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Facts
The assessee company claimed deduction under Section 80IB(10) for the AY 2010-11, which was disallowed. The case was reopened under Section 147, and additions were made for short-term capital gains and excess opening stock. The CIT(A) confirmed the AO's order.
Held
The Tribunal held that the reopening of assessment under Section 147 was bad in law and without jurisdiction as it was based on a change of opinion and not on any fresh tangible material. The reassessment order was quashed.
Key Issues
Whether the reopening of assessment under Section 147 was based on tangible material or a mere change of opinion, and whether it was within the Assessing Officer's jurisdiction.
Sections Cited
80IB(10), 143(3), 147, 148, 143(2), 147(3), 147, 143(3), 147, 148, 143(2), 143(3), 147, 143(3), 147, 148, 147, 143(3), 147, 143(1), 147, 143(3), 147, 143(3), 147
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Income Tax Appellate Tribunal, ‘C’ BENCH, CHENNAI
Before: SHRI MANU KUMAR GIRI & SHRI S.R. RAGHUNATHA
आदेश / O R D E R
PER MANU KUMAR GIRI, JM:
This appeal is preferred by the assessee against the order of the CIT(A), NFAC, Delhi dated 31.03.2025 for the AY-2010-11.
Brief facts of the cases are as under: The assessee company filed the Return of income for the A.Y. 2010-11 on 29.09.2010 disclosing total income as Nil after claiming deduction of Rs.3,03,94,361 u/s. 80IB (10). The assessment u/s. 143(3) of the I.T. Act was completed on 28.03.2013 after disallowing deduction claimed u/s. 80IB(10). The case was reopened u/s.147 and notice u/s.148 dated 27.02.2015 was duly served on the assessee on 05.03.2015. Further, notice u/s. 143(2) dated Balachandra Builders Pvt Ltd 28.09.2015 was also duly served on the assessee on 29.09.2015. In response to the notice and the subsequent notices issued from this office, Shri. M. Chidambaram, AR of the assessee company appeared from time to time and submitted the details called for. The assessment for A.Y.2010-11 was reopened u/s 147, since there was a reason to believe that income has escaped assessment by claiming capital gain arisen as sale of agricultural land. The assessee is engaged in Real Estate and Construction Business. In response to the notice served, the assessee filed letter dated 16.03.2015, stating that the original Return of Income for A.Y. 2010-11 filed on 29.09.2010 may be treated as the revised return. On the request of the assessee, reasons for reopening were duly furnished vide this office letter dated 09.09.2015. Further, notice u/s.143(2) dated 28.09.2015 was also duly served on the assessee. In response to the same, the assessee filed its objection to the reopening the assessment vide letter dated 17.11.2015. The AO has passed order u/s. 143(3) r.w.s. 147 dated 19.01.2016 making an addition of Rs.33,44,22,240/- on account of short term capital gains / business income and Rs.1,15,12,986/- on account of excess opening stock.
The order of the assessment is challenged before the Ld.CIT(A). The ld.CIT(A) dismissed the assessee’s objections to the reopen u/s 147 and also confirmed the order of the AO on merits. Now the assessee is in appeal before us.
The Ld.Counsel for the assessee has explained the jurisdiction of AO in reopening the assessment u/s.148 dated 27.02.2025. He also pointed out that original assessment u/s 143(3) of the Act was passed on 28.03.2013.
Balachandra Builders Pvt Ltd The Ld.Counsel further referred the paper book wherein at page 48 reasons recorded for reopening of assessment dated 19.09.2015 is placed.
Following reasons are recorded by the AO.
"On verification of scrutiny records, the assessee had claimed the LTCG of Rs. 1,00,00,000/- from sale of land to the extent of 70 cents, at padur Village, Chengalpattu Taluk, Kanchipuram District as exempt as it was agricultural land and it was allowed. But it is seen from the official website of TN Registration Department, the above said land shown as residential plot Type-III, and the guideline value is Rs. 1,100/- per Sq. ft which works out to Rs. 3,35,72,000/- 70 cents = 70 X 436 30520 X 1100 = Rs. 3,35,72,000/- Hence the entire profit of Rs. 3,31,09,665 (3,35,72,000-4,62,335) is required to be subject to LTCG tax for the A. Y 2010-11. Further the assessee recast its account for F.Y 2008-09 after submission of return of income for A.Y 2009-10. The revised amount in r/o closing stock, closing work in progress were adopted for P.Y 2009-10 as opening balance. Since the revised closing stock etc. have not offered to tax in AY 2009-10, the same cannot be taken as opening balance in AY 2009-10. The incorrect adoption resulted in reduction of net-profit as detailed below. Opening Balance Closing Difference as on 01.04.2009 Balance as on (AY 2010-11) 31.03.2009 (AY 2010-11) Stock 2,35,14,305 4,70,02,384 2,34,88,529(-) Work in 3,49,91,515 Nil 3,49,91,515(+) Progress 1,15,02,986 This has to be added back. It is seen from the Depreciation statement for the AY 2010-11 that as sum of Rs. 12,45,16,958 / is shown as opening WDV, which includes Rs. 7,60,68,070 /- as agricultural land. However, it is seen from the ITMR for the A.Y 2009-10, the closing WDV shown as Rs. 4,51,79,220/-. On scrutiny of ITMR for the AY 2009- 10, it is found that the assessee exhibit this agricultural land as stock in trade. The assessee during FY 2009-10, transfer this stock in trade ito fixed asset schedule and sold part of the land for the sum of Rs. 1,00,00,000/- and claimed exemption as agricultural land. Which is not in order. However, it is not mentioned in the notes on account or anywhere in ITMR.
Balachandra Builders Pvt Ltd It is also seen from the schedule 2: Reserve and surplus, the Closing Balance is shown as Rs. 2,43,49,703/- as follows. Profit and loss a/c-Opening Balance 1,68,70,674 Add profit for the year 2009-10 74,79,029 ------------- 2,43,49,703 But, it is seen from the P&L account for the year end 31-03-2009, the profit for the year 2009-10 is 1,72,09,544." The Ld.Counsel pleaded that there was no fresh material with the AO to reopen the assessment u/s 143(3) of 28.03.2013. The Ld.Counsel has filed the judgements of the Hon’ble jurisdictional High Court in the case of the ACIT Vs Indian Syntans Investments Pvt Ltd, in Writ Appeal No.220 of 2021 dated 19.06.2025.
Per contra, the Ld.DR Ms.R.Anitha, Addl.CIT contended that in the present case, the reopening is within four years hence, the proviso 147 does not apply. Even in the original assessment u/s.143(3), this issue was not at all discussed or raised. She further pleaded that the AO has in hand the profit and loss account. Hence, the AO has justified in reopening the assessment u/s 148 of the Act.
We have heard the rival submissions and perused the record also assessee’s paper book for reasons recorded u/s. 147 of the Act. In reasons recorded, the opening sentence is that "On verification of scrutiny records, the assessee had claimed the LTCG of Rs.1,00,00,000/- from sale of land to the extent of 70 cents, at padur Village, Chengalpattu Taluk, Kanchipuram District as exempt as it was agricultural land and it was allowed. But it is seen from the official website of TN Registration Department, the above said land shown 70 cents = 70 X 436 30520 X 1100 = Rs. 3,35,72,000/- Hence the entire profit of Rs.3,31,09,665 (3,35,72,000-4,62,335) is required to be subject to LTCG tax for the A. Y 2010-11.
Further the assessee recast its account for F.Y 2008-09 after submission of return of income for A.Y 2009-10. The revised amount in respect of closing stock, closing work in progress were adopted for A.Y 2009-10 as opening balance. Since the revised closing stock etc. have not offered to tax in AY 2009-10, the same cannot be taken as opening balance in AY 2009-10.
The Hon’ble Jurisdictional High Court in the case of Assistant Commissioner of Income-tax vs. Indian Syntans Investments Pvt Ltd. [2025] 176 taxmann.com 22 (Madras)[19-06-2025] has held as under: -
In any case, the reasons recorded are ambiguous and vague, and as held in Hindustan Lever Ltd. v. R.B. Wadkar [2004] 137 Taxman 479/268 ITR 332 (Bombay), the reasons recorded must disclose the officer's mind because the reasons are the manifestation of mind of the Assessing Officer. The reasons recorded should be self-explanatory and should not keep the assessee guessing for the reasons, and it has to provide link between the conclusion and evidence.
9. Admittedly, the notice issued is beyond the period of four years. The return of income filed by assessee was accompanied by financials that contained a note explaining the lease transaction and a perusal of the reasons for re- assessment make it clear that the reasons are based entirely upon the documentation accompanying the return. No material extraneous to that already on record or new has been discovered by the Assessing Officer indicating income that had escaped taxation. It applies equally to lease income as well as the claim of administrative expenses. A full and true disclosure has been made insofar as all materials germane to the computation of income and it forms part of return of income. In such circumstances, escapement of income, if any, cannot be attributed to the assessee.
Balachandra Builders Pvt Ltd 10. More over, the Apex Court in Kelvinator India Ltd., (supra) considered the case of reassessment that has been initiated within four years. Reasons for reopening merely reiterated materials that was already on record, as a result that the Bench came to the conclusion that the proceedings were not one of reassessment but one of review, impermissible under the Act. Relevant portion reads as under: "On going through the changes, quoted above, made to Section 147 of the Act, we find that, prior to Direct Tax Laws (Amendment) Act, 1987, reopening could be done under above two conditions and fulfillment of the said conditions alone conferred jurisdiction on the Assessing Officer to make a back assessment, but in section 147 of the Act [with effect from 1st April, 1989], they are given a go~by and only one condition has remained, viz., that where the Assessing Officer has reason to believe that income has escaped assessment, confers jurisdiction to reopen the assessment. Therefore, post 1st April, 1989, power to reopen is much wider. However, one needs to give a schematic interpretation to the words reason to believe failing which, we are afraid, Section 147 would give arbitrary powers to the Assessing Officer to reopen assessments on the basis of "mere change of opinion", which cannot be per se reason to reopen. We must also keep in mind the conceptual difference between power to review and power to reassess. The Assessing Officer has no power to review; he has the power to reassess. But reassessment has to be based on fulfillment of certain precondition and if the concept of 'change of opinion' is removed, as contended on behalf of the Department, then, in the garb of reopening the assessment, review would take place. One must treat the concept of change of opinion' as an in-built test to check abuse of power by the Assessing Officer. Hence, after 1st April, 1989, Assessing Officer has power to re~open, provided there is 'tangible material' to come to the conclusion that there is escapement of income from assessment. Reasons must have a live link with the formation of the belief. Our view gets support from the changes made to Section 147 of the Act, as quoted hereinabove. Under the Direct Tax Laws (Amendment) Act, 1987, Parliament not only deleted the words ? reason to believe? but also inserted the word 'opinion' in Section 147 of the Act. However, on receipt of representations from the Companies against omission of the words 'reason to believe', Parliament re~introduced the said expression and deleted the word 'opinion' on the ground that it would vest arbitrary powers in the Assessing Officer. We quote hereinbelow the relevant portion of Circular No.549 dated 31st October, 1989, which reads as follows: "7.2 Amendment made by the Amending Act, 1989, to reintroduce the expression "reason to believe' in Section 147. -- A number of representations were received against the omission of the words "reason to believe- from Section 147 and their substitution by the 'opinion- of the Assessing Officer. It was pointed out that the meaning of the expression, 'reason to believe' had Balachandra Builders Pvt Ltd been explained in a number of court rulings in the past and was well settled and its omission from section 147 would give arbitrary powers to the Assessing Officer to reopen past assessments on mere change of opinion. To allay these fears, the Amending Act, 1989, has again amended section 147 to reintroduce the expression 'has reason to believe- in place of the words 'for reasons to be recorded by him in writing, is of the opinion-. Other provisions of the new section 147, however, remain the same."
For the afore-stated reasons, we see no merit in these civil appeals filed by the Department, hence, dismissed with no order as to costs. (emphasis supplied) 11. The settled proposition therefore is that change of opinion is an in-built test to check abuse of power by the Assessing Officer. In the garb of reopening the assessment, review would take place.
Therefore, it is clear, a reassessment made within four years or beyond four years has to be based on tangible material de hors that is available on record that has come to the notice of the Assessing Officer. Recourse to proceedings for reassessment is available only if the Department comes into possession of materials, apart from that already available as part of its records or if primary particulars reveal discrepancies that are not explained or resolved by the accompanying documentation. This is subject, therefore, to the assessee having placed on record all materials necessary for the appreciation of issues arising for assessment including financials and annexures along with its return of income at the first instance.
Even the Hon'ble Delhi High Court in CIT v. Orient Craft Ltd. [2013] 29 taxmann.com 392/215 Taxman 28/354 ITR 536 (Delhi) has held that reopening of assessment made under Section 143(1) of the Act is without jurisdiction, in the absence of any tangible material available with the Assessing Officer to form the requisite belief regarding escapement of income. The Court held that in the absence of any tangible material, there will be a review in the guise of reopening.
In the present case, the reasons disclose that the Assessing Officer reached the belief that there was escapement of income, on going through the return of income filed by assessee after it was accepted under Section 143(1) of the Act, without scrutiny and nothing more. Therefore, this is nothing but a review of the earlier proceedings. There is no whisper in the reasons recorded, of any tangible material which came to the possession of Assessing Officer subsequent to the issue of the intimation. It reflects arbitrary exercise of the power conferred under Section 147 of the Act.
Balachandra Builders Pvt Ltd 8. In the present case, in the reasons recorded, the AO refers to the sale of 70 cents of land at Padur Village and states that the same was claimed as agricultural land, whereas the TN Registration Department showed it as a residential plot. However, the AO has not brought any fresh evidence or tangible material obtained subsequent to the original assessment proceedings. Rather, the reopening appears to be a reappraisal of facts already on record.
Further, the Hon'ble Supreme Court in Kelvinator of India Ltd. [2010] 187 Taxman 312/320 ITR 561 (SC) has categorically held that reopening of assessment based on a mere change of opinion is not permissible. It has also been reiterated by the Hon’ble Jurisdictional High Court in Indian Syntans Investments Pvt. Ltd. (Assistant Commissioner of Income-tax vs. Indian Syntans Investments Pvt Ltd. [2025] 176 taxmann.com 22 (Madras)[19-06- 2025]) that:
"The reasons recorded must disclose the officer's mind... and should not keep the assessee guessing. In the absence of tangible material, there is no jurisdiction to reopen."
In the instant case, the AO’s reasons do not refer to any new facts or external information that came into his possession after the original assessment. The reasons merely rely on interpretation of facts already disclosed and examined in the assessment under section 143(3). Hence, the reopening lacks the jurisdictional foundation.
As the reopening itself is held to be invalid, we are not inclined to go into the merits of the additions made in the reassessment order. In view of the above discussion and respectfully following binding precedents, we hold that the reopening of the assessment under section 147 is bad in law and without
In the result, appeal of the assessee is allowed.
Order pronounced on the 21st day of October, 2025 at Chennai.