Delhi HC sets aside Reassessment u/s 147 of Income Tax Act Triggered based on Change in Opinion about Nature of Transaction [Read Order]

The Delhi High Court set aside reassessment under section 147 of the Income Tax Act, 1961 triggered based on the change in opinion about the nature of the transaction.

Shourya Infrastructure Pvt Ltd, a challenge is laid to the order dated 13.11.2018 ["impugned order"]. Via the impugned order, the respondent/revenue ["Assessing Officer (AO)"] disposed of the objections preferred by the petitioner, i.e., Shourya Infrastructure Pvt. Ltd. ["SIPL"].

The objections preferred by SIPL were directed against the initiation of the reassessment proceeding by the AO under Section 147 of the Income Tax Act, 1961 [“Act”]. The issue for consideration in the instant matter is whether the AO correctly triggered the reassessment proceeding qua SIPL.

SIPL is in the real estate business, including constructing, buying, and selling immovable properties. SIPL was incorporated in 2006. Upon the petitioner filing its Return of Income (ROI) for the AY in issue, the AO took it up for scrutiny under Section 143(3) of the Act.  

SIPL was issued various notices, which were accompanied by questionnaires. These notices are dated 02.09.2013, 14.10.2013 and 23.10.2013. SIPL was required to furnish information about the aforesaid aspects, including a transaction relating to the sale of land, qua which it had received consideration of Rs. 1,51,00,000/-. 

SIPL indicated to the AO that although it had purchased the land, the funds were provided by a group company named Shourya Towers Pvt. Ltd. [“STPL”]. According to SIPL, the arrangement was the subject matter of a Memorandum of Understanding (MoU)/agreement dated 02.03.2007 [“MOU/agreement”] entered between itself and STPL.

SIPL had also emphasized that under the MoU/agreement, it was empowered to sell the land if it was not used for any project for two to three years. Thus, as per SIPL, once the sale took place, it claimed as profit an amount calculated at the rate of Rs. 1,00,000/- per acre and remitted the balance to STPL. SIPL conveyed to the AO that the amount remitted to STPL was claimed as expenditure, and the resultant profit earned, i.e., Rs. 1,73,002/-, was offered for levy of tax. 

In the backdrop of the explanation furnished by the petitioner/assessee that the AO framed the assessment order dated 28.02.2014 under Section 143(3) of the Act, without making any addition concerning the sale of the subject land; which had fetched a price of Rs. 1,51,00,000/-.  

Once again, the AO sought various documents, which included balance sheets for the Financial Year (FY) in issue as well as the immediately preceding FY; ROI for the AY in issue, i.e., AY 2011-12;   statements of the accounts maintained with banks referred to therein, and a copy of the assessment order passed under Section 143(3) of the Act.

SIPL responded to the notice and furnished the documents sought under the cover of a letter dated 29.03.2018.  The AO, within barely a day’s gap, i.e., on 31.03.2018, issued a notice under Section 148 of the Act to SIPL, on the ground that he had reasons to believe that income chargeable to tax had escaped assessment. Accordingly, SIPL was asked to file a return in the prescribed form within 30 days of service of the said notice. 

Since the issue that triggered reassessment was an aspect that was inquired into by the AO while framing the assessment order dated 28.02.2014 under Section 143(3) of the Act, SIPL averred that this was a case of change of opinion, both concerning the nature of the transaction, and the applicability of provisions under Section 50 of the Act. Furthermore, because a query was raised and answered, the AO had no jurisdiction to reopen the assessment. 

It was viewed that the AO had doubts about the genuineness of the loan transaction, and therefore, he wrote to the AO of the lender company. The AO of the lender company informed his counterpart that the director of the lender company had confessed that it was a dummy entity and had not advanced any loan to any person.

A division bench of Justice Rajiv Shakdher and Justice Anish Dayal observed that it was not a case where the AO sought to draw fresh inference, which it could have raised when he framed the original assessment order regarding the loan transaction based on the material placed before him. Therefore, the fresh information in that case, as observed by the Court, exposed the falsity of the statement made on behalf of the appellant/assessee when the original assessment order was framed. 

The Court held that there was no reason for triggering the reassessment proceedings against SIPL and quashed the impugned order.

To Read the full text of the Order CLICK HERE

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