J.P.Infrastructure Pvt.Ltd., Ahmedabad V. The Dy.CIT.,(OSD)-I,Circle-4, Ahmedabad

CO 159/AHD/2012

• Counselvise Citation: [2016] 123 COUNSELVISE.COM (IT) 2425 (ITAT-AHMEDABAD)
• Duration Of Justice: 4 year(s) 1 month(s) 21 day(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 18-11-2016
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: D
• Next Hearing Date: 17-11-2016
• Assessment Year: 2007-2008
• Appeal Filed On: 27-09-2012
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: SITA RAM MEENA
• Assessee Lawyers: M J SHAH
• Keywords: Business income; Search and seizure; Earning of tax free income; Proportionate interest; Tangible material; Difference of opinion; Third party statement; Assessment record; Reason to believe; Change of opinion
• Section: 143(3); 14A; 147; 148

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH, AHMEDABAD BEFORE SHRI N.K. BILLAIYA, ACCOUNTANT MEMBER AND SHRI S.S. GODARA, JUDICIAL MEMBER ./ ITA NO. 1760/AHD/2012 AND CO NO.159/AHD/2012 / ASSESSMENT YEAR: 2007-08 DCIT (OSD)-I, CIRCLE-4, AHMEDABAD VS. J.P. INFRASTRUCTURE PVT LTD, ISCON HOUSE, B/H. CITY BANK, CG ROAD, AHMEDABAD PAN : AABCJ 4936 C / (APPELLANT) / (RESPONDENT) & CROSS-OBJECTOR REVENUE BY : SHRI SITA RAM MEENA, SR DR ASSESSEE BY : SHRI M.J. SHAH, AR / DATE OF HEARING : 17/11/2016 / DATE OF PRONOUNCEMENT: 18/11/2016 / O R D E R PER N.K. BILLAIYA, ACCOUNTANT MEMBER: ITA NO. 1760/AHD/2012 AND CO NO.159/AHD/2012 ARE AP PEAL OF THE REVENUE AND CROSS-OBJECTION OF THE ASSESSEE RESPECT IVELY DIRECTED AGAINST THE VERY SAME ORDER OF THE CIT(A)-VIII, AHMEDABAD D ATED 10.05.2012 PERTAINING TO AY 2007-08. 2. AT THE VERY OUTSET, THE COUNSEL FOR THE ASSESSEE TOOK AN ADDITIONAL PLEA CHALLENGING THE JURISDICTION OF THE ASSESSING OFFICER IN ISSUING NOTICE U/S 148 OF THE ACT. IT IS THE SAY OF THE COUNSEL T HAT THE ISSUE CHALLENGING THE JURISDICTION OF THE ASSESSING OFFICER CAN BE RAISED AT THIS STAGE EVEN IF THE SAME WAS NOT RAISED BEFORE THE LOWER AUTHORITIES. 3. WE HEARD THE LD. COUNSEL AT LENGTH ON THIS ADDIT IONAL PLEA. THE LD. DR SIMPLY RELIED UPON THE FINDINGS OF THE ASSESSING OFFICER. ITA NO. 1760 & CO 159/AHD/2012 DCIT VS. JP INFRASTRUCTURE PVT LTD AY 2007-2008 2 4. AFTER GIVING A THOUGHTFUL CONSIDERATION TO THE A DDITIONAL PLEA TAKEN BY THE LD. COUNSEL, WE FIND THAT OBJECTION TO JURIS DICTION, EVEN IF TAKEN FOR THE FIRST TIME BEFORE THE TRIBUNAL, IS PERMISSIBLE. OUR VIEW IS FORTIFIED BY THE DECISION OF THE HONBLE JURISDICTIONAL HIGH COURT O F GUJARAT GIVEN IN THE CASE OF P.V. DOSHI VS. CIT, REPORTED IN (1978) 113 ITR 22 (GUJ.), WHICH HAS BEEN FOLLOWED BY THE CO-ORDINATE BENCH IN THE CASE OF SHRIMANT F.P. GAEKWAD THROUGH LEGAL HEIR SMT. MRINALINI DEVI PUAR , REPORTED IN [2010] 3 ITR (TRIB) 476 (AHD). THE RELEVANT FINDINGS OF THE CO-ORDINATE BENCH READ AS UNDER:- 11. WE FIND THAT THIS ISSUE OF ADMISSIBILITY OF A JURISDICTIONAL ISSUE FOR THE FIRST TIME EVEN THOUGH THE SAME WAS NOT RAISED AT T HE STAGE OF REMAND BY THE TRIBUNAL, THE ASSESSEE CAN RAISE THIS ISSUE, AS HEL D BY THE HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF P.V. DOSHI VS. CIT (1978) 113 ITR 22 (GUJ), WHEREIN IT IS HELD AS UNDER (FROM HEADNOT E) : 'HELD, THAT AS A JURISDICTIONAL PROVISION WHICH WAS MANDATORY AND ENACTED IN PUBLIC INTEREST COULD NEVER BE WAIVED AN D THE WANT OF JURISDICTION WAS DISCOVERED BY THE AAC, THERE WAS N O QUESTION OF WAIVER BY THE ASSESSEE. NO QUESTION OF FINALITY OF THE REMAND ORDER OF THE TRIBUNAL COULD ARISE BECAUSE THE MANDATORY COND ITIONS FOR FOUNDING JURISDICTION FOR INITIATING REASSESSMENT P ROCEEDINGS HAD NOT BEEN FULFILLED. THE ORDER OF REASSESSMENT WAS, THER EFORE, NOT VALID.' 5. IN THE LIGHT OF THE AFOREMENTIONED JUDICIAL RULI NGS, WE PROCEED BY ADMITTING THE ADDITIONAL ISSUE RAISED BY THE LD. CO UNSEL. 6. WE FIND THAT THE REASONS RECORDED FOR REOPENING THE ASSESSMENT ARE AS FOLLOWS:- 1. THE ASSESSEE IS ENGAGED IN THE BUSINESS OF BUIL DER - CONSTRUCTION OF IMMOVABLE PROPERTY, DEVELOPMENT AND SALE OF RESIDEN TIAL PLOTS. THE ASSESSEE HAS FILED RETURN OF INCOME OF RS.21,94,16,8687/. TH E TOTAL INCOME IS DETERMINED AT RS.21,99,31,210/- FOR THE YEAR 2007-0 8. THE ASSESSEE COMPANY DECLARED TOTAL INCOME OF RS.21,94,16,868/- FOR THE YEAR 2007-08. THE TOTAL INCOME INCLUDES RS.1,03,81,135/- AS INCOME FROM HOU SE PROPERTY ON ACCOUNT OF LEASED OUT AREA OF ISCON MALL, RAJKOT, ON WHICH 30% STANDARD DEDUCTION OF RS31,14.341/- WAS CLAIMED UNDER SECTION 24 OF THE A CT. AUDIT SCRUTINY OF THE ITA NO. 1760 & CO 159/AHD/2012 DCIT VS. JP INFRASTRUCTURE PVT LTD AY 2007-2008 3 RECORDS REVEALED THAT THE CONSTRUCTION / DEVELOPMEN T OF THE ISCON MALL, RAJKOT HAD BEEN CARRIED OUT BY THE ASSESSEE FROM TH E PY 2005-06 AND COMPLETED IN PY 2006-07. THE CONSTRUCTION COST OF R S.4,37,68,672/- INCURRED DURING AY 2006-07 WAS SHOWN WIP AS ON 31/3/2006. DU RING THE AY 2006- 07 AND 2007-08 THE ASSESSEE HAD SOLD 78975.7 SQ.FT AREA OF THE MALL FOR CONSIDERATION OF RS.15,68,75,200/-. REMAINING UNSOL D AREA OF THE MALL (17658.90 SQ.FT.) SHOWN AS INVENTORIES (STOCK IN TR ADE) AS ON 31.3.2007 WHICH WAS VALUED AT RS.2,90,39,545/-.THUS, IT SIGNIFIED T HAT THE ASSESSEE COMPANY HAD LEASED OUT THE UNSOLD AREA OF THE ISCON MALL DU RING THE YEAR WHICH WAS ACTUALLY HELD UNDER 'STOCK-IN-TRADE'. THEREFORE , IN VIEW OF THE JUDGMENT IN CASE OF M/S. NEHA BUILDERS PVT LTD, THE INCOME O F RS. 1,03,81,135/- EARNED BY LEASING OF ASSETS HELD UNDER STOCK-IN-TRA DE WAS REQUIRED TO BE TREATED AS 'BUSINESS INCOME'. THEREFORE, THE STANDA RD DEDUCTION OF RS.31,14,341/- ALLOWED U/S 24 OF THE ACT, WAS IRREG ULAR AND REQUIRED TO BE DISALLOWED. THEREFORE I HAVE REASON TO BELIEVE THAT FOR THE REL EVANT ASSESSMENT YEAR THE ABOVE INCOME CHARGEABLE TO TAX HAS ESCAPED FROM ASSESSMENT WITHIN THE MEANING OF SECTION 147 OF THE ACT AND THE CASE IS F IT FOR ISSUE OF NOTICE U/S 148 OF THE INCOME TAX ACT, 1961. 2. AS PER SECTION 14A OF THE INCOME-TAX ACT, 1961 D EDUCTION IS NOT ADMISSIBLE IN RESPECT OF EXPENDITURE INCURRED BY TH E ASSESSEE IN RELATION TO INCOME WHICH DOES NOT FORM PAN OF THE TOTAL INCOME. FURTHER, SECTION 10(34) OF THE ACT PROVIDED THAT DIVIDEND INCOME IS NOT INC LUDIBLE IN THE TOTAL INCOME. EXPENDITURE INCURRED BY WAY OF INTEREST ETC . TO EARN DIVIDEND INCOME IS THEREFORE REQUIRED TO BE DISALLOWED UNDER RULE 8 D OF THE INCOME-TAX RULES. THE MUMBAI ITAT (SPECIAL BRANCH) IN CASE OF DAGA CA PITAL HAS HELD THAT RULE 8D IF THE INCOME-TAX RULES WOULD HAVE RETROSPE CTIVE OPERATION. IT WAS SEEN FROM ASSESSMENT RECORDS OF THE ASSESSEE THAT ASSESSEE INCURRED INTEREST EXPENDITURE TO THE EXTENT OF RS.5,03,32,59 1/- DURING THE F.Y.2006- 07. THE ASSESSEE EARNED DIVIDEND INCOME TO THE TUNE OF RS.21,336/- IN THE F.Y.06-07. HOWEVER, PROPORTIONATE INTEREST PAID DUR ING THE YEAR WAS NOT DISALLOWED IN VIEW OF THE PROVISIONS CITED ABOVE. D UE TO THIS INCOME OF THE ASSESSEE WAS ASSESSED LESS TO THE EXTENT OF RS.2,15 ,14,609/- WITH CONSEQUENT SHORT LEVY OF TAX AND INTEREST TO THE EXTENT OF RS. 96,31,617/-. THEREFORE I HAVE REASON TO BELIEVE THAT FOR THE REL EVANT ASSESSMENT YEAR, THE ABOVE INCOME CHARGEABLE TO TAX HAS ESCAPE D FROM ASSESSMENT WITHIN THE MEANING OF SECTION 147 OF THE ACT AND THE CASE IS FIT FOR ISSUE OF NOTICE U/S 148 OF THE INCOME TAX ACT, 1961. 7. WE FIND THAT THE FOLLOWING QUERIES WERE RAISED D URING THE COURSE OF THE ORIGINAL ASSESSMENT PROCEEDINGS:- ITA NO. 1760 & CO 159/AHD/2012 DCIT VS. JP INFRASTRUCTURE PVT LTD AY 2007-2008 4 4. DETAILS OF EXEMPT INCOME. WHETHER ANY EXPENSE S HAVE BEEN CLAIMED IN RESPECT OF ANY EXEMPT INCOME. IF YES THEN SUBMIT COMPLETE DETAILS OF THE SAME. 22. CLARIFICATION REGARDING WHETHER ANY INTEREST BE ARING FUND HAS BEEN DERIVED FOR NON BUSINESS PURPOSES. IF YES THEN PART Y WISE, AMOUNT WISE AND DATE WISE DETAILS OF SUCH DIVERSIONS OF FUNDS, ALON GWITH THE RATE OF INTEREST AND QUANTUM OF INTEREST RECEIVED FROM SUCH PERSONS. 24. WHETHER ANY EXPENSES HAVE BEEN CLAIMED IN RESP ECT OF ANY EXEMPT INCOME. IF YES THEN SUBMIT THE COMPLETE DETAILS OF SAME. 7. EXPLAIN WHY THE RENTAL INCOME SHOULD NOT BE TR EATED AS INCOME FROM HOUSE PROPERTY AND GIVE DETAILS OF ALL THE EXPENSES RELATABLE TO LEASE RENTAL. 7.1 TO THESE SPECIFIC QUERIES, THE RELEVANT REPLIES OF THE ASSESSEE WERE AS UNDER:- 12. WHETHER ANY EXPENSES HAVE BEEN CLAIMED IN RES PECT OF ANY EXEMPT INCOME. IF YES THEN SUBMIT COMPLETE DETAILS OF THE SAME. (PARA 24 OF ANNEXURE TO NOTICE) IN THIS REGARD DURING THE YEAR EXEMPT INCOME CLAIME D IN COMPUTATION OF INCOME SHARE PROFIT FROM FIRM AND MUTUAL FUND DIVID END INCOME DETAILS ARE AS UNDER:- SN NATURE OF INCOME AMOUNT REMARKS 1 5% SHARE OF PROFIT FROM PARTNERSHIP FIRM M/S. JP CONSTRUCTION 727585 CONTRA CONFIRMATION WITH ITR ACKN EXHIBIT-13 2 MUTUAL FUND DIVIDEND 21336 A/C COPY EXHIBIT-14 IN THIS REGARD NO ANY EXPENDITURE CLAIMED TO EARN E XEMPT INCOME 14. YOUR GOODSELF HAS CALLED FOR TO EXPLAIN WHY TH E RENTAL INCOME SHOULD NOT BE TREATED AS INCOME FROM HOUSE PROPERTY AND GIVE D ETAILS OF ALL THE EXPENSES RELATABLE TO LEASE RENTAL ( PARA 07 OF ANNEXURE TO NOTICE DATED 08.10.09) IN THIS REGARD, IT IS FURNISHED THAT RENT IS RECEIV ED FROM BRANDS FOR PROVIDING SHOPS / SHOWROOMS IN ISCON MALL, RAJKOT, PART OF RE NT OF IS TRANSFERRED TO THE INVESTORS, WHO ULTIMATELY BUYS SHOPS / SHOWROOM S. THE BALANCE RENT OF SHOPS / SHOWROOMS OF RS.103,81,135/- IS ACCOUNTED A S RENT INCOME AND TREATED AS INCOME FROM HOUSE PROPERTY, AS CALLED FO R BY YOUR GOODSELF. A/C COPY OF RENT INCOME IS FURNISHED EXH.10. ITA NO. 1760 & CO 159/AHD/2012 DCIT VS. JP INFRASTRUCTURE PVT LTD AY 2007-2008 5 8. WE FURTHER FIND THAT THE SPECIFIC REPLIES OF THE ASSESSEE WERE SUPPORTED BY THE RESPECTIVE COPIES OF THE LEDGER AC COUNT WHICH ARE EXHIBITED IN THE PAPER-BOOK AT PAGES 102 TO 126 AND 173 TO 184. 9. IN OUR CONSIDERED OPINION, IF SPECIFIC QUERIES W ERE RAISED DURING THE COURSE OF ORIGINAL ASSESSMENT PROCEEDINGS TO WHICH SPECIFIC REPLIES WERE FILED BY THE ASSESSEE SUPPORTED BY RELEVANT DOCUMEN TARY EVIDENCES, ISSUING NOTICE U/S 148 TO RE-OPEN THE ASSESSMENT ON THE VER Y SAME ISSUES CONSIDERED AT THE TIME OF THE ORIGINAL ASSESSMENT PROCEEDINGS AMOUNT TO CHANGE OF OPINION. OUR VIEW IS FORTIFIED BY THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF CIT VS. KELVINATOR OF INDIA LTD, REPORT ED IN [2010] 320 ITR 651 (SC), WHEREIN THE HONBLE APEX COURT HAS HELD AS UN DER:- 4. ON GOING THROUGH THE CHANGES, QUOTED ABOVE, MAD E TO S. 147 OF THE ACT, WE FIND THAT, PRIOR TO DIRECT TAX LAWS (AMENDMENT) ACT, 1987, REOPENING COULD BE DONE UNDER ABOVE TWO CONDITIONS AND FULFIL LMENT OF THE SAID CONDITIONS ALONE CONFERRED JURISDICTION ON THE AO T O MAKE A BACK ASSESSMENT, BUT IN S. 147 OF THE ACT (W.E.F. 1ST APRIL, 1989), THEY ARE GIVEN A GO BY AND ONLY ONE CONDITION HAS REMAINED, VIZ., THAT WHERE T HE AO HAS REASON TO BELIEVE THAT INCOME HAS ESCAPED ASSESSMENT, CONFERS JURISDICTION TO REOPEN THE ASSESSMENT. THEREFORE, POST 1ST APRIL, 1989, POWER TO REOPEN IS MUCH WIDER. HOWEVER, ONE NEEDS TO GIVE A SCHEMATIC INTERPRETATI ON TO THE WORDS 'REASON TO BELIEVE' FAILING WHICH, WE ARE AFRAID, S. 147 WO ULD GIVE ARBITRARY POWERS TO THE AO TO REOPEN ASSESSMENTS ON THE BASIS OF 'MERE CHANGE OF OPINION', WHICH CANNOT BE PER SE REASON TO REOPEN. WE MUST ALSO KEEP IN MIND THE CONCEPTUAL DIFFERENCE BETWEEN POWER TO REVIEW AND P OWER TO REASSESS. THE AO HAS NO POWER TO REVIEW; HE HAS THE POWER TO REAS SESS. BUT REASSESSMENT HAS TO BE BASED ON FULFILLMENT OF CERTAIN PRE-CONDI TION AND IF THE CONCEPT OF 'CHANGE OF OPINION' IS REMOVED, AS CONTENDED ON BEH ALF OF THE DEPARTMENT, THEN, IN THE GARB OF REOPENING THE ASSESSMENT, REVI EW WOULD TAKE PLACE. ONE MUST TREAT THE CONCEPT OF 'CHANGE OF OPINION' AS AN IN-BUILT TEST TO CHECK ABUSE OF POWER BY THE AO. HENCE, AFTER 1ST APRIL, 1 989, AO HAS POWER TO REOPEN, PROVIDED THERE IS 'TANGIBLE MATERIAL' TO CO ME TO THE CONCLUSION THAT THERE IS ESCAPEMENT OF INCOME FROM ASSESSMENT. REAS ONS MUST HAVE A LIVE LINK WITH THE FORMATION OF THE BELIEF. OUR VIEW GETS SUP PORT FROM THE CHANGES MADE TO S. 147 OF THE ACT, AS QUOTED HEREINABOVE. U NDER THE DIRECT TAX LAWS (AMENDMENT) ACT, 1987, PARLIAMENT NOT ONLY DELETED THE WORDS 'REASON TO BELIEVE' BUT ALSO INSERTED THE WORD 'OPINION' IN S. 147 OF THE ACT. HOWEVER, ON RECEIPT OF REPRESENTATIONS FROM THE COMPANIES AG AINST OMISSION OF THE ITA NO. 1760 & CO 159/AHD/2012 DCIT VS. JP INFRASTRUCTURE PVT LTD AY 2007-2008 6 WORDS 'REASON TO BELIEVE', PARLIAMENT RE-INTRODUCED THE SAID EXPRESSION AND DELETED THE WORD 'OPINION' ON THE GROUND THAT IT WO ULD VEST ARBITRARY POWERS IN THE AO. 10. CONSIDERING THE FACTS IN TOTALITY IN THE LIGHT OF THE RATIO LAID DOWN BY THE HONBLE SUPREME COURT (SUPRA), WE FIND THAT THE NOTICE ISSUED U/S 148 OF THE ACT WAS WITHOUT JURISDICTION AND DESERVES TO BE QUASHED. CONSEQUENTLY, THE ASSESSMENT MADE U/S 143(3) R.W.S. 147 OF THE ACT VIDE ORDER DATED 27.12.2011 IS QUASHED. 11. SINCE WE HAVE QUASHED THE ASSESSMENT ORDER, WE DO NOT FIND IT NECESSARY TO DELVE INTO THE MERITS OF THE CASE. 12. IN THE RESULT, APPEAL FILED BY THE REVENUE IS D ISMISSED AND THE CROSS- OBJECTION FILED BY THE ASSESSEE IS ALSO DISMISSED. ORDER PRONOUNCED IN THE COURT ON 18 TH NOVEMBER, 2016 AT AHMEDABAD. SD/- SD/- (S.S. GODARA) JUDICIAL MEMBER (N.K. BILLAIYA) ACCOUNTANT MEMBER AHMEDABAD; DATED 18/11/2016 BIJU T., SR. PS / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. ! # / CONCERNED CIT 4. # ( ) / THE CIT(A ) 5. & ! , ! , / D R, ITAT, AHMEDABAD 6. / GUARD FILE . / BY ORDER, TRUE COPY / ( DY./ASSTT.REGISTRAR) # $, / ITAT, AHMEDABAD