Gujarat High Court
Mukundbhai Manubhai Patel Through Poa ... vs Assistant Commissioner Of Income Tax, ... on 18 August, 2025
Author: Bhargav D. Karia
Bench: Bhargav D. Karia
NEUTRAL CITATION
C/SCA/8246/2022 JUDGMENT DATED: 18/08/2025
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IN THE HIGH COURT OF GUJARAT AT AHMEDABAD
R/SPECIAL CIVIL APPLICATION NO. 8246 of 2022
FOR APPROVAL AND SIGNATURE:
HONOURABLE MR. JUSTICE BHARGAV D. KARIA
and
HONOURABLE MR. JUSTICE PRANAV TRIVEDI
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Approved for Reporting Yes
No
✔
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MUKUNDBHAI MANUBHAI PATEL THROUGH POA HOLDER RAJESH
NATUBHAI PATEL
Versus
ASSISTANT COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE 1,
VADODARA
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Appearance:
MR B S SOPARKAR(6851) for the Petitioner(s) No. 1
KARAN G SANGHANI(7945) for the Respondent(s) No. 1
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CORAM:HONOURABLE MR. JUSTICE BHARGAV D. KARIA
and
HONOURABLE MR. JUSTICE PRANAV TRIVEDI
Date : 18/08/2025
ORAL JUDGMENT
(PER : HONOURABLE MR. JUSTICE BHARGAV D. KARIA)
1. Heard learned advocate Mr. B.S. Soparkar for the petitioner and learned Senior Standing Counsel Mr. Karan Sanghani for the respondent.
2. Having regard to the controversy arising in the petition which is in narrow compass, with the consent of the Page 1 of 20 Uploaded by PHALGUNI PATEL(HC00175) on Mon Sep 01 2025 Downloaded on : Fri Sep 05 23:59:00 IST 2025 NEUTRAL CITATION C/SCA/8246/2022 JUDGMENT DATED: 18/08/2025 undefined learned advocates for the respective parties, the matter is taken up for hearing.
3. Rule returnable forthwith. Learned Senior Standing Counsel Mr. Karan Sanghani waives service of notice of rule on behalf of the respondent.
4. By this petition under Article 226 of the Constitution of India, the petitioner has prayed for the following reliefs :-
"7(a) quash and set aside the impugned notice dated 31.03.2021 at Annexure-'A' to this petition;
(b) quash and set aside the impugned order disposing off objections dated 31.03.2022 at Annexure-'B' to this petition;
(c) quash and set aside the impugned assessment order dated 31.03.2022 at Annexure-'C' to this petition;"
5. The factual matrix giving rise to this petition can be summarized as under :-
5.1. The petitioner filed his return of income for Assessment Year 2015-16 on 31.03.2016 declaring total income of Rs.1,75,05,700/-. The return of income was selected for scrutiny on the ground that the sale consideration disclosed in capital gain schedule is significantly less and sale consideration Page 2 of 20 Uploaded by PHALGUNI PATEL(HC00175) on Mon Sep 01 2025 Downloaded on : Fri Sep 05 23:59:00 IST 2025 NEUTRAL CITATION C/SCA/8246/2022 JUDGMENT DATED: 18/08/2025 undefined of property in ITR is less than sale consideration reported in Form 26QB. Thereafter, notices under Section 142(1) of the Income Tax Act, 1961 (For Short "the Act") dated 09.01.2017, 21.07.2017, 04.09.2017 and 08.09.2017 were issued calling for specific details relating to sale consideration disclosed in capital gain schedule and sale consideration of property. The petitioner filed replies to such notices and after having been satisfied, the Assessing Officer passed the Assessment Order dated 23.11.2017 accepting the returned income without making any addition.
5.2. Thereafter, the respondent has issued the impugned notice under Section 148 of the Act dated 31.03.2021 asking the petitioner to file return of income for Assessment Year 2015-16.
The petitioner without prejudice filed return of income on 30.04.2021 in compliance of the notice declaring the total income of Rs.1,75,05,700/- and also requested to supply reasons recorded for reopening. The respondent - Assessing Officer provided the reasons recorded for reopening of assessment along with notice under Section 143(2) of the Act dated 28.10.2021. However, the petitioner was under a belief that only Page 3 of 20 Uploaded by PHALGUNI PATEL(HC00175) on Mon Sep 01 2025 Downloaded on : Fri Sep 05 23:59:00 IST 2025 NEUTRAL CITATION C/SCA/8246/2022 JUDGMENT DATED: 18/08/2025 undefined notice under Section 143(2) of the Act has been issued on 28.10.2021 and reasons recorded has not been provided by the respondent. Thereafter on 24.12.2021, the petitioner wrote a letter to the respondent requesting for reasons recorded. 5.3. The petitioner filed objections on 08.03.2022 against reopening of the assessment for Assessment Year 2015-16 contending that there is no new tangible/concrete material with the Assessing Officer which leads to escapement of income and the notice for reopening has been issued after completion of four years from the end of the relevant Assessment Year and as there is original assessment under Section 143(3) of the Act, the case of the petitioner can be reopened only if there is failure on the part of the assessee to disclose fully and truly all material facts. However, there is no failure on the part of the petitioner in disclosing fully and truly all material facts for the purpose of assessment. It was also contended that it is a case of mere change of opinion.
5.4. The respondent Assessing Officer by order dated 31.03.2022 disposed of the objections and also passed an Page 4 of 20 Uploaded by PHALGUNI PATEL(HC00175) on Mon Sep 01 2025 Downloaded on : Fri Sep 05 23:59:00 IST 2025 NEUTRAL CITATION C/SCA/8246/2022 JUDGMENT DATED: 18/08/2025 undefined Assessment Order under Section 147 of the Act on the same date making addition of Rs.1,95,67,454/- being the long term capital gain on sale of immovable properties offered to tax by the petitioner to be considered as income from business. Being aggrieved, the petitioner has preferred this petition.
6. Learned advocate Mr. B.S. Soparkar for the petitioner submitted that there is no failure on the part of the petitioner to disclose fully and truly all material facts during the course of regular assessment and subsequent information referred to in the reasons recorded is not of any nature which was not known to the Assessing Officer at the time of scrutiny. It was, therefore, submitted that this is a case of mere change of opinion about the characterization of income to be considered as long term capital gain or income from business which cannot be considered as an escapement of income. It was further submitted that there are no sufficient grounds to reopen the assessment beyond the period of four years.
7. Learned advocate Mr. B.S. Soparkar has also placed reliance on the following decisions :-
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NEUTRAL CITATION C/SCA/8246/2022 JUDGMENT DATED: 18/08/2025 undefined
(i) In case of Parashuram Pottery Works Co. Ltd. v. Income Tax Officer, Cirlce-1, Ward A reported in 106 ITR 1 (SC);
(ii) In case of Nanubhai Vashrambhai Ramolia v. Assistant Commissioner of Income Tax reported in [2024] 166 Taxmann.com 598 (Guj.)
(iii) In case of Placid Ltd. v. Assistant/Deputy Commissioner of Income Tax reported in [2022] 135 Taxmann.com 192 (Cal.).
(iv) In case of Aroni Commercials Ltd. v. Deputy Commissioner of Income Tax(2)-1 reported in [2014] 44 Taxmann.com 304 (Bombay).
(v) In case of Manishkumar Tulsidas Kaneriya v. Deputy Commissioner of Income Tax- Range-3 (1) reported in [2016] 73 Taxmann.com 11 (Gujarat).
7.1. It was further submitted that the respondent Assessing Officer has passed the order disposing of the objections on 31.03.2022 and the Assessment Order is passed on the same date and no time was available with the petitioner to challenge the notice issued under Section 148 of the Act. Learned advocate Mr. Soparkar invited attention of the Court that the order disposing of objections was passed at 9:53 pm on 31.03.2022, whereas the Assessment Order is passed on 07:28 pm on 31.03.2022. It was therefore submitted that the Page 6 of 20 Uploaded by PHALGUNI PATEL(HC00175) on Mon Sep 01 2025 Downloaded on : Fri Sep 05 23:59:00 IST 2025 NEUTRAL CITATION C/SCA/8246/2022 JUDGMENT DATED: 18/08/2025 undefined Assessment Order has been passed prior to the passing of the order disposing of the objections which is contrary to the decision of the Hon'ble Apex Court in case of GKN Driveshafts (India) Ltd v. Income Tax Officer, reported in 259 ITR 19. 7.2. It was further submitted that the respondent has also not issued any show cause notice or draft assessment order or afforded any opportunity of hearing via video conferencing and therefore there is violation of mandatory provisions as contained in Section 144B of the Act. It was therefore submitted that the impugned notice and the order disposing of the objections and the Assessment Order are liable to be quashed and set aside.
8. Per contra, learned Senior Standing Counsel Mr. Karan Sanghani for the respondent submitted that now the Assessment Order under Section 147 of the Act has already been passed and the petitioner has alternative efficacious remedy available to challenge the same by preferring an appeal before the CIT (Appeals). It was submitted that the Assessment has been reopened on the basis of the information from the Deputy Director of the Income Tax (Investigation-1), Vadodara Page 7 of 20 Uploaded by PHALGUNI PATEL(HC00175) on Mon Sep 01 2025 Downloaded on : Fri Sep 05 23:59:00 IST 2025 NEUTRAL CITATION C/SCA/8246/2022 JUDGMENT DATED: 18/08/2025 undefined which clearly indicate that the assessee reported the long term capital gain of Rs.1,95,67,454/- on the sale of properties under the Pratham Meadows and Pratham Vistas Scheme and which were converted into stock-in-trades and subsequently developed and therefore, the nature of gains realized from the sale of such property does not qualify as capital gains but should be classified as business income. It was submitted that based upon the above information the Assessing Officer formed reason to believe that income chargeable to tax has escaped assessment on account of failure on the part of the petitioner to disclose fully and truly all material facts necessary for the assessment. 8.1. It was also submitted by learned learned Senior Standing Counsel Mr. Karan Sanghani that in the facts of the case when the respondent Assessing Officer was in possession of the new information or evidence which indicates that the income has escaped assessment, the principle of change of opinion would not apply as same set of facts is not considered while recording reasons. It was pointed out that the contents of notice issued by the Assessing Officer under Section 142 (1) and 143(2) of the Act and the order sheet entries recorded during 143(3) Page 8 of 20 Uploaded by PHALGUNI PATEL(HC00175) on Mon Sep 01 2025 Downloaded on : Fri Sep 05 23:59:00 IST 2025 NEUTRAL CITATION C/SCA/8246/2022 JUDGMENT DATED: 18/08/2025 undefined proceedings clearly show that new changes in the facts of the case are considered while recording reasons for reopening were available and the material facts relevant for the assessment on the issue under consideration were not filed during the course of regular assessment proceedings which may be embedded in the Annual Report, Profit and Loss Account, Balance Sheet, Books of Accounts in such a manner that it would require due diligence by the Assessing Officer to extract such information. It was, therefore, submitted that no interference may be made while exercising extraordinary jurisdiction under Article 226 of the Constitution of India as the Assessing Officer has assumed jurisdiction on the ground as stated elaborately in the reasons recorded for reopening.
9. With regard to the issue of order disposing of the objections as well as providing draft assessment order, learned Senior Standing Counsel Mr. Karan Sanghani referred to the following averments made in the affidavit-in-reply filed on behalf of the respondents.
"8. The Petitioner's argument that the Assessment Order under Section 143(3) was framed without making any additions concerning capital gains does not negate the the matter. The Respondent's ability to reassess acceptance of the return in the Page 9 of 20 Uploaded by PHALGUNI PATEL(HC00175) on Mon Sep 01 2025 Downloaded on : Fri Sep 05 23:59:00 IST 2025 NEUTRAL CITATION C/SCA/8246/2022 JUDGMENT DATED: 18/08/2025 undefined earlier assessment does not act as a bar to further scrutiny if the Respondent has reasonable grounds to believe that the original assessment was erroneous or incomplete based on new evidence or findings.
The assertion that the Respondent is engaging in differential treatment for the same issue is misplaced. The Respondent's duty is to ensure compliance with tax laws, and any indication of undisclosed income or discrepancies warrants further investigation. The Respondent's actions must be viewed in the context of ensuring the proper application of tax law rather than as an arbitrary or discriminatory act.
9. With reference to para 3.4 and 3.5, the petitioner has contended that the order disposing of objections was passed after the assessment order and therefore, the same is illegal.
In this regard, it is submitted that the documents were processed and generated through the ITBA in a different sequence, not due to any delay or irregularity. Both documents were effectively issued simultaneously, with the apparent difference in timing arising solely from the system process of generation Various administrative processing, may influence the timeline, but these do not compromise the legality of the issued orders.
The Petitioner contends that the Assessment Order was passed without addressing the objections. raised. However, the Respondent is entitled to issue multiple orders on the same date as part of its procedural operations. The completion of the assessment process may still be valid if the Respondent can demonstrate that it considered the objections, irrespective of the order in which documents were physically generated. The legality of the orders should not be challenged merely based on the timing of their documentation. Furthermore, the Petitioner has not established that any prejudice resulted from the timing of the orders. If the Petitioner was able to present their case adequately during the proceedings, then the procedural timing does not invalidate the Respondent's findings or decisions. The emphasis should be on the the substance of the objections rather than technicalities of the order issuance.
10. With reference to para 3.6, the assertion that the Respondent must issue a draft assessment order and provide a video conference is unfounded. There is no statutory requirement for such procedures in cases handled by a central charge, as these are not subject to faceless assessment norms. The principles of Page 10 of 20 Uploaded by PHALGUNI PATEL(HC00175) on Mon Sep 01 2025 Downloaded on : Fri Sep 05 23:59:00 IST 2025 NEUTRAL CITATION C/SCA/8246/2022 JUDGMENT DATED: 18/08/2025 undefined natural justice are upheld as long as the taxpayer is given a fair opportunity to present their case. The Respondent has provided sufficient opportunities for the Petitioner to submit information and defend their position during the assessment process.
Thus, the claim that the impugned assessment order is illegal due to the absence of a draft order and video conference lacks merit. The Respondent has acted within the provisions of the Income Tax Act, and the assessment was conducted fairly and legally."
9.1. Learned Senior Standing Counsel Mr. Karan Sanghani referred to the following averments made in the affidavit-in- reply filed on behalf of the respondent to justify the assumption of jurisdiction on merits :
"11. With reference to para 3.7. the petitioner has contended that no income has escaped assessment.
The assertion that no income has escaped assessment is incorrect. The information from the Deputy Director of Income Tax (Investigation)-1, Vadodara, indicates that the assessee reported LTCG of 21,95,67,454/- from the sale of properties under the Pratham Meadows and Pratham Vistas schemes. Given that these properties were converted into stock-in-trade and subsequently developed, the nature of the gains realized from their sale does not qualify as capital gains but should be classified as business income.
The assessee's claim to treat the sales consideration as capital gains fails to recognize the fundamental nature of the transaction. The property was initially held as stock-in-trade during the financial year 2008-09, and the subsequent sale of the bungalows constructed on that land constitutes business activity. Therefore, the characterization of these proceeds as capital gains is not supported by the facts.
12. The assessee's attempt to set off the STCL of 1,30,84,691/- against the LTCG of ₹1,95,67,454/- is inappropriate given that the nature of the income derived from property sales is business income. This set-off is not permissible under the provisions of the Income Tax Act, as the incomes arise from different sources-one Page 11 of 20 Uploaded by PHALGUNI PATEL(HC00175) on Mon Sep 01 2025 Downloaded on : Fri Sep 05 23:59:00 IST 2025 NEUTRAL CITATION C/SCA/8246/2022 JUDGMENT DATED: 18/08/2025 undefined from capital gains and the other from business activities. In light of the above points, it is clear that the assertion of no income escaping assessment is misguided. The LTCG claimed should not only be disallowed but reclassified as business income, which should be subject to appropriate taxation."
9.2. Referring to the above submissions, it was submitted that the Assessing Officer was justified in assuming the jurisdiction to reopen the assessment.
10. Having heard the learned advocates for the respective parties and having considered the facts of the case which is emerging from the record it is apparent that the Assessing Officer has passed the order dated 23.11.2017 under Section 143(3) of the Act after considering the nature of transactions of sale of property which is the basis for issuance of the notice under Section 148 of the Act for reassessment. By notice under Section 143(2) of the Act dated 09.01.2017, details with regard to nature of business activity carried out by the assessee during the financial year were called for, whereas by further letter dated 21.07.2017, the petitioner was called upon to reconcile the large value transactions and sale consideration disclosed in the capital gain statement of return of income and submit the details of the same. The respondent thereafter issued letter Page 12 of 20 Uploaded by PHALGUNI PATEL(HC00175) on Mon Sep 01 2025 Downloaded on : Fri Sep 05 23:59:00 IST 2025 NEUTRAL CITATION C/SCA/8246/2022 JUDGMENT DATED: 18/08/2025 undefined dated 08.09.2017 to the petitioner asking for details regarding verification of the property transactions in question. The petitioner submitted reply giving details of the nature of business to the effect that he was Director in various firms which are engaged in business of development and also rendered income from sources of capital gains. The petitioner also provided details of the transactions of the property in the form specified in the notice issued by the Assessing Officer recording statement of long term capital gain in the year under consideration.
11. After considering such details, the Assessment Order under Section 143(3) of the Act was passed accepting the income as per the return of income filed by the petitioner for the Assessment Year 2015-16 .
12. The respondent Assessing Officer thereafter has recorded reasons recorded in various transactions entered into by the petitioner for sale of the property during the previous financial year 2014-15 and has recorded as under :-
"The assessee has also submitted in his submission before the DDIT (Inv.)-1 Vadodara that the immovable property in question is the land at Bhayli which happens to be the construction site Page 13 of 20 Uploaded by PHALGUNI PATEL(HC00175) on Mon Sep 01 2025 Downloaded on : Fri Sep 05 23:59:00 IST 2025 NEUTRAL CITATION C/SCA/8246/2022 JUDGMENT DATED: 18/08/2025 undefined for the projects Pratham Meadows and Pratham Vistas. The plots mentioned in the table above are the properties on sale against which the assessee has claimed the LTCG. These plots of projects Pratham Meadows and Pratham Vistas are the part of land at Block No. 1740, 1746, 1754 and 1752/2, Bhayli. The assessee has also submitted the Development Agreement and sale deed executed for the scheme Pratham Meadows and Pratham Vistas. On perusal of these, it is noticed that these plots at Bhayli which are under the scheme have been sold vide development agreement executed on 27.10.2008 with Pratham Group and he has offered capital gain on sale of these plots. Further, on perusal of the sale deed executed for scheme Pratham Meadows and Pratham Vistas, it is seen that the land at Block No.1740, 1746, 1754 and 1752/2, Bhayli was converted into stock in trade during F.Y.2008-09 and the bungalows were built on it by Pratham Developers. The assessee has claimed capital gain on the sale of land at the time of sale of bungalows. The nature of sale of this property lies under the head business income and it should have been offered by the assessee under the head Profits and Gain from Business and Profession and not as Long Term Capital Gain as claimed by him in his return of income filed for the year under consideration. 4. Enquiries made by the AO as sequel to Information collected/received: The undersigned has gone through the submission of the assessee before office of DDIT (Inv.)-1, Vadodara along with the documents attached to it and facts categorically analyzed in the report prepared by DDIT(Inv)-I, Vadodara with respect to the issues for the year under consideration. On examination of the same, undersigned is satisfied with the factual analysis made in the report that the nature of sale of the property (land at Block No. 1740, 1746, 1754 and 1752/2, Bhayli) lies under the head business income and it should have been offered by the assessee under the head Profits and Gain from Business and Profession and not as Long Term Capital Gain as claimed by him in his return of income filed for the year under consideration 5. Findings of the AO: The information is received from the office of DDIT (Inv.)-1. Vadodara regarding the claim of Long Term Capital Gain on sale of properties (plots) for scheme Pratham Meadows and Pratham Vistas of Rs. 1,95,67,454/- by the assessee during the year under consideration. Further, the assessee has incurred Short Term Capital Loss of Rs.1,30,84,691/- during the year on sale of shares of Infosys Ltd. The assesse has purchased share of Infosys during the year after the company had announced bonus share. After the bonus share is received in his demat account on 10.10.2014, the assesse has sold the original shares on various dates during the year and booked short term capital loss. Further, the assesse has set off this STCL on sale of shares with the LTCG on sale of Page 14 of 20 Uploaded by PHALGUNI PATEL(HC00175) on Mon Sep 01 2025 Downloaded on : Fri Sep 05 23:59:00 IST 2025 NEUTRAL CITATION C/SCA/8246/2022 JUDGMENT DATED: 18/08/2025 undefined immovable properties. During the proceedings before the office of DDIT (Inv.)-1, Vadodara, the assesse has submitted in his submission that Plot sold at Bhayli under the scheme Pratham Meadows and Pratham Vistas have been sold vide development agreement executed on 27.10.2008 with Pratham Group and he has offered capital gain on sale of the plots during the year. On going through the sale deed executed for scheme Pratham Meadows and Pratham Vistas, it is seen that the land at Block No.1740, 1746, 1754 and 1752/2, Bhayli was converted into stock in trade during F.Y.2008-09 and the bungalows were built on it by Pratham Developers. The assesse has claimed capital gain on the sale of land at the time of sale of bungalows. However, the nature of sale of this property lies under the head business income. As the assesse is a developer and builder and he frequently buys and sells properties in and around Vadodara, therefore, the nature of properties sold by the assesse should be considered under the head of profits and gain from business and profession and not capital gain. Therefore, the assesse's claim of setting off of STCL on sale of shares of Rs.1,30,84,691/- against LTCG on sale of immovable properties is required to be disallowed as it is in violation of provisions of the Act. The LTCG claimed by the assesse of Rs. 1,95,67,454/- should be treated as business income and taxed accordingly. 6. Basis of forming reason to believe and details of escapement of income:
Accordingly, the amount of Rs. 1,95,67,454/- wrongly claimed by the assesse as LTCG for F.Y. 2014-15 needs to be taxed as profits and gain from business and profession as per the provisions of Income Tax Act, 1961 for the relevant Assessment Year. Further, the set off his STCL of Rs. 1,30,84,691/- on sale of shares with the LTCG of Rs. 1,95,67,454/- on sale of immovable properties during the year under consideration should be disallowed. I have, therefore, reason to believe that income to the extent of Rs.1,95,67,454/- has escaped assessment for which the case of the assesse for A.Y. 2015-16 needs to be reopened within the meaning of section 147 of the Income Tax Act, 1961. 7. Applicability of the provisions of section 147/151 to the facts of the case: In this case return of income was filed for the year under consideration and regular assessment u/s 143(3) of the Act was made on 23.11.2017 which does not include the issues discussed in para 4 to 6 above. Since, 4 years from the end of the relevant year has expired in this case, the requirements to initiate proceedings u/s 147 of the act are reason to believe that income for the year under consideration has escaped assessment because of the failure on the part of the assesse to disclose fully and truly all material facts necessary for its assessment for the A.Y. under consideration. It is pertinent to mention here that reasons to believe that income has escaped assessment for the Page 15 of 20 Uploaded by PHALGUNI PATEL(HC00175) on Mon Sep 01 2025 Downloaded on : Fri Sep 05 23:59:00 IST 2025 NEUTRAL CITATION C/SCA/8246/2022 JUDGMENT DATED: 18/08/2025 undefined year under consideration have been recorded in above paragraph
6. I have carefully considered the assessment records containing the submissions made by the assesse in response to various notices issued during the assessment/re-assessment proceedings and have noted that the assesse has not fully and truly disclosed the following material facts necessary for his assessment for the year under consideration: The detailed information regarding income from sale of immovable property which should have been shown under the head PGBP and not as LTCG and its subsequent set off with the loss on sale of shares. It is evident from the above facts that the assesse had not truly and fully disclosed material facts necessary for its assessment for the year under consideration thereby necessitating reopening u/s 147 of the Act.
It is true that the assesse has filed a copy of annual report and audited P&L and Balance sheet along with return of income where various information/material were disclosed. However, the requisite full and true disclosure of all material facts necessary for assessment has not been made as noted above. It is pertinent to mention here that even though the assesse has produced books of accounts, annual report, audited P&L A/c and Balance sheet or other evidence as mentioned above, the requisite material facts as noted above in the reasons for reopening were embedded in such manner that material evidence could not be discovered by the AO and could have been discovered with due diligence, accordingly attracting provisions of Explanation 1 of section 147 of the act. It is evident from the above discussion that in this case, the issues under consideration were never examined by the AO during the course of regular assessment/reassessment. This fact is corroborated from the contents of notices issued by the AO u/s 142(1)/143(2) and order sheet entries recorded during the 143(3) proceedings. It is important to highlight here that material facts relevant for the assessment on the issues under consideration were not filed during the course of assessment proceedings and the same may be embedded in annual report, audited P&L A/c, balance sheet and books of account in such a manner that it would require due diligence by the AO to extract this information. For aforestated reasons, it is not a case of change of opinion by the AO. In this case more than four years have lapsed from the end of assessment year under consideration. Hence necessary sanction to issue notice u/s 148 is being obtained separately from Principal Commissioner of income Tax as per the provision of section 151 of the Act."
13. The respondent Assessing Officer therefore has come to Page 16 of 20 Uploaded by PHALGUNI PATEL(HC00175) on Mon Sep 01 2025 Downloaded on : Fri Sep 05 23:59:00 IST 2025 NEUTRAL CITATION C/SCA/8246/2022 JUDGMENT DATED: 18/08/2025 undefined the conclusion that the long term capital gain offered by the petitioner of Rs.1,95,67,454/- should be considered as income from business and therefore, such income has escaped assessment requiring the same to assume jurisdiction to reopen the assessment.
14. On perusal of the reasons recorded by the Assessing Officer for reopening, it is clear that the same amount of income was offered to tax by the petitioner as long term capital gains which was considered by the Assessing Officer on the basis of the information disclosed by the petitioner during the course of regular assessment. Therefore, when all the material information were truly and fully disclosed by the petitioner and therefore, as per the proviso to Section 147 of the Act, the respondent Assessing Officer could not have assumed the jurisdiction to reopen the assessment in absence of any new tangible or concrete facts having live nexus with the income escaping assessment for the year under consideration. It is clear from the above reasons recorded that the Assessing Officer has merely formed a belief that income has escaped assessment on mere change of opinion to treat long term capital gains as Page 17 of 20 Uploaded by PHALGUNI PATEL(HC00175) on Mon Sep 01 2025 Downloaded on : Fri Sep 05 23:59:00 IST 2025 NEUTRAL CITATION C/SCA/8246/2022 JUDGMENT DATED: 18/08/2025 undefined income from business.
15. It is also pertinent to note that the Assessing Officer has not disposed of the objections raised by the petitioner and the same were disposed of after the Assessment Order under Section 147 of the Act was passed on 31.03.2022 which is evident from the time recorded in each of the orders as the same were digitally signed. The order disposing of the objections was passed on 09:53 pm on 31.03.2022, whereas the Assessment Order under Section 147 of the Act was passed at 07:28 pm on 31.03.2022 (page 19 and 20 of the petition). Thus, it is evident that the Assessment Order was digitally signed prior to the order disposing of the objections.
16. In view of the above facts emerging from the record, it can be said that the respondent Assessing Officer should not have assumed the jurisdiction for reopening of the assessment for the year under consideration as it would amount to mere change of opinion as held by the Hon'ble Apex Court in case of Commissioner of Income Tax, Delhi vs. Kelvinator of India Limited reported in (2010) 320 ITR 561 as Page 18 of 20 Uploaded by PHALGUNI PATEL(HC00175) on Mon Sep 01 2025 Downloaded on : Fri Sep 05 23:59:00 IST 2025 NEUTRAL CITATION C/SCA/8246/2022 JUDGMENT DATED: 18/08/2025 undefined under :-
"6. On going through the changes, quoted above, made to Section 147 of the Act, we find that, prior to Direct Tax Laws (Amendment) Act, 1987, re-opening could be done under above two conditions and fulfillment of the said conditions alone conferred jurisdiction on the Assessing Officer to make a back assessment, but in section 147 of the Act [with effect from 1st April, 1989], they are given a go-by and only one condition has remained, viz., that where the Assessing Officer has reason to believe that income has escaped assessment, confers jurisdiction to re- open the assessment. Therefore, post-1st April, 1989, power to re-open is much wider. However, one needs to give a schematic interpretation to the words "reason to believe" failing which, we are afraid, Section 147 would give arbitrary powers to the Assessing Officer to re-open assessments on the basis of "mere change of opinion", which cannot be per se reason to re- open. We must also keep in mind the conceptual difference between power to review and power to re-assess. The Assessing Officer has no power to review; he has the power to re-assess. But re-assessment has to be based on fulfillment of certain pre- condition and if the concept of "change of opinion" is removed, as contended on behalf of the Department, then, in the garb of re- opening the assessment, review would take place. One must treat the concept of "change of opinion" as an in-built test to check abuse of power by the Assessing Officer. Hence, after 1st April, 1989, Assessing Officer has power to re-open, provided there is "tangible material" to come to the conclusion that there is escapement of income from assessment. Reasons must have a live link with the formation of the belief. Our view gets support from the changes made to Section 147 of the Act, as quoted hereinabove. Under the Direct Tax Laws (Amendment) Act, 1987, Parliament not only deleted the words "reason to believe" but also inserted the word "opinion" in Section 147 of the Act. However, on receipt of representations from the Companies against omission of the words "reason to believe", Parliament re- introduced the said expression and deleted the word "opinion" on the ground that it would vest arbitrary powers in the Assessing Officer. We quote hereinbelow the relevant portion of Circular No.549 dated 31st October, 1989, which reads as follows:
"7.2 Amendment made by the Amending Act, 1989, to reintroduce the expression `reason to believe' in Section
147.--A number of representations were received against the omission of the words `reason to believe' from Section 147 and their substitution by the `opinion' of the Assessing Page 19 of 20 Uploaded by PHALGUNI PATEL(HC00175) on Mon Sep 01 2025 Downloaded on : Fri Sep 05 23:59:00 IST 2025 NEUTRAL CITATION C/SCA/8246/2022 JUDGMENT DATED: 18/08/2025 undefined Officer. It was pointed out that the meaning of the expression, `reason to believe' had been explained in a number of court rulings in the past and was well settled and its omission from section 147 would give arbitrary powers to the Assessing Officer to reopen past assessments on mere change of opinion. To allay these fears, the Amending Act, 1989, has again amended section 147 to reintroduce the expression `has reason to believe' in place of the words `for reasons to be recorded by him in writing, is of the opinion'. Other provisions of the new section 147, however, remain the same."
17. For the foregoing reasons, the petition succeeds. The impugned notice dated 31.03.2021 is hereby quashed and set aside. The consequential order disposing of the objections as well as the Assessment Order dated 31.03.2022 are also quashed and set aside. Rule is made absolute to the aforesaid extent with no order as to costs.
(BHARGAV D. KARIA, J) (PRANAV TRIVEDI,J) phalguni Page 20 of 20 Uploaded by PHALGUNI PATEL(HC00175) on Mon Sep 01 2025 Downloaded on : Fri Sep 05 23:59:00 IST 2025