The main legal point established in the judgment is that the reopening of an assessment must be based on valid reasons to believe that income chargeable to tax has escaped assessment, and not merely on a change of opinion of the Assessing Officer.

JUDGMENT :

K.R. SHRIRAM, J.

1. Rule. Rule made returnable forthwith. By consent of both counsel, Petition taken up for final hearing at the admission stage.

2. By this Petition, Petitioner challenges the Notice dated 26.03.2019 issued under section 148 of the Income Tax Act, 1961 (the said Act) and the Order dated 20.11.2019 disposing Petitioner’s objections to the reopening of assessment. Petitioner was Managing Director of a Company and earned income from salary, income from house property and income from other sources. For the assessment year 2012-13, Petitioner has filed income tax return on 27.07.2012 disclosing the total income of Rs.81,23,933. The assessment was completed under section 143(3) of the said Act. In the assessment order dated 31.12.2014, the income was assessed at Rs.82,07,933/-.

3. Petitioner received impugned notice dated 26.03.2019 under section 148 of the said Act informing Petitioner that there were reasons to believe Petitioner’s income chargeable to tax for the assessment year 2012-13 has escaped Assessment within the meaning of Section 147 of the said Act. Petitioner was called upon to file return in the prescribed form which Petitioner did. Petitioner was also provided with the reasons to believe for reopening of assessment along with notice dated 20.09.2019 under section 142(1) of the said Act. Reasons to believe reads as under:

“...........In this case assessee has claimed exemption for capital gain of Rs.108,46,405/- U/s.54. However, it was noticed from the agreement for purchase that flat was purchased on 28.05.10 whereas capital gain arose on 05.09.11. Hence the flat was purchased more than one year before the date of capital gain arose. This has resulted in incorrect claim of exemption U/s.54B and underassessment of income of Rs.108,46,405/- and consequential short levy of tax of Rs.22,29,859/-.

As per the provision of S.54, if the capital gain arises from transfer of long term capital asset and assessee has within a period of one year before or two years after the date on which the transfer took place purchased or within a period of three years after that date constructed residential house, then amount of capital gain shall not be charged to tax, if amount invested in new house is greater than capital gain.

From the information as gathered from the assessment record it is clear that the assessee has claimed exemption U/s.54 of the IT Act for long term capital gain even as the assessee was not eligible for the same.

The assessment records of the assessee were accessed and were used to enquire about the nature of the transaction in respect of both the properties.

From the assessment records it was seen that the assessee has claimed deduction by stating that the property was under-construction hence the time limit of buying the same not before one year of the date on which capital gains arose does not apply. However, the property mentioned to be under construction was purchased on 28.05.2010. As the property was purchased and not constructed therefore the time limit of not buying before one year of the date of capital gains. Therefore, I am of the firm opinion and have bona fide and valid reason to believe that the case is squarely fit to be reopened with reference to the provisions U/s.147/148 of the IT Act, 1961 so as to bring to tax the claim of exemption from capital gain tax made by the assessee of Rs.1,08,46,405/-...........”

4. Mr. Jain correctly submitted that since notice has been received after expiry of four years from the end of the relevant assessment year, the requirement of law to initiate proceedings under section 147 of the said Act would be only when there was failure on the part of the assessee to disclose fully and truly all material facts necessary for his assessment for the assessment year under consideration. Mr. Jain submitted that reasons to believe dose not disclose that there was any such failure on the part of the assessee because the reasons to believe proceed on the basis “.