Bombay HC: A Change of Opinions Does Not Justify Assuming Income Chargeable to Tax

The assessment reopening was based on a revision of the view of the AO (Assessing Officer) from that ruled before at the time of assessment proceedings. The revision of the view does not comprise the justification to assume that the income levied to tax has escaped from assessment, the Bombay High Court ruled.

The bench of Justice K. R. Shriram and Justice Dr. Neela Gokhale noted that the AO in the assessment order has viewed that the issue of investment in immovable property and capital gain/income on the sale of the property was regarded beneath limited scrutiny assessment, and because of the material on record, no addition on the issue is incurred.

The data laid upon during issuing notice under Section 148A(b) pertains to the flat, and a whole contradictory opinion has opted in the order that the asset sold was a short-term capital asset and the gain arising on the transfer of the said flat is a short-term capital gain.

The petitioner is an individual, who filed an income return showing total income. The applicant obtained a notice under Section 143(2) of the Income Tax Act 1961 mentioning that income returns have been chosen for limited scrutiny concerning investments in immovable property, capital gains, or income on the property sale.

The applicant asked to provide proof for the two issues raised. The applicant obtained a notice furnished under section 142(1) asking the applicant to furnish the documents along with the information concerning the capital assets that were sold at the time of the assessment year. 

The applicant furnished the information about the property sold, consideration received, etc. After that, the applicant obtained another notice issued under Section 142(1) asking for information concerning the same property. The applicant again furnished all the details and documents.

The passed assessment order specifies that the case opted for a limited investigation assessment on the problems concerning the investments in the immovable property and capital gains or income on the property sale. Because of the material available on record, no addition to the issues is incurred. As per the assessment order, the assessment is passed, accepting the income calculated according to the order under Section 143(1).

After a year, the applicant obtained the communication that was an inquiry under Section 148A(a) asking for information on the sale of the residential property, which was the subject matter of the scrutiny assessment. All the asked documents have been provided by the applicant. 

Under Section 148A(d) the order has been passed, carrying that the asset sold was said to be a short-term capital asset and the gain appearing on the transfer of the same asset is a short-term capital gain.

“In our view, it is a clear case of a change of opinion. We say this because the issue as to whether there was a short-term capital gain concerning the said flat was the subject matter of consideration during the assessment proceedings,” the court stated.