The Bombay High Court observed that reopening of tax assessment under Section 148 of the Income Tax Act, 1961 (Act) based on an internal audit report is impermissible.

The Court noted that an internal audit report does not fall within the scope of the term 'information' and therefore reopening based on these reports would amount to a change of opinion.

The Petitioner upon sale of his property filed Income Tax. The Assessing Officer (AO) sought the reopening of the assessment via a notice due to the sale consideration being less than the stamp duty valuation. The Court allowed the Petition, challenging the said notice.

Consequently, de-hors any audit objection raised by the CAG, a view deviating from that which was already taken during the course of issuing the original assessment order is nothing but a ‘change of opinion’ which is impermissible under the provisions of the Act”, the Bench comprising Justice K. R. Shriram and Justice Neela Gokhale observed.

Senior Advocate K. Shivaram appeared for the Petitioner and Advocate Suresh Kumar appeared for the Respondents/Revenue Department.

The Petitioner had sold a plot of land for a consideration of Rs. 18 crores. The property's stamp duty valuation was Rs. 16.50 crores. The agreement allowed for a reduction in consideration by Rs. 6 crores if the Petitioner failed to fulfill certain obligations.

The Petitioner filed its income tax return, declaring income and profits under Section 115JB of the Act. The assessing officer (AO) passed an assessment order, accepting the declared figures. Subsequently, the AO issued a notice under Section 148 of the Act, seeking to reopen the assessment, based on an internal audit objection.

The Court noted that the original assessment order correctly determined that Section 50C of the Act did not apply to the transaction of sale. An audit memo objected to the applicability of Section 50C of the Act, but the AO maintained that the original assessment order was correct. The Additional Commissioner of Income Tax (Audit)-1 (ACIT) once again maintained its objections, and this time the AO accepted that the allowability of Rs.6 Crore expense under the long-term capital gains head was not properly examined.

Hence, the Bench noted that the audit objection was accepted leading to the re-opening of the assessment of the income of the Petitioner. The notice under Section 148 of the Act issued under the old law was treated as notice under Section 148A(b) of the Act. The basis of which the AO issued a notice alleging that there was "information" that suggests escapement of income was an internal audit objection.

we are convinced that prima-facie the information which formed the basis of re-opening itself does not fall within the meaning of the term ‘information’ under the 1st Explanation to Section 148 of the Act and hence, the re-opening is not permissible as it clearly falls within the purview of a ‘change of opinion’ which is impermissible in law”, the Bench noted.

Accordingly, the Court allowed the Petition.

Cause Title: Hasmukh Estates Pvt. Ltd. v Assistant Commissioner of Income-tax (2023:BHC-OS:13316-DB)

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