Reassessment Cannot Be Reopened on Mere Change of Opinion, and Share of AOP Profits Cannot Be Taxed Again in Hands of Member
Case Name: Sanand Properties P. Ltd. v. Jt. Commr. of I.T. Range 6 and Ors.
Citation: 2026 INSC 472
Date of Judgment/Order: 12 May 2026
Bench: Justice J.B. Pardiwala and Justice R. Mahadevan
Held: The Supreme Court held that reassessment proceedings under Sections 147 and 148 of the Income Tax Act cannot be initiated merely on a change of opinion in the absence of fresh tangible material demonstrating escapement of income. The Court reiterated that reassessment is not a power of review and the expression “reason to believe” requires existence of new material having a live nexus with the belief that income chargeable to tax has escaped assessment. The Court further held that the amount received by Sanand Properties Pvt. Ltd. from the Association of Persons (AOP) Fortaleza Developers constituted its share of the AOP’s profits and not a share of gross revenue. Since the AOP had already been separately assessed as an independent taxable entity, such profit share could not again be subjected to tax in the hands of the member under Sections 67A, 86 and 167B of the Income Tax Act.
Summary: The dispute arose from reassessment proceedings initiated against Sanand Properties Pvt. Ltd. for Assessment Years 2007-08 and 2008-09 concerning amounts received from an AOP named Fortaleza Developers formed jointly with Raviraj Kothari & Co. for development of residential housing projects. The Revenue alleged that the assessee’s entitlement under Clause 7 of the AOP agreement represented a 35% share of gross revenue from flat sales and not profit, thereby making it taxable in the assessee’s hands. Notices under Section 148 were issued after a survey under Section 133A during which various documents, including the AOP agreement and financial records, were impounded. The Bombay High Court quashed reopening for AY 2007-08 on the ground of mere change of opinion but upheld reopening for AY 2008-09 by treating the AOP’s assessment order for that year as fresh tangible material. Parallel proceedings concerning the AOP itself culminated in findings by the ITAT and Bombay High Court that Clause 7 represented a profit-sharing arrangement and not revenue sharing. The Supreme Court extensively examined the statutory framework governing reassessment under Sections 147 and 148, the doctrine laid down in Kelvinator of India Ltd., and the distinction between reassessment and review. The Court also analysed the legal character of receipts from the AOP and the scheme of taxation applicable to associations of persons and their members.
Decision: The Supreme Court dismissed the Revenue’s appeals and allowed the appeal filed by Sanand Properties Pvt. Ltd. The Court held that reopening of assessments for both AY 2007-08 and AY 2008-09 was invalid as the Assessing Officer lacked any fresh tangible material and had merely attempted to review earlier assessments on a change of opinion. The Court further upheld the findings of the ITAT and Bombay High Court that the amount received by the assessee from the AOP was a share of profit and not revenue, and therefore could not be taxed again in the hands of the assessee after assessment of the AOP. Consequently, the reassessment proceedings and additions made by the Revenue were set aside, and all connected appeals filed by the Revenue stood dismissed.