Income Tax, Issue Update

Issue examined under original assessment proceeding: Whether re-opening in such case is justified

Case: Principal Commissioner Of vs. Shri K.R.Jayaram, Madras HC

Outcome: Assessee


  • The Assessee was an individual engaged in real-estate business, filed the return of income for the assessment year 2009-10, declaring the total income of Rs.1.31 crore on 01.07.2009. The Assessing Officer completed the assessment under section 143(3) of the Act by making an addition of Rs.23.29 lakhs being disallowance of improvement cost of land claimed by the Assessee and the Assessee had shown the sale of the land under the head of ‘short term capital gain’. Subsequently, the assessment was reopened stating that on verification of the document, i.e., sale deed, it was seen that section 50C value was fixed at Rs.735.00 Lakhs by the District Revenue Officer exercising powers under the Indian Stamp Act and the correct market value of the property that should have been adopted by the Assessee was Rs.367.50 lakhs i.e., 50% of Rs.735 lakhs, as two persons including the Assessee had done the business and each of them shared the profit on equal ratio.
  • Therefore, the Assessing Officer proposed that the sale consideration for capital gains computation should have been worked out on the said amount of Rs.367.50 lakhs. Notice under section 148 of the Act was served on the Assessee on 26.03.2014. In response thereof, the Assessee filed return on 02.06.2014 showing Rs.1.16 crore as business income as against the earlier classification as ‘capital gains’. The Assessing Officer held that the Assessee having filed the return, which was a revised return, that too, only after notice 4/18 under section 148 was issued, the same could not be accepted. Further, the Assessing Officer held that in the original return, the Assessee had shown the amount as ‘capital gains’ and in the return filed in response to the section 148 notice, the said income was shown by the Assessee as ‘business income’, which was not acceptable. Accordingly, the assessment was completed under section 143(3) read with section 147 of the Act, by order dated 02.07.2014.

Key points

  • Reliance was placed on the decision of the Hon’ble Supreme Court in the case of CIT vs. Kelvinator of India Ltd., wherein it was concluded that where the case pertained to an assessment before 01.4.1989 or thereafter, mere change of opinion could not confer jurisdiction upon the Assessing Officer to initiate proceedings under section 147 of the Act.
  • Hence, it was inferred that since the assessment was opened merely on the basis of change in opinion, thus, the re-assessment proceedings were liable to be quashed.

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