In a significant ruling of Geopreneur Realty Private Limited Vs Union of India, Through the Secretary, Ministry of Finance Department of Revenue, New Delhi & Others, a petition was filed to challenge the reopening of an income tax assessment under Section 148 of the Income Tax Act, 1961, for the Assessment Year 2017-2018. The petitioner, involved in real estate development and construction, argued that the reopening notice was issued on the basis of a mere change of opinion, which is insufficient to justify reopening an assessment.
Background:
The petitioner initially filed its return of income for the Assessment Year 2017-2018 on October 30, 2017, declaring a total loss of Rs. 1,42,40,038. This return was subsequently revised on June 1, 2018, reporting a loss of Rs. 1,41,16,482. The case was selected for scrutiny, and during the assessment proceedings, the petitioner provided all necessary documents in response to queries from the Assessing Officer (AO).
An assessment order was passed on December 20, 2019, which assessed the petitioner’s loss at Rs. 1,05,42,877. However, on March 30, 2021, the petitioner received a notice under Section 148, stating that there was reason to believe that income chargeable to tax for the said year had escaped assessment.
Grounds for Reopening:
The AO’s reasons for reopening the assessment focused on a few key points:
- The petitioner had substantial outstanding borrowings during the relevant period and had not commenced the project it was financing.
- The financial costs, depreciation, and other related expenses were debited to the profit and loss account despite the lack of business activity.
- The AO claimed that these expenses should have been capitalized as preliminary expenses under "work in progress," which was not done during the original assessment. Consequently, the AO believed that Rs. 5,67,95,525 (financial costs) should be disallowed and added to the petitioner’s total income.
The AO further asserted that the petitioner failed to disclose these facts fully, leading to the conclusion that income had escaped assessment.
Petitioner’s Argument:
The petitioner argued that the issues raised by the AO during the reopening process were already part of the earlier assessment proceedings. The petitioner had responded to several queries during the original assessment, which included questions regarding interest on unsecured loans and the treatment of financial costs. The petitioner contended that since these issues had already been addressed during the scrutiny assessment, the reopening of the case was merely based on a change of opinion rather than new or undisclosed facts.
The petitioner relied on the case of Aroni Commercials Limited vs. The Deputy Commissioner of Income Tax (2014), which clarified that if an issue has already been raised and considered during the original assessment, a subsequent reopening on the same grounds amounts to a change of opinion and is not a valid reason for reassessment.
Court’s Ruling:
The court considered the petitioner’s submission and examined the facts in detail. It observed that during the initial assessment, the AO had raised queries regarding financial costs and other expenses, and the petitioner had provided the required responses. Although these queries were not discussed in detail in the final assessment order, the court noted that the subject matter of these queries had been part of the original assessment process.
The court relied on the ruling in Aroni Commercials Limited, emphasizing that once a query is raised and the assessee responds, it indicates that the matter was considered by the AO during the original assessment. Therefore, reopening the assessment on the same grounds was deemed to be based on a mere change of opinion, which is insufficient to justify a reassessment.
The court concluded that the reopening notice issued on March 30, 2021, was invalid. It ordered that the notice be quashed and set aside, allowing the petitioner to continue without the threat of reassessment for that assessment year.
Conclusion:
This case underscores the importance of ensuring that assessments are not reopened simply based on a change of opinion. The ruling reaffirms that if an issue has already been raised and considered during the original assessment, reopening based on the same issue does not constitute a valid reason for reassessment. The decision serves as a reminder for tax authorities to carefully evaluate the facts before initiating reassessment proceedings.
