ADALA BHANU REKHA,HYDERABAD V. DCIT., CIRCLE-6(1), HYDERABAD

ITA 583/HYD/2024

AI Insights

The case involves Adala Bhanu Rekha, the appellant, who contested the reopening of her income tax assessment for the assessment year 2017-18. The original assessment was completed under section 143(3) of the Income Tax Act, 1961, accepting the income returned. However, the assessment was later reopened under section 147, alleging that income had escaped assessment due to excess deduction claimed under section 54F. The appellant challenged the reopening and the subsequent disallowance of the deduction in appeals to the CIT(A), which were unsuccessful, leading to the appeal before the Tribunal. The Tribunal, referencing decisions from the Supreme Court, concluded that the reopening was based on the same material as the original assessment, constituting a mere change of opinion, and thus quashed the reassessment order.

• Counselvise Citation: [2024] 140 COUNSELVISE.COM (IT) 472552 (ITAT-HYDERABAD)
• Duration Of Justice: 6 month(s) 6 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 05-12-2024
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB-A
• Next Hearing Date: 25-11-2024
• Assessment Year: 2017-2018
• Appeal Filed On: 29-05-2024
• Other Referred Cases: CIT Vs. Kelvinator of India Ltd., DCIT Vs. Financial Software and Systems (P.) Ltd.
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: B G REDDY
• Keywords: Set aside; Difference of opinion; Change of opinion; Capital asset; Reassessment proceedings; Corroborative evidences; Reopening of assessment; Capital Gains; Reason to believe; Tangible material
• Section: 147; 148; 143(3); 142(1); 54F; 139

Judgement Text

" आयकर अपीलीय अधिकरण, हैदराबाद पीठ IN THE INCOME TAX APPELLATE TRIBUNAL Hyderabad ‘A’ Bench, Hyderabad Before Shri Manjunatha G., Accountant Member and Shri K. Narasimha Chary, Judicial Member आ.अपी.सं /ITA No.583/Hyd/2024 (निर्धारण वर्ा/Assessment Year: 2017-18) Adala Bhanu Rekha Hyderabad [PAN : ACCPA8679F] Vs. DCIT Circle-6(1) Hyderabad (Appellant) (Respondent) निर्धाररती द्वधरध/Assessee by: Shri BG Reddy, AR रधजस् व द्वधरध/Revenue by:: Shri Srinath Sadanala, DR सुिवधई की तधरीख/Date of hearing: 25/11/2024 घोर्णध की तधरीख/Date of Pronouncement: 05/12/2024 आदेश / ORDER PER. MANJUNATHA G., A.M: This appeal filed by the assessee is directed against the order dated 31/03/2024 of the learned Commissioner of Income Tax (Appeals) [Learned CIT(A)], National Faceless Appeal Centre (NFAC), Delhi, relating to A.Y.2017-18 on the following grounds : 1. The order of the Ld. CIT (Appeals) is erroneous in law and on facts. 2. The learned CIT (Appeals), erred in law and facts and circumstances of the case, in holding that the reopening of the assessment by the Assessing officer u/s 147 of the Act, 2 is within the four corners of the said section and issue of notice u/s 148 is valid in law. 3. The learned CIT (Appeals) failed to note that all the information/ particulars/details were already furnished by the Appellant at the time of assessment proceedings itself and in the absence of any fresh/ new information, reopening of the assessment by mere changing the opinion is bad in law. 4. Without prejudice to the grounds 2 and 3 above: a) The learned CIT (Appeals) grossly erred in law in sustaining the disallowance of deduction of Rs.4,13,81,234/- claimed by the Appellant U/s. 54F of the Act. b) The learned CIT (Appeals) grossly erred in stating that the appellant has not submitted any documentary evidences in support of the expenditure incurred on construction of the house property as the appellant has in fact submitted all the supporting evidences/ details including bank statements both before the Assessing Officer and the CIT (Appeals). c) The learned CIT(Appeals) failed to note that the amount of long-term capital gains in respect of which the appellant claimed the said deduction was in respect of the transfer of land pertaining to seven villas sold by the Appellant during the year under consideration. d) The learned CIT (Appeals) failed to note that the Appellant does not own more than one residential house property as on the date of sale of the above land as explained and submitted both before the Assessing officer and CIT (Appeals). e) The learned CIT (Appeals) grossly erred in stating that the appellant owns more than one residential house as on the date of the sale of the said land in view of the fact that all properties except the residential property under self occupation as mentioned in the Return of income including the properties in SL.1,5,6 and 7 of AL schedule 3 are either open house plots or commercial spaces/ complexes which are let out to banks and financial institutions like India Bulls and other public and private companies. f) The learned CIT (Appeals) failed to note that the appellant is not engaged during the relevant year in any business activity as the activity of giving of land to the developer for development does not constitute business. g) In view of the above ground from a) to f) of ground No.4, the Appellant pleads that the deduction as claimed by the Appellant u/s 54F is in accordance with law and hence the same be allowed. 2. The brief facts of the case are that the assessee, individual filed her return of income for the A.Y.2017-18 on 05.08.2017, declaring total income of Rs.1,54,33,210/-. Assessment has been completed u/s 143(3) of the Income tax Act, 1961 (“the Act”) on 17.12.2019, accepting the income returned. The assessment has been, subsequently reopened u/s 147 of the Act, for the reasons recorded, as per which, the income chargeable to tax has escaped assessment on account of excess deduction allowed u/s 54F of the Act against long term capital gains derived from transfer of property. Therefore, notice u/s 148 of the Act dated 27.03.2021 was issued. In response to the notice u/s 148 of the Act dated 27.03.2021, the assessee filed return of income on 31.03.2021. The assessee had also sought reasons for reopening of the assessment and the same was provided to the assessee on 14.01.2022. The assessee has filed objection against reopening of the assessment vide letter dated 20.01.2022 and the objections filed by the assessee has been disposed off by the Assessing Officer by speaking order. The 4 case has been selected for scrutiny and during the course of assessment proceedings, the Assessing Officer called upon the assessee to submit relevant details vide letter dated 14.01.2022. In response, the assessee submitted copy of development agreement, copy of ITR, computation of income. Subsequently, show cause notice dated 17.03.2022 was issued and served upon the assessee. In compliance, the assessee filed reply on 18.03.2022 and submitted details pertaining to sale of villas. The Assessing Officer after considering the relevant details submitted by the assessee, passed ex-parte assessment order u/s 144 of the Act and assessed total income at Rs.5,54,93,040/- by making addition of Rs.4,00,59,831/- towards disallowance of deduction u/s 54F of the Act. 3. Being aggrieved by the assessment order, assessee preferred an appeal before CIT(A). Before the CIT(A), the assessee had challenged reopening of the assessment and argued that the Assessing Officer has reopened the assessment on mere ‘change of opinion’, without there being any fresh tangible material which suggest escapement of income. The assessee had also challenged the additions made by the Assessing Officer towards disallowance of deduction u/s 54F of the Act and argued that the assessee has satisfied the conditions prescribed for claiming such deduction. The Ld.CIT(A) after considering relevant submissions of the assessee and also taking note of various reasons, rejected the legal ground taken by the assessee, challenging the reopening of assessment, by holding that the Assessing Officer had validly reopened the assessment u/s 147 of the Act, on the basis of 5 reasons recorded, which suggest escapement of income. The Ld.CIT(A) had also sustained the additions made by the Assessing Officer towards disallowance of deduction u/s 54F of the Act on the ground that the appellant had more than one residential house at the time of transfer of original asset, which disentitled the assessee for claiming deduction u/s 54F of the Act. 4. Aggrieved by the Ld.CIT(A) order, the assessee is in appeal before the Tribunal. 5. The learned Counsel for the assessee submitted that the Ld.CIT(A) erred in upholding the reopening of the assessment u/s 147 of the Act, without appreciating the fact that there is no live nexus between the reasonable belief of escapement of income and fresh tangible material and further, reopening of assessment is merely on change of opinion, without, there being any new material which came to the possession of the Assessing Officer, subsequent to original assessment. The learned Counsel for the assessee submitted that the original assessment has been completed u/s 143(3) on 17.12.2019. During the assessment proceedings, the Assessing Officer had issued various notices u/s 142(1) of the Act, for which the assessee has filed relevant details including explanation for claiming deduction u/s 54F of the Act. The Assessing Officer in particular issued notice u/s 142(1) on 26.01.2019 and as per the said notice, the Assessing Officer called for documentary proof in respect of deduction claimed u/s 54F of the Act. In response, the assessee has filed all the details. The Assessing 6 Officer, after considering the relevant details, allowed the claim of the assessee. Therefore, reopening of assessment on the very same material, without there being any fresh tangible material amounts to change of opinion, which is not permissible under the law. In this regard, he relied on the decision of Hon'ble Supreme Court of India in the case of CIT Vs. Kelvinator of India Ltd. [2010] 107 Taxman 312 (SC) and also the decision in the case of DCIT Vs. Financial Software and Systems (P.) Ltd. [2022] 145 taxmann.com 37(SC). 6. The learned Counsel for the assessee further referring to the reasons given by the Ld.CIT(A) to sustain the additions made by the Assessing Officer towards disallowance of deduction u/s 54F of the Act submitted that, although the assessee is having multiple properties, but except one house, remaining properties are commercial properties and are let out for commercial purposes. All details were furnished to the CIT(A), however, the Ld.CIT(A) rejected the explanation furnished by the assessee and sustained the additions made by the Assessing Officer. The learned Counsel for the assessee further took our attention to paper book filed by the assessee and referred to various lease agreements in respect of properties at sl.5 and 9 and submitted that all these properties are commercial properties, which is evident from the lease agreements between the appellant and the tenants. Therefore, he submitted that the assessee is eligible for claiming deduction u/s 54F of the Act, and thus, the additions made by the Assessing Officer should be deleted. 7 7. Ld.DR on the other hand, supporting the order of the Ld.CIT(A) submitted that the reasons recorded for reopening of the assessment clearly show that there are new facts which came to the knowledge of the Assessing Officer, subsequent to completion of the original assessment u/s 143(3) of the Act, which clearly shows that the assessee is not entitled for deduction u/s 54F of the Act. Therefore, it cannot be said that it is a case of mere change of opinion and the case laws relied upon by the learned Counsel for the assessee are not applicable to the facts of the present case. The Ld.DR further referring to the arguments of the assessee on satisfaction of conditions for claiming deduction u/s 54F of the Act submitted that, although the lease agreements show the nature of properties as commercial properties, but from the lease agreements, it cannot be ascertained whether it is commercial property or not and only municipal taxes paid if any, can prove the nature of property, therefore to ascertain the nature of property and also to ascertain the entitlement of the assessee to claim deduction u/s 54 of the Act, the matter may be set aside to the file of the Assessing Officer for verification. 8. We have heard both the parties, perused the material on record and gone through the orders of the authorities below. The facts borne out from the record clearly show that the original assessment proceedings have been completed u/s 143(3) of the Act, on 17.12.2019. The Assessing Officer issued notice u/s 148 of the Act on 29.03.2021. Admittedly, the assessment has been reopened within four years from the end of the relevant assessment year. Therefore, the main provisions of 8 section 147 of the Act come into play, but not the proviso to section 147 of the Act. Even as per main provisions of section 147 of the Act, if the Assessing Officer has reason to believe that if any income chargeable to tax has escaped assessment for any assessment year, he may subject to provisions of section 148 to 153, assess or reassess such income and also any other income chargeable to tax, which has escaped assessment which comes to his notice, subsequently in the course of proceedings under this section. From the plain reading of section 147 of the Act, it is abundantly clear that there should be reasonable belief of escapement of income from tax and such reason to believe should be on the basis of fresh tangible material came to the possession of the Assessing Officer, subsequent to completion of original assessment proceedings. In the present case, going by the reasons recorded for reopening of the assessment, which is available in page no.2 of the paper book filed by the assessee, we find that the assessment has been reopened on the ground that the appellant has claimed deduction u/s 54F of the Act, even though as per the proviso to section 54F, if the assessee owns more than one house other than the new asset, then he cannot claim deduction u/s 54F of the Act. According to the Assessing Officer, the appellant has more than one house other than the new house as on the date of transfer of original asset and this disentitled the appellant from claiming deduction u/s 54F of the Act. 9. We have given our thoughtful consideration to the reasons given by the Assessing Officer in light of various arguments advanced by the learned Counsel for the assessee and we, 9 ourselves do not subscribe to the reasons given by the Assessing Officer for the simple reason that, the Assessing Officer has reopened the assessment on very same material which was available to the Assessing Officer at the time of original assessment proceedings u/s 143(3), which is evident from the reasons recorded by the Assessing Officer, where, the Assessing Officer referred to the material furnished by the assessee during the assessment proceedings. Further, on going by the reasons recorded for reopening of assessment, we find that there is no reference to any new material which suggest escapement of income and also which came to the possession of the Assessing Officer, subsequent to original assessment proceedings u/s 143(3) of the Act. From the reasons recorded by the Assessing Officer, it is undisputedly clear that the Assessing Officer has formed reasonable belief of escapement of income on the basis of very same material, which was available to him while completing the proceedings u/s 143(3) of the Act and therefore, in our considered view, it is a case of mere ‘change of opinion’, without there being any fresh tangible material to the Assessing Officer. Unless the Assessing Officer forms reasonable belief of escapement on the basis of fresh tangible material, in our considered view, it can be safely concluded that reopening of assessment is on mere change of opinion. 10. At this stage, it is relevant to refer to the decision of Hon'ble Supreme Court in the case of CIT Vs. Kelvinator of India Ltd (supra), where, Hon'ble Supreme Court has considered reopening of assessment in light of reasons recorded by the Assessing Officer and held that the Assessing Officer has no 10 power to review, but he has power to reassess. But the reassessment has to be based on fulfilment of certain pre- conditions and if the concept of change of opinion is removed as contended on behalf of the department, then in the garb of reopening the assessment, review would take place. One must treat the concept of change of opinion as an in-built test to check abuse of power by the Assessing Officer. Hence, after 01.04.1989, the Assessing Officer has power to reopen, provided there should be tangible material to come to conclusion that there is escapement of income from assessment. Relevant findings of the Hon'ble Supreme Court are as under : “Prior to the Direct Tax Laws (Amendment) Act, 1987, reopening could be done under two conditions viz., if (a) the ITO had reason to believe that, by reason of the omission or failure on the part of an assessee to make a return under section 139 for any assessment year to the ITO or to disclose fully and truly all material facts necessary for his assessment for that year, income chargeable to tax had escaped assessment for that year, or (b) the ITO had in consequence of information in his possession reason to believe that income chargeable to tax had escaped assessment for any assessment year. The fulfilment of the said conditions alone conferred jurisdiction on the Assessing Officer to make a back assessment, but in section 147 with effect from 1-4-1989 those conditions are given a go-by and only one condition has remained, viz., where the Assessing Officer has reason to believe that income has escaped assessment, the section confers jurisdiction to reopen the assessment. Therefore, post 1-4- 1989, power to re-open is much wider. However, one needs to give a schematic interpretation to the words ‘reason to believe’, failing which section 147 would give arbitrary powers to the Assessing Officer to reopen assessments on the basis of ‘mere change of opinion’, which cannot be per se reason to reopen. One must also keep in mind the conceptual difference between power to review and power to reassess. The Assessing Officer has no power to review; he has the power to reassess; but the reassessment has to be based on fulfilment of certain pre-conditions and if the 11 concept of ‘change of opinion’ is removed as contended on behalf of the department, then in the garb of reopening the assessment, review would take place. One must treat the concept of ‘change of opinion’ as an in-built test to check abuse of power by the Assessing Officer. Hence, after 1-4- 1980, the Assessing Officer has power to reopen, provided there is ‘tangible material’ to come to conclusion that there is escapement of income from assessment. Under the Direct Tax Laws (Amendment) Act, 1987, the Parliament not only deleted the words ‘reason to believe’ but also inserted the word ‘opinion’ in section 147. However, on receipt of representations from the companies against omission of the words ‘reason to believe’, the Parliament re-introduced the said expression and deleted the word ‘opinion’ on the ground that it would vest arbitrary powers in the assessing Officer.” 11. The assessee had also relied upon the decision of Hon'ble Supreme Court in the case of DCIT Vs. Financial Software and Systems (P.) Ltd. (supra). The Hon'ble Supreme Court while dismissing the SLP filed by the Revenue against the order of the Hon'ble High Court of Madras in the case of Financial Software and Systems (P.) Ltd. [2022] 145 taxmann.com 36 (Mad.), held that where at the time original assessment u/s 143(3), specific queries were raised by Assessing Officer, which were duly answered by assessee company and thereafter assessment order was passed, it was not open for revenue to reopen assessment on same issue and, thus, impugned reassessment proceedings initiated on mere change of opinion was to be set aside. 12. In the present case, going by the facts available on record, we find that the Assessing Officer issued specific notice u/s 142(1) on 26.01.2019 and called for documentary proof in respect of deduction claimed u/s 54F of the Act and from the above, it is very clear that the assessee has furnished all 12 relevant evidences including the conditions prescribed for claiming deduction u/s 54F of the Act. The Assessing Officer after considering relevant facts has allowed the deduction u/s 54F of the Act in the original assessment proceedings. Therefore, reopening on the very same issue, without there being any fresh tangible material, in our considered view, is a case of mere change of opinion, which is not permissible under law. 13. In view of the matter and considering the facts of the case and also by following the decisions of the Hon'ble Supreme Court in the case of CIT Vs. Kelvinator of India Ltd. (supra) and DCIT Vs. Financial Software and Systems (P.) Ltd. (supra), we are of the considered view that reopening of assessment u/s 147 of the Act in the present case is on mere change of opinion, which is void, ab initio and liable to be quashed. Thus, we quash the reassessment order passed by the Assessing Officer u/s 147 r.w.s.144 of the Act, dated 23.03.2022. 14. The assessee has challenged the additions made by the Assessing Officer towards disallowance of deduction u/s 54F of the Act. Since, we have quashed the re-assessment order passed by the Assessing Officer u/s 147 r.w.s.144 of the Act, in our considered view, the grounds raised by the assessee challenging the additions made by the Assessing Officer towards disallowance u/s 54F of the Act becomes academic in nature and thus, we dismiss the grounds taken by the assessee on merits as infructuous. 13 15. In the result, appeal filed by the assessee is allowed. Order pronounced in the Open Court on 5th December, 2024. Sd/- Sd/- (K. NARASIMHA CHARY) JUDICIAL MEMBER (MANJUNATHA G.) ACCOUNTANT MEMBER Hyderabad, dated 5th December, 2024 L.Rama, SPS Copy to: S.No Addresses 1 Ms.Adala Bhanu Rekha, Plot No.14, Road No.5, Jubilee Hills, Jubilee Hills, S.O., Shaikpet, Hyderabad 2 The Deputy Commissioner of Income Tax, Circle-6(1), Hyderabad 3 The Pr.CIT, Hyderabad 4 The DR, ITAT Hyderabad Benches 5 Guard File By Order "