Change Of Opinion Does Not Constitute Justification For Assuming Income Chargeable To Tax ; Bombay High Court

The Bombay High Court has held that the reopening of the assessment was purely on the basis of a change of opinion of the AO from that held earlier during the course of assessment proceedings. The change of opinion does not constitute justification for assuming that income chargeable to tax has escaped assessment.

The bench of Justice K. R. Shriram and Justice Dr. Neela Gokhale has observed that the AO in the assessment order has noted that the issue of investment in immovable property and capital gain/income on sale of property was considered under limited scrutiny assessment, and in view of the material on record, no addition on the issue is made. The information relied upon while issuing notice under Section 148A(b) relates to the flat, and an entirely contradictory view is taken 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 or assessee, an individual, filed a return of income declaring total income. The petitioner received a notice issued under Section 143(2) of the Income Tax Act 1961 stating that returns of income have been selected for limited scrutiny with regard to investments in immovable property, capital gains, or income on the sale of property.

The petitioner was called upon to submit evidence with regard to the two issues raised. The petitioner received a notice issued under Section 142(1) calling upon the petitioner to provide documents and details with regard to capital assets that were sold during the assessment year.

The petitioner provided details of the property sold, consideration received, etc. Later, the petitioner received one more notice issued under Section 142(1) seeking details with regard to the same property. Once again, the petitioner provided all the details and documents.

An assessment order came to be passed, in which it is stated that the case was selected for a limited scrutiny assessment on the issues relating to investments in immovable property and capital gains or income on the sale of property, and in view of the material available on record, no addition to the issues is made. The assessment order stated that the assessment is passed, accepting the income computed as per the order under Section 143(1).

Almost a year later, the petitioner received a communication that was an inquiry under Section 148A(a) seeking details of the sale of the residential property, which was the subject matter of the scrutiny assessment. The petitioner provided all the details and documents called for.

The order under Section 148A(d) has been passed, holding that the asset sold was a short-term capital asset and the gain arising on the transfer of such an 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 with respect to the said flat was the subject matter of consideration during the assessment proceedings,” the court said.

Counsel For Petitioner: K. Gopal

Counsel For Respondent: Suresh Kumar

Case Title: Mira Bhavin Mehta Versus Income Tax Officer

Case No.: Writ Petition No. 3246 Of 2022

Click Here To Read The Order