thereto. The Hon’ble High Court held the reopening of assessment was not justified.
Per contra, the ld.DR, on the other hand, strongly relied on the impugned order of the ld.CIT(A) in support of the revenue’s case on this issue and contended that the assessment having been reopened by the AO on the new issue, which had not been specifically examined in the assessment originally completed u/s.143(3) of the Act, the reopening was in accordance with law.
We have heard the rival contentions, perused material available on record and gone through the orders of lower authorities along with the paper
:-10-: ITA. No:352 /Chny/2024 book and case laws relied by the assessee. In order to appreciate the contention of the ld.AR for the assessee on the issue raised in this case challenging the validity of reopening of assessment, it is relevant to refer to the reasons as recorded by the AO for reopening supra. A perusal of the reasons recorded by the AO clearly shows that the reopening of assessment was based solely on the issue relating to the assessee’s claim for deduction u/s.54F of the Act and on no other ground. The ld. AR invited our attention to the relevant pages of the paper book supra, wherein the AO had issued a questionnaire in respect of the assessee’s claim for deduction u/s.54F of the Act, and the assessee had duly furnished its reply thereto during the course of the original assessment proceedings. Further, while framing the assessment order, the AO had considered the reply furnished by the assessee with regard to the claim of deduction u/s.54F of the Act and the assessment order was consequently completed after taking into account the aforesaid submissions and material available on record. Therefore, in our considered opinion, the reassessment has been initiated merely on account of a change of opinion by the AO on the very same set of facts and documents existing in the assessment records that were already examined during the original assessment proceedings. The reassessment initiated by the AO is based solely on the information already available in the assessment records, without any reference to new or tangible material which in our considered view constitutes a mere change of opinion, which is impermissible in law. The AO had examined the reply furnished on the claim of deduction of section 54F of the Act, applied his mind, and :-11-: ITA. No:352 /Chny/2024 concluded the original assessment proceedings, indicating that an opinion was formed at that stage of original assessment proceedings and consequently, it was not permissible for him to exercise power u/s.147 of the Act on the same material available on record.
13.1 In light of the above facts, admittedly the AO had fully examined the issue of the claim of deduction u/s.54F of the Act. The assessment was completed after due application of mind to the issue raised in the reasons recorded by him before the re-assessment proceedings were initiated and specific disallowances were made in completing the assessment. Therefore, reopening the assessment u/s.147 of the Act, based on the same material amounts to a mere change of opinion, which has been consistently held by various judicial precedents to be impermissible in law. Consequently, the reassessment proceedings initiated by the AO are without jurisdiction and liable to be quashed. Accordingly, Ground no.2 raised by the assessee is allowed.
In the case of CIT vs Kelvinator of India Limited (supra), cited by the ld.AR for the assessee, it was held by the Hon’ble Supreme Court that after the amendment made w.e.f. 1st April, 1989, the AO has to have reason to believe that income has escaped assessment, but this does not imply that the AO can reopen an assessment on a mere change of opinion. It was held that the concept of “change of opinion” must be treated as an in-built test to check the abuse of power and hence the AO even after the amendments made in the :-12-: ITA. No:352 /Chny/2024 relevant provisions from April 1, 1989 has the power to reopen an assessment provided there is tangible material to come to the conclusion that there was escapement of income from assessment.
The aforesaid decision was also followed by the Hon’ble Delhi High Court in the case of Usha International Ltd. 210 taxmann 188, wherein the Delhi High Court held that when the Assessing Officer completed an assessment under Section 143(3) of the Act, he is presumed to have accepted the contentions of the assessee even if there is no express reference to them in the assessment order and if within 2 years he issues a notice to re-open the assessment, it is nothing but a change of opinion. Further, the Delhi High Court in the aforesaid decision held that assessment proceedings cannot be validly reopened under Section 147 of the Act even within 4 years, if the assessee has furnished full and true particulars at the time of original assessment with reference to the income alleged to have escaped assessment, if the original assessment was made under Section 143(3) of the Act. While passing the order, the Delhi High Court made the following observation:
“Reassessment proceedings will be invalid in case an issue or query is raised and answered by assessee in original assessment proceedings and Assessing Officer does not make any addition in assessment order. In such situations it should be accepted that the issue was examined but the Assessing Officer did not find any ground or reason to make addition or reject the stand of the assessee. He forms an opinion. The reassessment will be invalid because the Assessing Officer had formed an opinion in the original assessment, though he had not recorded his reasons.”
In light of the facts as recorded hereinabove and upon careful consideration of the judicial precedents on the issue, including the :-13-: ITA. No:352 /Chny/2024 observations of the Hon’ble Supreme Court in the case of CIT v. Kelvinator of India Ltd. (supra), we are of the considered view that the initiation of reassessment proceedings in the present case has been made merely on account of a change of opinion. It is a settled proposition of law that reassessment cannot be initiated in the absence of any tangible material or fresh information coming to the possession of the AO. Accordingly, we hold that the reassessment order, having been passed on a mere change of opinion, is unsustainable in law and is, therefore, liable to be quashed. Since we have quashed the assessment order on legal ground, we do not find it necessary to adjudicate on the merits of the case and hence kept open.
In the result, the appeal of the assessee is allowed.
Order pronounced in the open court on 04th November, 2025 at Chennai.