The Supreme Court has ruled that reassessment proceedings initiated without fresh tangible material and merely on a “change of opinion” are invalid in law and further held that amounts received by a member from an Association of Persons (AOP) as profit share cannot be treated as taxable revenue receipts.
The bench of Justice J.B. Pardiwala examined the scope of “reason to believe” under Section 147 and reiterated that reassessment powers cannot be used as a mechanism for review of completed assessments. The Court observed that reassessment requires existence of fresh “tangible material” indicating escapement of income and cannot be based solely on reinterpretation of material already examined during original scrutiny proceedings.
The ruling came in a batch of appeals concerning reopening of assessments under Sections 147 and 148 of the Income Tax Act and interpretation of an AOP agreement involving distribution of receipts from a real estate development project. The core controversy before the Court was whether reassessment notices issued by the Revenue were legally sustainable and whether the amount received by the AOP member constituted exempt profit share or taxable revenue income.
The dispute arose after the Revenue issued notices under Section 148 alleging that income had escaped assessment because the amount received by the AOP member represented a share in gross sale proceeds and not share of profits. The Revenue relied upon documents impounded during a survey operation under Section 133A, including the AOP agreement, financial statements and sale agreements.
However, the Court noted that most of the material relied upon for reopening had already been disclosed during the original scrutiny assessments under Section 143(3). The assessee had disclosed the existence of the AOP, the profit-sharing arrangement and the claim of exemption in its returns and accompanying records.
Referring to the landmark decision in Commissioner of Income Tax v. Kelvinator of India Ltd., the Court reiterated that the Assessing Officer has no power to review an assessment under the guise of reassessment. It stressed that the concept of “change of opinion” acts as an in-built safeguard against arbitrary reopening of concluded assessments.
The Court also clarified that validity of reopening must be tested only on the basis of reasons recorded at the time of issuance of notice under Section 148 and cannot later be justified by subsequent findings during reassessment proceedings.
On the substantive taxability issue, the Supreme Court examined Clause 7 of the AOP agreement, which provided for allocation of 35% share to one member and 65% share to the other participant. The Revenue argued that the clause effectively created a revenue-sharing arrangement because the member was entitled to a fixed percentage of gross receipts from sale of flats.
The Court, however, took note of earlier findings of the Income Tax Appellate Tribunal and the Bombay High Court, both of which had held that the amount constituted share of profits of the AOP and not overriding title over revenue receipts.
The court further observed that once the AOP had been separately assessed as an independent taxable entity, the same income could not again be subjected to tax in the hands of the member under Sections 67A, 86 and 167B of the Income Tax Act.
Case Details
Case Title: Sanand Properties P. Ltd. Versus Jt. Commr. Of I.T. Range 6 And Ors.
Citation: JURISHOUR-1222-SC-2026
Case No.: Civil Appeal No. 9107 Of 2012
Date: 12/05/2026
