The Patiala Improvement Trust, Patiala V. ITO, Patiala

ITA 1181/CHANDI/2013

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 77168 (ITAT-CHANDIGARH)
• Duration Of Justice: 6 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-07-2014
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 23-06-2014
• Assessment Year: 2008-2009
• Appeal Filed On: 24-12-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: MANJIT SINGH
• Assessee Lawyers: Y K SOOD
• Keywords: Business income; Depreciation; Charitable institution; Reason to believe
• Section: 143(3); 12AA; 147; 148; 2; 139

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL CHANDIGARH BENCH A, CHANDIGARH BEFORE SHRI T.R. SOOD, ACCOUNTANT MEMBER AND MS. SUSHMA CHOWLA, JUDICIAL MEMBER ITA NO. 1180 & 1181/CHD/2013 ASSESSMENT YEARS : 2007-08 & 2008 -09 THE PATIALA IMPROVEMENT V I.T.O. TRUST, CHHOTTI BARADARI WARD 1, PATIALA PATIALA AAAJI 0034 L (APPELLANT) (RESPONDENT) APPELLANT BY: SHRI Y.K. SOOD RESPONDENT BY: SHRI MANJIT SINGH DATE OF HEARING 23.6.2014 DATE OF PRONOUNCEMENT 9.7.2014 O R D E R PER T.R. SOOD, A.M THESE APPEALS ARE DIRECTED AGAINST THE ORDERS DATED 17.10.2013 OF THE LD CIT(A), PATIALA. 2. IN BOTH THESE APPEALS THE ASSESSEE HAS RAISED ID ENTICAL ISSUES WHICH ARE AS UNDER: 1 THAT LD. CIT(A) WAS ANOT JUSTIFIED IN UPHOLDING THE ACTION OF THE ASSESSING OFFICER IN REOPENING OF THE ASSESSMEN T U/S 147 & 148. 2 THAT WHILE UPHOLDING THE ACTION OF THE ASSESSING OFFICER IN REOPENING OF THE ASSESSMENT THE LD. CIT(A) HAS FAIL ED TO APPRECIATE THAT THE NOTICE U/S 148 WAS NOT ONLY PAS SED BY LIMITATION BUT ALSO WAS CLEAR CASE OF CHANGE OF OPI NION. 3 THAT THE STATUS OF ETH ASSESSEE HAS BEEN WRONGLY CHANGED BY THE ASSESSING OFFICER FROM TRUST TO ARTIFICIAL J URIDICAL PERSON. BOTH THE ASSESSING OFFICER AND THE LD. CIT(A) FAILE D TO APPRECIATE THAT THE TRUST WAS DULY GRANTED REGISTRATION BY THE CIT, PATIALA U/S 12AA. THAT AT ANY RATE SUCH CHANGE IN STATUS ON TH E BASIS OF THE RETURN FILED BY THE TRUST IS NOT PERMISSIBLE UNDER THE LAW. 4 THAT THE ASSESSING OFFICER AND THE LD. CIT(A) FAI LED TO APPRECIATE THAT ONCE THE REGISTRATION IS GRANTED TO THE TRUST U/S 12AA THE ASSESSING OFFICER COULD ONLY EXAMINE THE A PPLICATION OF THE FUNDS ACCORDING TO ITS OBJECTS AND CANNOT TRAVE L TO COMMENT ON THE OBJECTS OF THE TRUST. 5 THAT THE LD. CIT(A) HAS WRONGLY CONFIRMED THE ACT ION OF EH ASSESSING OFFICER IN ASSESSING RS. 66935452/- AS BU SINESS INCOME. BOTH THE ASSESSING OFFICER AND THE LD. CIT (A) HAVE FAILED TO APPRECIATE THAT NO BUSINESS INCOME COULD HAVE BE EN COMPUTED IN THE CASE OF A CHARITABLE TRUST. 2 3 AFTER HEARING BOTH THE PARTIES WE FIND THAT IN BO TH THESE YEARS THE ASSESSMENTS HAVE BEEN REOPENED AND THEN REASSESSMENT HAS BEEN FRAMED AFTER DENYING EXEMPTIO N U/S 12A. IN BOTH THESE CASES ORIGINAL ASSESSMENTS WER E FRAMED U/S 143(3) OF THE ACT. THE LD. CIT(A) HAS CONFIRME D THE ACTION OF THE ASSESSING OFFICER. 4 BEFORE US. THE LD. COUNSEL FOR THE ASSESSEE SUBMI TTED THAT THE ISSUES ARE SQUARELY COVERED IN FAVOUR OF A SSESSEE BY THE ORDER OF THE TRIBUNAL IN ASSESSEES OWN CASE FO R EARLIER YEARS IN ITAS NO. 1178 & 1179/CHD/2013. 5 ON THE OTHER HAND, THE LD. D.R. FOR THE REVENUE SUPPORTED THE ORDER OF THE LD. CIT(A). 6 AFTER CONSIDERING THE RIVAL SUBMISSIONS WE FIND I DENTICAL ISSUES CAME UP F OR CONSIDERATION OF THE TRIBUNAL W HICH HAVE BEEN ADJUDICATED VIDE PARA 10 TO 15 OF ITAS NO. 11 78 & 1179/CHD/2013 WHICH ARE AS UNDER: 10. WE HAVE CONSIDER THE RIVAL SUBMISSION CAREFULLY , IN THE LIGHT OF MATERIAL ON RECORD AND DECISIONS RELIED ON BY THE P ARTIES. WE FIND THAT ORIGINAL RETURN DECLARING INCOME OF RS. 14,15,720.0 0 WAS FILED ON 30/10/2005, AND THE ASSESSMENT WAS COMPLETED U/S 14 3(3) ON 26/11/2007, LATER ON REASONS WERE RECORDED FOR REOP ENING OF THE ASSESSMENT WHICH READS AS UNDER: RETURN DECLARING INCOME OF RS. 14,15,720/- WAS FILE D ON 31/10/2005 WHICH WAS PROCESSED 143(1). THE ASSESSMENT U/S 143( 3) WAS COMPLETED ON 26/11/2007 BY THE THEN ACIT, CIRCLE, PATIALA AND THE RETURNED INCOME OF RS. 14,15,720.00 WAS ACCEPTED. PERUSAL OF ASSESS MENT RECORD FOR THE A.Y. 2005-06 REVEALS THAT THE ASSESSEE HAS EARNED I NCOME OF RS. 2,17,08,483/- AND CLAIMED EXEMPTION U/S 11(1)(A) OF THE I.T. ACT, 1961. ON PERUSAL OF INCOME AND EXPENDITURE ACCOUNT FOR TH E PERIOD ENDING 31/03/2005, IT HAS BEEN NOTICED THAT THE ASSESSEE H AS EARNED NET PROFIT OF RS. 46,71,987/- BY CARRYING OUT BUSINESS ACTIVI TIES OF SALE AND PURCHASE OF PROPERTIES AND RECEIVED COMPLETION FEE, COMPROMISE FEE, CONNECTION FEE, DEVELOPMENT FEE ENLISTMENT FEE, MAP FEE, MALBA FEE, PROCESSING FEE, TRANSFER FEE, ENHANCEMENT FEE, WATE R CONNECTION FEE AND BUILDING CONTROL FEE, FINE AND PENALTIES, INTEREST ETC., WHICH CLEARLY ESTABLISHES THAT THE ASSESSEE IS ENGAGED IN THE BUS INESS OF SALE AND PURCHASE OF PROPERTIES. THE ASSESSEE HAS SHOWN CLOS ING STOCK OF RS. 25,93,76,199/- AS SALEABLE PROPERTIES AND RECEIVED EARNEST MONEY AMOUNTING TO RS. 33,09,40,000/- WHICH CLEARLY SHOWS THAT THE INCOME EARNED RELATES TO BUSINESS OF SALE AND PURCHASE OF PROPERTIES. DURING THE COURSE OF ASSESSMENT PROCEEDINGS IN THIS CASE FOR THE A.Y. 2009, THE THEN ITO, WARD-I, PATIALA HAS DISALLOWED DEDUCTION CLAIMED U/S 11 BY THE ASSESSE FOR THE A.Y. 2009-10 CONSIDERING THE INCOME OF THE 3 ASSESSEE AS BUSINESS INCOME AND ASSESSED AT A TOTAL OF RS. 11,00,88,987/- VIDE ORDER U/S 143(3) DATED 23/12/20 12. AO HELD THAT THE ASSESSEE HAD DONE THE SALE & PURCH ASE OF PROPERTIES BEING BUSINESS INCOME AND HAD HELD THAT THE ASSESSE E IS NOT ENTITLED FOR EXEMPTION U/S 11 OF THE I.T. ACT 1961 AS ASSESSEE T RUST IS NOT DOING THE WORK OF GENERAL PUBLIC UTILITY AS COVERED U/S 2(15) OF THE I.T. ACT 1961, RATHER IT IS ENGAGED IN COMMERCIAL ACTIVITIES. IN THE YEAR UNDER CONSIDERATION, THE BUSINESS ACTIV ITIES OF THE ASSESSEE ARE THE SAME AND IT HAD SHOWN A NET PROFIT AT RS. 4 6,71,987/- THUS, I HAVE REASON TO BELIEVE THAT BY VIRTUE OF WR ONG CLAIM OF EXEMPTION U/S 11, INCOME OF THE ASSESSEE AMOUNTING TO RS. 32, 56,267 (4671987- 1415720) FOR ASSESSMENT YEAR 2005-06 HAS ESCAPED AS SESSMENT OR THE SAME ANALOGY AS THE ASSESSEE HAS NOT DISCLOSED FULL Y AND TRULY ALL MATERIAL FACTS NECESSARY FOR ITS ASSESSMENT FOR THA T ASSESSMENT YEAR (A.Y. 2005-06) 11. THE PERMISSION OF CIT WAS ALSO SOUGHT IN TERMS OF SECTION 151(1) AND THE PERMISSION WAS GRANTED BY CIT, PATIALA ON 2 3/03/2012. 12. THE FIRST OBJECTION RAISED BY THE LD. COUNSEL F OR THE ASSESSEE THAT BEFORE GIVING THE SANCTION FOR ISSUANCE OF NOTICE T HE CIT SHOULD HAVE SATISFIED HIMSELF THAT THERE WAS ACTUALLY SOME REAS ON FOR REOPENING. WE FIND NO MERIT IN THIS OBJECTION BECAUSE SECTION 151 SIMPLY REQUIRES THAT NOTICE AFTER A PARTICULAR PERIOD CANNOT BE ISSUED W ITHOUT THE SANCTION OF THE PARTICULAR AUTHORITY. THERE IS NO REQUIREMENT F OR THAT AUTHORITY TO RECORD THE REASONS FOR SUCH PERMISSION IN THE ABSEN CE OF SUCH REQUIREMENT. THE SATISFACTION EVEN IF REQUIRED CAN BE UNDERSTOOD AS STATE OF MIND AND IT HAS TO BE ASSUMED THAT CONCERN ED AUTHORITY IS SATISFIED IF SUCH AUTHORITY HAS SANCTIONED THE ISSU E OF NOTICE. IN THE PRESENT CASE THE CIT HAS ACCORDED THE SANCTION TO P ROPOSAL FOR ISSUING NOTICE U/S 148 VIDE PROPOSAL DATED 21/03/2012. THE APPROVAL WAS GRANTED ON 23/12/2012 AND CIT HAS STATED AGAINST CO LUMN NO. 12 AS UNDER: FROM THE ABOVE IT BECOMES CLEAR THAT PROPER SANCTIO N HAS BEEN GRANTED CIT AS REQUIRED U/S 151 OF ACT THEREFORE WE REJECT THIS OBJECTION. 13. THE SECOND ASPECT INVOLVED IN THE REOPENING IS WHETHER SUCH REOPENING IS PERMISSIBLE AFTER A PERIOD OF FOUR YEA RS FROM THE END OF THE ASSESSMENT YEAR, SECTION 147 READS AS UNDER : IF THE ASSESSING OFFICER HAS REASON TO BELIEVE TH AT ANY INCOME CHARGEABLE TO TAX HAS ESCAPED ASSESSMENT FOR ANY AS SESSMENT YEAR, HE MAY, SUBJECT TO THE PROVISIONS OF SECTIONS 148 TO 1 53, ASSESS OR REASSESS SUCH INCOME AND ALSO ANY OTHER INCOME CHAR GEABLE TO TAX WHICH HAS ESCAPED ASSESSMENT AND WHICH COMES TO HIS NOTICE SUBSEQUENTLY IN THE COURSE OF THE PROCEEDINGS UNDER THIS SECTION, OR RE- COMPUTE THE LOSS OR THE DEPRECIATION ALLOWANCE OR A NY OTHER ALLOWANCE, AS THE CASE MAY BE, FOR EH ASSESSMENT YEAR CONCERNE D (HEREAFTER IN THIS SECTION AND IN SECTIONS 148 TO 153 REFERRED TO AS T HE RELEVANT ASSESSMENT YEAR): PROVIDED THAT WHERE AN ASSESSMENT UNDER SUB-SECTION (3) OF SECTION 143 OR THIS SECTION HAS BEEN MADE FOR THE RELEVANT ASSE SSMENT YEAR, NO ACTION SHALL BE TAKEN UNDER THIS SECTION AFTER THE EXPIRY OF FOUR YEARS FROM THE END OF THE RELEVANT ASSESSMENT YEAR, UNLES S ANY INCOME CHARGEABLE TO TAX HAS ESCAPED ASSESSMENT FOR SUCH A SSESSMENT YEAR BY REASON OF THE FAILURE ON THE PART OF THE ASSESSEE T O MAKE A RETURN UNDER SECTION 139 OR IN RESPONSE TO A NOTICE ISSUED UNDER SUB-SECTION (1) OF SECTION 142 OR SECTION 148 OR TO DISCLOSE FULLY AND TRULY ALL MATERIAL FACTS NECESSARY FOR HIS ASSESSMENT, FOR THAT ASSESSMENT Y EAR. 12. WHETHER COMMISSIONER / BOARD IS SATISFIED ON THE REASONS RECORDED BY THE ITO / ACIT / DCIT THAT IT IS A FIT CASE FOR THE ISSUE OF NOTICE U/S 148 YES, ITS A FIT CASE. 4 PROVIDED . PROVIDED . NOT RELEVANT PROVIDED . THE FIRST PROVISO OF THE ABOVE SECTION MAKES IT CLE AR THAT IF ASSESSMENT HAS BEEN FRAMED UNDER SECTION 143(3) THEN NO ACTION SHALL BE TAKEN UNDER THIS SECTION, AFTER THE EXPIRY OF FOUR YEARS FROM THE END OF THE RELEVANT ASSESSMENT YEAR UNLESS THERE IS A FAILURE ON THE PART OF THE ASSESSEE TO MAKE THE RETURN UNDER SECTION 139 OR TO DISCLOSE FULLY AND TRULY ALL MATERIAL FACTS NECESSARY FOR THE ASSESSME NT. THE PERUSAL OF THE REASONS RECORDED DOES NOT SHOW THAT THERE WAS ANY F AILURE ON THE PART OF THE ASSESSEE TO TRULY AND FULLY DISCLOSE THE MATERI AL FACTS NECESSARY FOR THE ASSESSMENT HONBLE PUNJAB & HARYANA HIGH COURT IN CASE OF DULI CHAND SINGHANIA VS. ASSISTANT COMMISSIONER OF INCOM E TAX (SUPRA) WHICH READS AS UNDER: HELD, THAT THE REASON RECORDED FOR ISSUE OF NOTIC E SHOWED THAT THE SATISFACTION RECORDED THEREIN WAS MERELY ABOUT THE ESCAPEMENT OF INCOME. THERE WAS NOT EVEN A WHISPER OF AN ALLEGATI ON THAT SUCH ESCAPEMENT HAD OCCURRED BY REASON OF FAILURE ON THE PART OF HE ASSESSEE TO DISCLOSE FULLY AND TRULY ALL THE MATERIAL FACTS NECESSARY FOR HIS ASSESSMENT. ABSENCE OF THIS FINDING WHICH IS A SIN E QUA NON FOR ASSUMING JURISDICTION UNDER SECTION 147 OF THE ACT IN A CASE FALLING UNDER THE PROVISO THERETO, MADE THE ACTION TAKEN BY THE A SSESSING OFFICER WHOLLY WITHOUT JURISDICTION. THE NOTICE WAS NOT VAL ID AND WAS LIABLE TO BE QUASHED. SIMILAR OBSERVATIONS WAS MADE BY THE HONBLE PUNJAB & HARYANA HIGH COURT IN CASE OF MAHAVIR SPINNIG MILLS LTD. VS. COM MISSIONER OF INCOME TAX AND ANOTHER WHICH READS AS UNDER : HELD, THAT THERE WAS NO ALLEGATION THAT ESCAPEMEN T OF INCOME FROM TAX HAD OCCURRED BY REASON OF FAILURE ON THE PART OF TH E ASSESSEE TO DISCLOSE FULLY AND TRULY ALL MATERIAL FACTS NECESSARY FOR IT S ASSESSMENT. SINCE THE ILLEGALITY OF NOTICE UNDER SECTION 148 OF THE ACT W AS APPARENT FROM THE REASONS RECORDED FOR INITIATION OF PROCEEDINGS UNDE R SECTION 147 OF THE ACT, THIS WAS A FIT CASE FOR INTERFERENCE IN THE EX ERCISE OF THE WRIT JURISDICTION. THE NOTICE WAS LIABLE TO BE QUASHED. AGAIN SIMILAR VIEW WAS TAKEN IN CASE OF WINSOME TEX TILES INDUSTRIES LTD. VS. UNION OF INDIA AND OTHERS WHICH READS AS UNDER: HELD, THAT THERE WAS NO OBLIGATION ON THE PART OF THE ASSESSE TO FURNISH PROFIT AND LOSS ACCOUNTS FOR THE ASSESSMENT YEARS 1 995-96 AND 1996-97 WITH THE RETURN FOR THE ASSESSMENT YEAR 1997-98.THE RE WAS NO PROVISION OF LAW OR RULE WHICH REQUIRED FURNISHING OF PROFIT AND LOSS ACCOUNTS OF THE EARLIER YEARS. IN THE ABSENCE OF ANY OBLIGATION TO FILE THESE DOCUMENTS, THE ASSESSEE COULD NOT BE CHARGED WITH ANY FAILURE TO DISCLOSE FULLY AND TRULY MATERIAL FACTS NECESSARY FOR ITS ASSESSMENT. THE PROFIT AND LOSS ACCOUNT FOR THE ASSESSMENT YEAR 1997-98 HAD BEEN FI LED. SIMILARLY, THE DEPRECIATION CHART FOR THE ASSESSMENT YEAR 1997-98 GIVING PARTICULARS REQUIRED FOR COMPUTATION OF DEPRECIATION WAS ALSO A VAILABLE ON RECORD. THE ASSESSMENT HAD BEEN MADE UNDER SECTION 143(3) O F THE ACT AND IF THE ASSESSING OFFICER WAS OF THE VIEW THAT HE REQUI RED THE PROFIT AND LOSS ACCOUNTS AND DEPRECATION CHARTS OF THE ASSESSMENT Y EARS 1995-96 AND 1996-97 FOR EXAMINING THE CORRECTNESS OF THE CLAIM UNDER SECTION 80-IA OF THE ACT, HE COULD HAVE REQUIRED THE ASSESSEE TO PRODUCE THEM. FAILURE OF THE ASSESSING OFFICER TO DO SO, COULD NOT BE TRE ATED AT PAR WITH THE FAILURE OF THE ASSESSEE TO DISCLOSE FULLY AND TRULY ALL MATERIAL FACTS NECESSARY FOR ITS ASSESSMENT. THE INITIATION OF PRO CEEDINGS UNDER SECTION 147 AFTER THE EXPIRY OF FOUR YEARS FROM THE END OF THE ASSESSMENT YEAR WAS WHOLLY WITHOUT JURISDICTION. THE NOTICE UNDER S ECTION 148 WAS NOT VALID. WE DO NOT FIND ANY FORCE IN THE SUBMISSION OF LD. D R THAT THE ASSESSEE HAS NOT FULLY DISCLOSED THE NATURE OF ACTIVITY WHIC H WAS MATERIAL FOR DECIDING THE ISSUE AND THEREFORE THE SAME WILL CONS TITUTE FAILURE ON THE 5 PART OF THE ASSESSEE TO DISCLOSE FULLY AND TRULY TH E MATERIAL FACTS NECESSARY FOR ASSESSMENT. THIS IS SO BECAUSE AT THE RELEVANT POINT OF TIME THERE WAS BINDING DECISION AVAILABLE FROM HON BLE PUNJAB & HARYANA HIGH COURT IN CASE OF CIT VS. IMPROVEMENT T RUST (SUPRA), WHEREIN THE HONBLE COURT AFTER EXAMINING THE OBJEC TS OF PUNJAB TOWN IMPROVEMENT TRUST ACT 1922 HELD THAT IMPROVEMENT TR UST WAS OF CHARITABLE NATURE. THEREFORE REVENUE WAS BOUND TO F OLLOW THIS JUDGMENT AND ACCEPT THE ASSESSEE AS CHARITABLE ORGANIZATION. 14. THE AO COULD NOT HAVE DEVIATED FROM THIS SITUAT ION. IT IS ONLY AFTER THE AMENDMENT MADE IN SECTION 2 (15) OF THE ACT CON TAINED FINANCE ACT 2008 WITH EFFECT FROM 01/04/2009. A DIFFERENT VIEW COULD HAVE BEEN TAKEN. THEREFORE, HAVING COMPLETED ASSESSMENT UNDER SECTION 143(3) LATER ON THE REVENUE CANNOT TAKE A U-TURN AND ISSUE NOTICE UNDER SECTION 148 WITHOUT SHOWING FAILURE ON THE PART OF THE ASSE SSEE TO FULLY AND TRULY DISCLOSED THE MATERIAL FACTS FOR THE ASSESSMENT. TH EREFORE IN OUR OPINION ACTION OF THE REVENUE OF REOPENING THE ASSESSMENT I S LEGALLY NOT TENABLE AND ACCORDINGLY WE ANNUL THE REASSESSMENT PROCEEDIN GS. 15. IN OUR OPINION OTHER ISSUES RAISED BY THE ASSES SEE BECOME ONLY OF ACADEMIC NATURE, ONCE WE HAVE ALREADY HELD THAT RE- ASSESSMENT PROCEEDINGS ARE NOT POSSIBLE AND ACCORDINGLY WE DEC LINE TO ADJUDICATE THOSE ISSUES. FOLLOWING THE ABOVE ORDER WE DECIDE THE ISSUES IN F AVOUR OF THE ASSESSEE. 9. IN THE RESULT, BOTH THE APPEALS OF THE ASSESSEE ARE ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 9.7.2014 SD/- SD/- (SUSHMA CHOWLA) (T.R. SOOD) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 9.7.2014 SURESH COPY TO: THE APPELLANT/THE RESPONDENT/THE CIT/THE C IT(A)/THE DR