Gujarat High Court: Adequate Reasons Required for Reopening Assessments

Gujarat High Court: Adequate Reasons Required for Reopening Assessments

The Gujarat High Court's division bench has recently ruled that the authority's decision to reopen the assessment based on the treatment of other co-owners, while the issue of exemption for those co-owners was still unresolved, is not a valid reason. The Court determined that since the matter concerning the exemption for the co-owners had not reached a final conclusion, the respondent authority's attempt to reopen the assessment was deemed impermissible by the Court.

The petitioner, along with other co-owners, held land parcels in Village Khoraj, Taluka Sanand. These parcels were acquired by the government for public purposes, and the petitioner and co-owners received 75 per cent of the consideration for the land acquisition. Following this, an agreement to sell the land was executed by the petitioner and co-owners, which was later followed by the execution of sale deeds. In the original income tax return for Assessment Year 2016-2017, the petitioner declared their total income and claimed exemption on the income derived from the compulsory acquisition of the land. The Assessing Officer (AO) accepted the petitioner's claim and assessed the income accordingly.

After nearly two years, the petitioner was served a notice under Section 148 of the Income Tax Act, requiring them to file an income tax return for the same assessment year. In response, the petitioner duly complied with the notice and requested reasons for the reopening of the assessment. Consequently, the respondent authority issued a notice to the petitioner. The petitioner contested the validity of the notice under Section 148 by raising objections, but these objections were ultimately dismissed.

Justices Ashutosh Shastri and J.C. Doshi of the High Court cited a Central Board of Direct Taxes (CBDT) Circular issued on October 25, 2016, which provided clarification regarding the taxability of received compensation. The circular specified that compensation received for an award or agreement, which fell under the purview of income tax according to Section 96 of the Right to Fair Compensation and Transparency in Land Acquisition, Rehabilitation and Resettlement Act, 2013, would not be subject to taxation under the Income Tax Act.

The bench expressed the view that the orders concerning the remaining two co-owners, issued under Section 143(3) in conjunction with Section 263 of the Act, were still in progress and had not yet concluded. Consequently, the authority could not use those orders as the sole basis for invoking Section 147 of the Act to reopen the assessment of the petitioner. The bench emphasised the need for an independent assessment to be conducted rather than relying solely on the aforementioned orders.

The bench also noted that the respondent authority had not displayed an independent application of judgment in the case. The reasons cited for reopening the assessment primarily relied on a divergent view taken in proceedings under Section 263 of the Act concerning the other co-owners. However, the authority neglected to adequately analyse the relevant provisions and the CBDT circular pertaining to the exemption.

The bench highlighted that Sections 147 and 263 of the Act possess distinct characteristics, and the authority's decision lacked a comprehensive analysis, indicating a reliance on borrowed satisfaction rather than an independent exercise of judgment.

The bench further commented that considering the compulsory acquisition of the land and the rightful claim for exemption on the income, the authority's conclusion that the income has escaped assessment seems to be incorrect.