IMPORTANT POINT
The jurisdiction to re-open an assessment under the Income Tax Act requires tangible material indicating income has escaped assessment, and cannot be based solely on a change of opinion.

JUDGMENT :

BHARGAV D. KARIA, J.

1. Heard learned Senior Advocate Mr.Tushar Hemani with learned advocate Ms.Vaibhavi K. Parikh for the petitioner and learned Senior Standing Counsel Mr.Karan G. Sanghani for the respondent No.1.

2. Rule, returnable forthwith. Learned Senior Standing Counsel Mr.Karan Sanghani waives service of notice of rule for and on behalf of the respondent No.1.

3. Having regard to the controversy arising in this petition in narrow compass, with the consent of the learned advocates for the parties, the same is taken up for hearing.

4. By this petition under Article 226 of the Constitution of India, the petitioner has challenged the legality and validity of assumption of jurisdiction by the respondent-authority to issue notice dated 31st March, 2021 for re-opening under Section 148 of the Income Tax Act, 1961 (for short ‘the Act’) for Assessment Year 2015-16.

5. Brief facts of the case are as under :

5.1. The petitioner was engaged in the business of construction in the previous year relevant to the assessment year 2014-15. The petitioner filed return of income on 30th September, 2014 declaring total income at Rs.NIL due to loss. The petitioner follows percentage completion method for recognising the revenue which is disclosed in the Note 3 of Significant Accounting Policies forming part of the Audited Annual Accounts.

5.2. The case of the petitioner was taken up for scrutiny and notice was issued on 20th July, 2016 under Section 142(1)/143(2) of the Act calling upon the petitioner to furnish various details including the details of sales, purchases, inventory, etc. Considering the details and information’s submitted by the petitioner, the Assessment Order dated 09.12.2016 under Section 143(3) of the Act was passed without making any addition.

5.3. Thereafter, the petitioner received the impugned notice dated 31st March, 2021 for re-opening and on request of the petitioner, the reasons were provided on 13th August, 2021 which read as under :

“2. Brief details of information collected/ received by the AO: On verification of the computation of income and the annual financial statements (Balance Sheet & Profit and Loss account) for the year under consideration, it is revealed that the assessee had booked/sold residential flats to the customers by receiving advances/deposits and thereby the amount was shown as liability and in asset side some amount was shown as Inventory/construction/Work in progress. This transpires that the assessee had received substantial revenue against expenditure made in the work in progress. However, no matching income for the receipt of amount on percentage completion method as per the provisions of Section AS-7, was offered for taxation. The revenue is recognised every year on basis of percentage of works completed as certified by civil engineer/architect. However, the assessee has not followed the percentage completing method and not offered the true income.

(ii) in this case during the verification of Income-tax case records of the assessee for A.Y.2014-15, it was observed that the assessee had made investment of Rs.1,11,97,054/- in partnership firms as capital in South Beach Investment LLC, which is tax exempt in the hands of the assessee u/s. 10(2A). Therefore, the expenditure relatable to the exempt investment was required to be disallowed, which, in the instant case, comes to Rs.55,985/- (1,11,97,054 0.5%). Failure to do so has resulted into underassessment of income of Rs.55,985/-. Therefore, the same is required to be taxed as per the provisions of the Act.

(iii) The assessee has written off land cost to the tune of Rs. 10,01,06,563/- Rs.2,09,44,620/-(+)Rs.6,93,27,479/(+) Rs.53,67,045/-) for the year 2012-13, 2013-14 & 2014-15. However, no details available with case records how these values arrived and written off. Thus, method of accounting of land cost is not correct.

(iv) The assessee has claimed direct expense of Rs.1,62,52,702/- and after claiming other direct and indirect expenses, ne