Friday, 29 March 2013

Whether when assessee is given many opportunities to explain how rental income has become business income as claimed in return, lack of response from assessee justifies re-assessment u/s 147 - YES: Bombay HC

THE issue before the Bench is - Whether when assessee is given many opportunities to explain how rental income has become business income as claimed in the return, lack of response from the assessee justifies re-assessment u/s 147. YES is the HC's answer.
Facts of the case

The assessee had been receiving rent from leasing its property for many years. Till A.Y. 2007-08, the rental income was declared by the assessee under the head of business income. From A.Y. 2008-09 the rental income was declared by the assessee as income from house property. Since the assessee had accepted from A.Y. 2008-09 that the rental income was taxable under the head - income from house property, the AO was of the view that the same view needed to be taken for A.Ys. 2006-07 and 2007-08. The AO had also stated that the rental income was treated as income from house property.

Before the HC the Assessee's Counsel submitted that the purported reopening of the
assessments for A.Ys. 2006-07 and 2007-08 was based on only a subjective satisfaction of the AO and without any verification of facts. The Revenue's Counsel submitted that the assessee failed to furnish a reply to the query. No clarification was issued to the AO setting out facts on the basis of which it could be concluded that the circumstances pertaining to A.Ys. 2006-07 and 2007-08 were different from those of A.Y. 2008-09.

Having heard the parties, the HC held that,

++ the failure of the assessee to issue a clarification before the AO and to explain how the facts for A.Ys. 2006-07 and 2007-08 were different from those of A.Y. 2008-09 and subsequent years was a circumstance which led the AO to believe that the rental income has been wrongly assessed under the head of income from business rather than as income from house property;

++ the AO was justified in purporting to reopen the assessments for A.Ys. 2006-07 and 2007-08. Sufficient opportunity was given to the assessee during the course of the assessment for A.Y. 2009-10 to explain to the satisfaction of the AO how the facts for A.Ys. 2006-07 and 2007-08 were different. The response of the assessee was entirely vague and bereft of any material particulars. The assessee produced no material whatsoever, nor did it place on record any material facts that would indicate that the facts for A.Ys. 2006-07 and 2007-08 were different from those of A.Y. 2008-09. The formation of opinion by the AO that income has escaped assessment cannot be regarded as a mere subjective satisfaction. The reopening of the assessments by the notices u/s 148 cannot, therefore, be held to be contrary to law.

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