Facts of the Case

The petitioner, Shourya Infrastructure Pvt. Ltd., engaged in real estate business, filed its return for AY 2011–12 which was scrutinized under Section 143(3) of the Income Tax Act, 1961. During scrutiny, detailed queries were raised regarding sale of land and financial transactions, which were duly answered by the assessee. The assessment was completed without any additions.

Subsequently, after more than four years, the Assessing Officer (AO) initiated reassessment proceedings under Section 147 by issuing notice under Section 148 on the basis that income had escaped assessment. The reopening was primarily based on application of Section 50C, alleging undervaluation of land and treating the transaction as capital in nature.

The petitioner challenged the reopening and the order rejecting objections.

Issues Involved

  1. Whether reassessment under Section 147 after four years is valid without failure to disclose material facts.
  2. Whether reopening based on already examined material constitutes “change of opinion”.
  3. Whether Section 50C is applicable where land is held as stock-in-trade.
  4. Whether approval under Section 151 was granted with proper application of mind.

Petitioner’s Arguments

  • The issue of land sale was fully examined during original assessment proceedings under Section 143(3).
  • Reopening after four years is invalid as there was no failure to disclose fully and truly all material facts.
  • The land was stock-in-trade, hence Section 50C is not applicable.
  • The reassessment is purely based on change of opinion, which is impermissible in law.
  • Approval granted under Section 151 was mechanical and without application of mind.
  • Reliance placed on judicial precedents including:
    • CIT v. Kelvinator of India Ltd.
    • CIT v. Usha International Ltd.

Respondent’s Arguments

  • The transaction between group entities was a sham arrangement to divert income.
  • The AO had not examined the transaction from the angle of tax evasion earlier.
  • Fresh information received justified reopening.
  • Approval under Section 151 was valid and sufficient.

 

Court’s Findings / Order

1. Change of Opinion – Reopening Invalid

  • The issue of land sale was already scrutinized in detail during original assessment.
  • Reopening on same material amounts to change of opinion, which is not permissible.

2. No Failure to Disclose Material Facts

  • Since reopening was after four years, mandatory condition of failure to disclose material facts was not satisfied.

3. Section 50C Not Applicable

  • The Court held that:
    • The assessee was in real estate business.
    • The land was stock-in-trade, not a capital asset.
  • Therefore, Section 50C could not be invoked, making the reopening fundamentally flawed.

4. Invalid Approval u/s 151

  • Approval by PCIT was found to be mechanical (“approved” without reasoning).
  • Mandatory satisfaction was missing, rendering reopening invalid.

5. No Evidence of Sham Transaction

  • The Court rejected the Revenue’s argument of sham transaction as unsupported.

Final Order

  • The impugned order dated 13.11.2018 was quashed.
  • Reassessment proceedings were held to be invalid.

Important Clarifications

  • Section 50C applies only to capital assets, not stock-in-trade.
  • Reassessment after 4 years requires strict compliance with disclosure conditions.
  • Change of opinion cannot justify reopening.
  • Approval under Section 151 must show application of mind, not mere endorsement 

Sections Involved

  • Section 147 – Income escaping assessment
  • Section 148 – Issue of notice for reassessment
  • Section 151 – Sanction for issue of notice
  • Section 143(3) – Scrutiny assessment
  • Section 50C – Special provision for full value of consideratio 

Link to download the order -https://delhihighcourt.nic.in/app/showFileJudgment/RAS04122023CW127092018_193106.pdf

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