ACIT, New Delhi V. M/s. Delhi Industries and Enterprises, New Delhi

ITA 2303/DEL/2010

• Counselvise Citation: 230320114 RSA 2010
• Duration Of Justice: 1 year(s) 5 month(s) 16 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-10-2011
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 17-08-2011
• Assessment Year: 2005-2006
• Appeal Filed On: 14-05-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SANJEEV JAIN ARS
• Assessee Lawyers: KRISHNA
• Keywords: Reopening of assessment; Capital asset; Depreciation; Source of fund; Proportionate interest; Fair market value; Difference of opinion; Assessment record; Reason to believe; Change of opinion; Reassessment proceedings
• Section: 143(3); 142(1); 147; 148; 54; 28; 154; 2; 139

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH B NEW DELHI) BEFORE SHRI RAJPAL YADAV AND SHRI B.C. MEENA ITA NOS. 1464, 1465, 1534 & 1535 /DEL /2010 ASST. YEARS 2002-03 TO 2005-06 M/S. DELHI INDUSTRIES & ENTERPRISES, VS. ASSISTANT COMMISSIONER OF IT, 81, OPP. HINDI PARK, DARYAGANJ, CIRCLE 30(1), DELHI. NEW DELHI. (PAN: AADFD2136P) (APPELLANT) (RESPONDENT) ITA NO. 2303/DEL/2010 ASST. YEAR: 2005-06 ASSISTANT COMMISSIONER OF IT, VS. M/S. DELHI INDUS TRIES & ENTER- CIRCLE 30(1) PRISES, 80-OPP.HINDI PARK NEW DELHI. DARYAGANJ, DELHI. (APPELLANT) (RESPONDENT) APPELLANT BY: S/SH. SALIL AGGA RWAL, GAUTAM JAIN, RAVIMAL & SANJEEV JAIN, ARS RESPONDENT BY: SHRI KRISHNA , CIT(DR) ORDER PER RAJPAL YADAV: JUDICIAL MEMBER IN THIS BUNCH OF FIVE APPEALS, FOUR ARE DIRECTED A T THE INSTANCE OF ASSESSEE AGAINST THE SEPARATE ORDERS OF LEARNED CIT (APPEALS) DATED 29.1.2010, 29.1.2010, 12.3.2010, 15.3.2010 PASSED I N ASSESSMENT YEARS 2002-03 TO 2005-06 RESPECTIVELY, WHEREAS IN ASSESSM ENT YEAR 2005-06, REVENUE IS IN CROSS APPEAL. THE ASSESSMENT ORDERS W ERE PASSED IN ALL THESE ASSESSMENT YEARS ON 27.12.2007 UNDER SEC. 143(3) RE AD WITH SECTION 147 OF 2 THE INCOME-TAX ACT, 1961. COMMON QUESTIONS OF FACTS AND LAW ARE INVOLVED IN ALL THE APPEALS, THEREFORE, WE HEARD THEM TOGETH ER AND DEEM IT APPROPRIATE TO DISPOSE OF THEM BY THIS COMMON ORDER. 2. THE FIRST COMMON ISSUE RAISED BY THE ASSESSEE IN ALL THE ASSESSMENT YEARS IS THAT LEARNED CIT(APPEALS) HAS ERRED IN UPH OLDING THE REOPENING OF ASSESSMENT. SINCE THE COMMON FACTS ARE INVOLVED, TH EREFORE, FOR THE FACILITY OF REFERENCE, WE WOULD TAKE FACTS FROM ASSESSMENT Y EAR 2002-03, HOWEVER, IF WE FIND ANY VARIATION OF FACTS IN ANY ASSESSMENT YE AR WHICH REQUIRED SPECIFIC REFERENCE FOR THE JUST DECISION OF APPEALS THEN WE WOULD REFER THOSE FACTS FROM THOSE ASSESSMENT YEARS. 3. THE BRIEF FACTS IN ASSESSMENT YEAR 2002-03 ARE T HAT ASSESSEE HAS FILED A RETURN OF INCOME ON 30.7.2002 DECLARING AN INCOME O F RS.12,23,340. THIS RETURN WAS PROCESSED UNDER SEC. 143(1)(A) ON 25.2.2 003 ON RETUNED INCOME. ASSESSING OFFICER, THEREAFTER PASSED AN ORDER UNDER SEC. 154 READ WITH SECTION 143(1) ON 31.3.2003 AND DETERMINED THE TAXA BLE INCOME OF ASSESSEE AT RS.79,89,490 AFTER DISALLOWING PROPERTY TAX OF R S.61,00,190. HE ALSO DISALLOWED INTEREST ON BORROWED CAPITAL AT RS.24,96 ,015. DISSATISFIED WITH THIS ADJUSTMENT, ASSESSEE CARRIED THE MATTER IN APP EAL BEFORE THE LEARNED 3 CIT(APPEALS). LEARNED CIT(APPEALS) DECIDED THE APPE AL ON 14.8.2003 AND ASSESSING OFFICER GAVE THE EFFECT TO LEARNED CIT(AP PEALS)S ORDER ON 27.2.2004. HE RECOMPUTED THE INCOME OF THE ASSESSEE AT RS.12,63,018. THE ASSESSEE AGAIN MOVED AN APPLICATION UNDER SEC. 154. IT CLAIMED THAT ADVANCE RENT OF MARCH 2001 AMOUNTING TO RS.1,75,500 HAS BEE N ASSESSED IN ASSESSMENT YEAR 2001-02 AND, THEREFORE, IT CANNOT B E CONSIDERED AGAIN IN 2002-03. IN ASSESSMENT YEAR 2001-02, AN ASSESSMENT ORDER WAS PASSED UNDER SEC. 143(3) OF THE ACT. LEARNED ASSESSING OFFICER U LTIMATELY DETERMINED THE INCOME OF ASSESSEE AT RS.10,87,520. 4. ASSESSING OFFICER HAD ISSUED NOTICE UNDER SECTIO N 148 ON 28.3.2007 AFTER RECORDING THE REASONS FOR REOPENING OF THE CA SE. THIS NOTICE WAS SERVED IN ALL THE ASSESSMENT YEARS. ASSESSEE FILED A LETTE R ON 30.4.2007, IN ALL THE FOUR ASSESSMENT YEARS, STATING THEREIN, THAT THE RE TURN ORIGINALLY FILED BE TREATED AS RETURN FILED UNDER SEC. 148 OF THE ACT. THERE IS NO VARIATION OF FACTS IN ASSESSMENT YEAR 2003-04 EXCEPT THAT THE PROCEEDI NGS UNDER SECTION 154 OF THE ACT WAS NOT TAKEN BY THE ASSESSING OFFICER. 5. IN ASSESSMENT YEAR 2004-05, THE ASSESSEE HAS FIL ED THE RETURN ON 29.10.2004 DECLARING AN INCOME OF RS.51,40,790. A N OTICE UNDER SEC. 143(2) OF THE ACT WAS ISSUED ON 17.1.2005. ASSESSING OFFIC ER HAS PASSED AN ASSESSMENT ORDER UNDER SEC. 143(3) ON IST OF AUGUST 2005. HE ACCEPTED THE 4 INCOME DECLARED BY THE ASSESSEE. THE NOTICE UNDER S EC. 148 OF THE ACT WAS ISSUED ON 28.3.2007. SIMILARLY, IN ASSESSMENT YEAR 2005-06, ASSESSEE FILED THE RETURN ON 27.7.2005 DECLARING AN INCOME OF RS.7 8,81,880. IT WAS PROCESSED UNDER SEC. 143(1) ON 23 RD SEPTEMBER 2005. A NOTICE UNDER SEC. 143(2) WAS ISSUED UPON THE ASSESSEE AND AN ASSESSME NT UNDER SEC. 143(3) WAS PASSED ON 27.1.2006 AND REST OF THE FACTS ARE I DENTICAL TO OTHER YEARS. 6. ASSESSING OFFICER HAS RECORDED SEPARATE REASONS FOR RE-OPENING OF ASSESSMENT IN ALL THESE FOUR YEARS. THE REASONS FOR ASSESSMENT YEARS 2002-03 AND 2003-04 ARE IDENTICAL WHEREAS THE REASONS FOR A SSESSMENT YEARS 2004-05 AND 2005-06 ARE IDENTICAL. SINCE BOTH THE PARTIES H AVE ADVANCED MULTI-FOLD ARGUMENTS ON THIS ISSUE AND RELIED UPON A LARGE NUM BER OF CASE LAWS FOR BUTTRESSING THEIR CONTENTIONS, THEREFORE, WE DEEM I T APPROPRIATE TO TAKE NOTE OF THE REASONS RECORDED BY THE ASSESSING OFFICER WH ICH READ AS UNDER: ASSESSMENT YEARS 2002-03 & 2003-04: REASONS FOR BELIEF BETTER THAT INCOME HAS ESCA PED ASSESSMENT IN THE CASE OF M/S. DELHI INDUSTRIES & ENTERPRISES FO R A.Y.2002-03 RETURN OF INCOME WAS, FILED ON 30.07.2002 DECLARING INCOME OF RS.12,23,340/- WHICH WAS PROCESSED U/S 143(1) ON 28 .02.2003 ON RETURNED INCOME. THE ASSESSEES ONLY SOURCE OF INCOME IS RE NTAL INCOME. 5 ON GOING THROUGH THE INSPECTION REPORT OF HON'BLE C IT-X AND THE ASSESSMENT RECORDS, I AM SATISFIED THAT THE INCOME CHARGEABLE TO TAX HAS ESCAPED ASSESSMENT FOR THE AY.2002-03 AS PER THE RE ASONS GIVEN BELOW:- 'THAT DURING THE A.Y.200'203, THE ASSESSEE FIRM W AS SANCTIONED LOAN OF RS.4 CRORES BY VYSHYA BANK LTD. ON 12-05-2001 FOR T HE PURPOSE OF CONSTRUCTION OF COMMERCIAL COMPLEX/REPAYMENT OF EXI STING LOAN WITH CANERA BANK. THE BUILDING WAS COMPLETED IN THE F.Y. 2000-01 AND THE FIRM STARTED GETTING RENT IN THE F.Y. 2000-01 RELEVANT T O THE A.Y .2001-02. THE BORROWED FUNDS WERE NOT USED FOR THE PURPOSE OF CON STRUCTION AS THERE WAS NO ADDITION TO THE COMMERCIAL COMPLEX DURING THE YE AR, EXCEPT REPAYMENT OF OUTSTANDING LOAN OF RS.1.66 CR. PAYABLE TO CANARA B ANK. THE ASSESSEE HAS CLAIMED DEDUCTION U/S 24 ON ACCOUNT OF INTEREST FOR CURRENT YEAR AT RS.53.61,464/-WHICH HAS BEEN ALLOWED. SINCE VYSHYA BANK LTD. DULY CERTIFIED THAT THE LOAN OF RS.4 CR. IS BEING SANCTI ONED FOR THE PURPOSE OF CONSTRUCTION OF COMMERCIAL COMPLEX/REPAYMENT OF EXI STING LOAN WITH CANARA BANK AND THE INTEREST PAYABLE ON THAT LOAN FOR THE PERIOD IS RS.53,61,484/- WHEREAS THE ASSESSEE HAS USED ONLY 1.66 CR. OUT OF LOAN OF RS.4 CR., ON WHICH DEDUCTION U/S 24 IS CLAIMED BUT THE DEDUCTION U/S 24 SHOULD BE RESTRICTED TO THE AMOUNT OF INTEREST ATTRIBUTABLE T O REPAYMENT OF LOAN OF CANARA BANK ONLY. THUS DEDUCTION U/S 24 IN RESPECT ON INTEREST ON A SUM OF RS.2 .34 CR. WHICH WAS NOT UTILIZED FOR THE CONSTRU CTION/REPAYMENT OF LOAN IS NOT ALLOWABLE. BESIDES THIS THE INCOME HAS ALSO ESCAPED ASSESSMENT IN RESPECT OF INCOME EARNED ON THE BALANCE BORROWED FUNDS UTILIZE D FOR THE ACTIVITIES NOT DISCLOSED BY THE ASSESSEE FIRM AS THE ASSESSEE HAS NOT SHOWN ANY INCOME EXCEPT INCOME FROM HOUSE PROPERTY' . THEREFORE. I HAVE REASONS TO BELIEVE THAT THE INCOM E ABOVE RS.1,00,000 AS DISCUSSED ABOVE HAS ESCAPED ASSESSM ENT BY REASON OF FAILURE ON THE PART OF THE ASSESSEE TO DISCLOSE FULLY AND T RULY ALL MATERIAL FACTS NECESSARY FOR HIS ASSESSMENT FOR THE ASSESSMENT YEA R 2002-03. THEREFORE, PROCEEDINGS U/S 147ARE INITIATED BY ISSUE OF NOTICE U/S 148 OF THE I.T. ACT FOR HEE A.Y. 2002-03. ISSUE NOTICE U/S 148 FOR A. Y. 2002-03. SD/- (MADHU B. DHAWAN) ASSTT. COMMISSIONER OF INCOME-TAX CIRCLE 30(1), NEW DELHI 6 REASONS FOR BELIEF THAT INCOME HAS ESCAPED ASSESSM ENT IN THE CASE OF M/S. DELHI INDUSTRIES & ENTERPRISES FOR A.Y. 2004-05 RETURN OF INCOME WAS FILED ON 29.10.2004 DECLARIN G INCOME OF RS.51,40,790 WHICH WAS PROCESSED U/S. 143(1). SUBSE QUENTLY THE ASSESSMENT WAS COMPLETED U/S. 143(3) ON 1.8.2005 ON RETURNED I NCOME OF RS.51,40,790. THE ASSESSEES ONLY SOURCE OF INCOME IS RENTAL INCO ME. ON GOING THROUGH THE INSPECTION REPORT OF THE HON BLE CIT-X AND THE ASSESSMENT FOR THE A.Y. 2004-05 AS PER THE REASONS GIVEN BELOW:- THAT THE ASSESSEE FIRM WAS RECONSTITUTED ON 02.09 .2003 WITH THE NEW PARTNERS AS UNDER: 1. M/S. DAISY ESTATES PVT. LTD. 20% 2. M/S. RAKSHA PROPERTIES PVT. LTD. 20% 3. BAL KISHAN GUPTA. 20% 4. KRISHNA GUPTA. 20% 5. ANKIT GUPTA 10% 6. ASHISHA GUPTA 10% IT WAS MUTUALLY AGREED THAT THE INCOMING PARTNERS W OULD BRING INTO THE FIRM A SUM OF RS. 6 CRORES AS CAPITAL CONTRIBUTION. THE OUTSTANDING LIABILITY OF RS.3,53,88,785 OF VYSHA BANK AS ON 27.8.2003 WAS SQ UARED UP OUT OF THE CAPITAL OF INCOMING PARTNERS OF RS. 6 CRORES. THE A SSESSEE FIRM DURING THE YEAR WAS SANCTIONED A SUM OF RS.5.50 CRORES FROM TH E SBI ON 4.3.2004 AND THE CAPITAL INTRODUCED BY THE INCOMING PARTNERS WAS REPAID OUT OF THE LOAN SO SANCTIONED FROM SBI. THEREAFTER ON THE 30.09.2003 ANOTHER INSTRUMENT OF RETIREMENT DEED WAS EXECUTED BETWEEN THE RETIRING PARTNERS I.E. M/S . DAISY ESTATES PVT. LTD. AND M/S. RAKSHA PROPERTIES LTD. AND THE CONTINUING PARTNERS. IN PARA 5 & 8 OF THIS PARTNERSHIP DEED, IT WAS MENTIONED THAT THE CONTINUING PARTNERS WILL TAKE OVER ALL THE ASSETS AND LIABILITIES OF THE BUS INESS CARRIED ON BY THE PARTIES 7 HERETO IN THE NAME AND STYLE OF THE FIRM M/S. DELHI INDUSTRIES AND ENTERPRISES GOING CONCERN W.E.F. 20.9.2003. THUS, T HE FIRM WAS DISSOLVED ON 30.09.2003 AND A NEW PARTNERSHIP DEED WAS EXECUTED ON 01.10.2003 WITH THE FOLLOWING REMAINING PARTNERS: 1. BAL KISHAN GUPTA 2. KRISHNA GUPTA 3. ANKIT GUPTA 4. ASHISH GUPTA THE TRANSFER OF THE CAPITAL ASSETS ON DISSOLUTION O F THE FIRM FALLS WITHIN THE AMBIT OF SECTION 45(4) OF THE I.T. ACT AND THE ASSESSEE FIRM HAS NOT SHOWN ANY CAPITAL GAINS ON THE TRANSFER OF ASSETS O F THE DISSOLVED FIRM. THE CAPITAL GAINS ARISING AFTER ASCERTAINING THE FAIR M ARKET VALUE OF THE ASSETS ON THE DATE OF SUCH TRANSFER HAS ESCAPED ASSESSMENT. FURTHER, DEDUCTION U/S. 24 ON ACCOUNT OF INTEREST FOR CURRENT YEAR AT RS.29,79,150 HAS BEEN ALLOWED IN EXCESS SINCE VYSHY A BANK ON 12.5.2001SANCTIONED LOAN OF RS. 4 CRORES FOR THE PU RPOSE OF CONSTRUCTION/REPAYMENT OF EXISTING LOAN WITH CANARA BANK AND THE INTEREST PAYABLE ON THAT LOAN FOR THE PERIOD IS RS.53,61,484 WHEREAS THE ASSESSEE HAS USED ONLY 1.66 CR. OUT OF LOAN RS. 4 CR, ON WHICH D EDUCTION U/S. 24 IS CLAIMED BUT THE DEDUCTION U/S 24 SHOULD BE RESTRICT ED TO THE AMOUNT OF INTEREST WHICH ATTRIBUTABLE TO REPAYMENT OF LOAN OF CANARA BANK ONLY. THUS, DEDUCTION U/S. 24 IN RESPECT OF INTEREST ON A SUM O F RS.2.34 CR. WHICH WAS NOT UTILIZED FOR THE CONSTRUCTION/REPAYMENT OF LOAN IS NOT ALLOWABLE. THEREFORE, I HAVE REASONS TO BELIEVE THAT THE INCO ME ABOVE RS.1,00,000 AS DISCUSSED ABOVE HAS ESCAPED ASSESSME NT BY REASON OF FAILURE ON THE PART OF THE ASSESSEE TO DISCLOSE FULLY AND T RULY ALL MATERIAL FACTS 8 NECESSARY FOR HIS ASSESSMENT FOR THE ASSESSMENT YEA R 2004-05. THEREFORE, PROCEEDINGS U/S. 147 ARE INITIATED BY ISSUE OF NOTI CE U/S. 148 OF THE I.T. ACT FOR THE ASSESSMENT YEAR 2004-05. ISSUE NOTICE U/S. 148 FOR A.Y. 2004-05. SD/- (MADHU B. DHAWAN) ASTT. COMMSISIONER OF INCOME-TAX CIRCLE 30(1), NEW DELHI 7. THE LEARNED COUNSEL FOR THE ASSESSEE WHILE IMPUG NING THE ORDERS OF THE LEARNED CIT(APPEALS) HAS SUBMITTED THAT REOPENI NG OF AN ASSESSMENT SHOULD NOT BE MADE ON THE BASIS OF MERE SUSPICION D EMONSTRATING THE ESCAPEMENT OF INCOME RATHER THE FORMATION OF BELIEF AT THE END OF THE ASSESSING OFFICER SHOULD BE BASED ON SOUND INFORMAT ION WHICH IS RELIABLE AND ACCEPTABLE IN LAW. FOR BUTTRESSING HIS CONTENTI ON, HE RELIED UPON THE DECISIONS OF HON'BLE SUPREME COURT IN THE CASES OF CALCUTTA DISCOUNT CO. LTD. VS. ITO REPORTED IN 41 ITR 191 AND IN THE CASE OF ITO, CALCUTTA VS. LAXMI MEWAL DASS REPORTED IN 103 ITR 437. WITH REGA RD TO ASSESSMENT YEARS 2002-03 AND 2003-04, HE POINTED OUT THAT THOU GH ASSESSMENTS WERE NOT FRAMED UNDER SEC. 143(3) OF THE IT ACT IN BOTH THES E ASSESSMENT YEARS BUT EVEN THEN THE REOPENING CAN BE MADE IF ASSESSING OF FICER WAS ABLE TO LAY HIS HANDS ON ANY FRESH INFORMATION AFTER FILING OF THE RETURN. IN OTHER WORDS, THE 9 CONTENTION OF THE LEARNED COUNSEL FOR THE ASSESSEE IS THAT ONCE LIMITATION TO ISSUE NOTICES FOR SCRUTINIZING THE RETURN UNDER SEC . 143(2) EXPIRES THEN ASSESSING OFFICER HAS BEEN DENUDED FROM HIS POWERS TO ISSUE NOTICE UNDER SEC. 148, UNLESS SOME INFORMATION CAME TO THE POSSE SSION OF THE ASSESSING OFFICER AFRESH, AFTER THE FILING OF THE RETURN. FOR BUTTRESSING HIS CONTENTION, HE MADE REFERENCE TO A LARGE NUMBER OF DECISIONS BUT W E WOULD LIKE TO REFER THE DECISION OF JURISDICTIONAL HIGH COURT IN THE CASES OF JAI BHARAT MARUTI LTD. VS. CIT REPORTED IN 324 ITR 289 AND IN THE CASE OF SHIPRA SRIVASTAVA VS. ACIT REPORTED IN 319 ITR 221, CIT VS. BATRA BHATTA CO. REPORTED IN 174 ITR 444 AND UNITED ELECTRICAL CO. VS. CIT REPORTED IN 528 ITR 317. HE ALSO REFERRED THE DECISION OF MADRAS HIGH COURT IN THE C ASE OF BAPALAL & CO. VS. JCIT REPORTED IN 289 ITR 37. HE FURTHER SUBMITTED T HAT IN ASSESSMENT YEARS 2002-03 AND 2003-04, A NOTICE UNDER SEC. 148 OF THE ACT WAS ISSUED ON THE BASIS OF INCORRECT FACTS. HE POINTED OUT THAT THE A SSESSING OFFICER IN THE REASONS HAS REFERRED THAT ASSESSEE TOOK A LOAN OF R S.4 CRORES FROM VYSYA BANK WHICH WAS ALLEGED TO HAVE BEEN USED FOR REPAYM ENT OF LOAN FROM CANARA BANK. BUT ONLY A SUM OF RS.1.66 CRORES WAS U SED FOR MAKING REPAYMENT OF LOAN, MEANING THEREBY THE AMOUNTS TO T HIS EXTENT WAS USED FOR THE PURPOSE OF CONSTRUCTION AND INTEREST UNDER SEC. 24 OF THE INCOME-TAX ACT, 1961 COULD BE ALLOWED ONLY ON THIS AMOUNT. THE LEAR NED COUNSEL FOR THE 10 ASSESSEE SUBMITTED THAT OUTSTANDING ACTUAL LOAN OF CANARA BANK WAS RS.1,89,08,019. THUS, ASSESSING OFFICER FAILED TO T AKE COGNIZANCE OF TRUE FACTS BEFORE HARBORING A BELIEF TO REOPEN THE ASSES SMENT. HE RELIED UPON THE DECISION OF HON'BLE DELHI HIGH COURT IN THE CASE OF CIT VS. RAINE SINGH REPORTED IN 337 ITR 417. HE FURTHER RELIED UPON THE DECISION OF UNITED ELECTRICAL CO. FOR THIS PROPOSITION. IN HIS NEXT FO LD OF SUBMISSION, HE POINTED OUT THAT FROM PERUSAL OF THE REASONS, IT REVEALS TH AT A.O. RECEIVED DIRECTIONS FROM THE CIT-X, AND THUS, IT IS NOT THE INDEPENDENT APPLICATION OF MIND AT THE END OF LEARNED ASSESSING OFFICER. THE REASSESSMENT IS NOT SUSTAINABLE IN THE EYES OF LAW, IF IT IS REOPENED ON THE DIRECTION OF HIGHER AUTHORITY. HE RELIED UPON THE DECISION OF HON'BLE SUPREME COURT IN THE C ASE OF CIT VS. GREEN WORLD CORPORATION REPORTED IN 31 ITR 81. IN HIS NEX T FOLD OF SUBMISSIONS, HE POINTED OUT THAT REASSESSMENT SHOULD NOT BE USED AS A POWER TO REVIEW. FOR BUTTRESSING HIS CONTENTION, HE RELIED UPON THE DECI SIONS OF HON'BLE DELHI HIGH COURT IN THE CASE OF CIT VS. KELVINATOR REPORT ED IN 256 ITR 1. HE FURTHER POINTED OUT THAT THIS DECISION OF THE FULL BENCH OF HON'BLE DELHI HIGH COURT HAS BEEN AFFIRMED BY THE HON'BLE SUPREME COURT IN THE JUDGMENT REPORTED IN 320 ITR 561. THE NEXT PROPOSIT ION RAISED BY THE LEARNED COUNSEL FOR THE ASSESSEE IS THAT ERROR OR M ISTAKE COMMITTED BY THE ASSESSING OFFICER WOULD NOT GIVE HIM POWERS TO RECT IFY THOSE MISTAKES BY 11 EXERCISING POWERS UNDER SEC. 148. HE RELIED UPON TH E DECISION OF HON'BLE DELHI HIGH COURT IN THE CASE OF CIT VS. EICHER LTD. REPORTED IN 294 ITR 310 AND RITU INVESTMENTS VS. DCIT REPORTED IN 51 DTR 16 2. HE FURTHER POINTED OUT THAT IN ASSESSMENT YEAR 2002-03, ASSESSING OFFI CER HAS MADE ADJUSTMENTS UNDER SEC. 154 WHICH WAS NOT UPHELD BY THE LEARNED CIT(APPEALS) ON FURTHER APPEAL, THEREFORE, ON THE B ASIS OF THAT VERY MATERIAL, HE CANNOT REOPEN THE ASSESSMENT. HE RELIED UPON THE JUDGMENT OF HON'BLE DELHI HIGH COURT IN THE CASE OF CIT VS. SFIL STOCK BROOKING LTD. REPORTED IN 41 DTR 98. HE ALSO RELIED UPON THE DECISION OF B OMBAY HIGH COURT IN THE CASE OF HINDUSTAN UNILIVER LTD. VS. DCIT REPORT ED IN 325 ITR 102. 8. THE LEARNED COUNSEL FOR THE ASSESSEE FURTHER SUB MITTED THAT IN ASSESSMENT YEARS 2004-05 AND 2005-06, FACTS ARE LIT TLE DIFFERENT AND THE CASE OF ASSESSEE IS ON A MORE SOUND FOOTING. HE POINTED OUT THAT IN THESE ASSESSMENT YEARS, ASSESSMENTS WERE FRAMED UNDER SEC . 143(3) MEANING THEREBY THE ASSESSING OFFICER HAS SCRUTINIZED THE R ETURN FILED BY THE ASSESSEE. ASSESSING OFFICER IN THE REASONS RECORDED BY HIM HA S POINTED OUT THAT THE FIRM M/S. DELHI INDUSTRIES & ENTERPRISES WAS RECONS TITUTED ON 2 ND SEPTEMBER 2003. HE FURTHER OBSERVED THAT THE FIRM WAS AGAIN R ECONSTITUTED ON 30 TH SEPTEMBER 2003 AND, THEREFORE, THE TRANSFER OF THE CAPITAL ASSETS ON 12 DISSOLUTION OF THE FIRM FALLS WITHIN THE AMBIT OF S EC. 45(4) OF THE ACT. HE POINTED OUT THAT THE ASSESSEE HAS ALREADY SUBMITTED COPIES OF THE PARTNERSHIP DEED EXHIBITING THE RETIREMENT OF TWO PARTNERS. ONL Y TWO PARTNERS WERE RETIRED ON 30 TH SEPTEMBER, 2003. THE COPY EXHIBITING THE RETIREMEN T WAS DULY SUBMITTED TO THE ASSESSING OFFICER BEFORE SCRUTINIZ ING RETURN AND THUS THERE IS NO NEW INFORMATION CAME TO THE NOTICE OF THE ASS ESSING OFFICER. THE DETAILS WITH REGARD TO THE CLAIM OF DEDUCTION IN RE SPECT OF INTEREST EXPENSES ON BORROWED CAPITAL USED FOR THE PURPOSE OF THE CON STRUCTION UNDER SEC. 24 OF THE ACT WAS DULY MADE IN THE RETURN AND IT WAS VERI FIED BY THE ASSESSING OFFICER UNDER SEC. 143(3) OF THE ACT. ALL THESE FAC TS WOULD INDICATE THAT NO FRESH MATERIAL CAME TO THE POSSESSION OF THE ASSESS ING OFFICER WHICH CAN EMPOWER HIM TO REOPEN THE ASSESSMENT. ACCORDING TO THE FULL BENCH DECISION OF THE HON'BLE DELHI HIGH COURT IN THE CAS E OF CIT VS. KELVINATOR, IF A SCRUTINY ASSESSMENT WAS MADE UNDER SEC. 143(3) THEN IT WILL BE PRESUMED THAT SUCH AN ORDER HAS BEEN PASSED ON APPLICATION O F MIND, AFTER GOING THROUGH ALL THESE DETAILS. THUS, ON THE BASIS OF TH OSE VERY INFORMATION, ASSESSING OFFICER CANNOT REOPEN THE ASSESSMENT. FOR BUTTRESSING HIS CONTENTIONS, HE RELIED UPON THE FOLLOWING DECISION S: A. CIT VS. KELVINATOR OF INDIA LTD. (DELHI HIGH COURT) REPORTED IN 256 ITR 1; 13 B. CIT VS. JAGSON INTERNATIONAL LTD. (DELHI HIGH COURT ) REPORTED IN 321 ITR 544; C. GODREJ AGROVET LTD. VS. DCIT (BOMBAY HIGH COURT) RE PORTED IN 230 CTR 65; D. ACIT VS. OP CHAWLA (ITAT DELHI) REPORTED IN 114 ITD 69; E. SATNAM OVERSEAS LTD. AND ANR. VS. ACIT (DELHI HIGH COURT) REPORTED IN 329 ITR 237; F. ASIAN PAINTS LTD. VS. DCIT (BOMBAY HIGH COURT) REPO RTED IN 308 ITR 195; G. MIHIR TEXTILES VS. JCIT (GUJ. HIGH COURT ) REPORTED IN 239 CTR 95; H. CIT VS. EICHER LTD. (DELHI HIGH COURT) REPORTED IN 239 CTR 65; AND I. JAI HOTELS CO. LTD. VS. ADIT (DELHI HIGH COURT) REP ORTED IN 24 DTR 37. 9. THE LEARNED COUNSEL FOR THE ASSESSEE WHILE TAKIN G US THROUGH THE ORDERS OF THE LEARNED CIT(APPEALS) POINTED OUT THAT THE LEARNED FIRST APPELLATE AUTHORITY HAS MADE REFERENCE EXTENSIVELY TO THE JUDGMENT OF HON'BLE GUJARAT HIGH COURT IN THE CASE OF PRAFUL CH UNNILAL PATEL VS. M.J. MAKWANA REPORTED IN 236 ITR 832. BUT THE CONCLUSION ARRIVED IN THIS DECISION COULD NOT MET THE CONCURRENCE OF HON'BLE D ELHI HIGH COURT IN THE CASE OF KELVINATOR (SUPRA). THE FULL BENCH OF THE H ON'BLE DELHI HIGH COURT, SPECIFICALLY DIFFERS WITH THIS DECISION AFTER QUOTI NG THE OBSERVATIONS OF 14 HON'BLE GUJARAT HIGH COURT. HE MADE REFERENCE TO PA GE NO.15 OF THE REPORT IN THE CASE OF CIT VS. KELVINATOR (SUPRA). THE DECI SION OF HON'BLE DELHI HIGH COURT WAS SPECIFICALLY BROUGHT TO THE NOTICE O F LEARNED CIT(APPEALS) AND SHE SHOULD HAVE NOT GIVEN PREFERENCE TO THE DEC ISION OF A DIVISION BENCH OF AN HON'BLE GUJ. COURT WHICH DID NOT MATCH WITH THE VIEW OF FULL BENCH OF HON'BLE JURISDICTIONAL HIGH COURT. HE PRAY ED THAT NOTICE ISSUED UNDER SEC. 148 OF THE ACT IN BOTH THE ASSESSMENT YE ARS BE QUASHED. 10. LEARNED DR ON THE OTHER HAND RELIED UPON THE O RDERS OF LEARNED REVENUE AUTHORITIES BELOW. HE POINTED OUT THAT IN A SSESSMENT YEARS 2002-03 AND 2003-04, THERE IS NO SCRUTINY ASSESSMENT. THE I NFORMATION COLLECTED BY THE ASSESSING OFFICER SHOULD NOT HAVE AN EXTERNAL S OURCE ONLY. ACCORDING TO HIM, THERE ARE DIFFERENT MECHANISM IN THE DEPARTMEN T FOR ANALYZING THE DETAILS. SOME INFORMATION MUST HAVE COME TO THE POS SESSION OF LEARNED CIT WHO INSPECTED THE RECORD. HE PREPARED A REPORT AND TRANSMITTED IT TO THE ASSESSING OFFICER FOR EXAMINATION. IT IS THE ASSESS ING OFFICER WHO ON ANALYSIS OF THE REPORT, FORMED AN OPINION THAT INCO ME HAS ESCAPED ASSESSMENT. LEARNED CIT HAS NOT GIVEN ANY DIRECTION TO THE ASSESSING OFFICER FOR ISSUANCE OF NOTICE UNDER SEC. 148 OF TH E ACT. ASSESSING OFFICER HAS NOWHERE MENTIONED THIS ASPECT IN THE REASONS RE CORDED FOR REOPENING OF 15 THE ASSESSMENT. HE HAS ONLY MADE REFERENCE TO THE R EPORT OF INSPECTION CARRIED OUT AT THE END OF LEARNED CIT. THERE IS NO FORMATION OF OPINION IN THESE TWO ASSESSMENT YEARS, THEREFORE, IT CANNOT BE SAID THAT ASSESSING OFFICER WAS NOT HAVING ANY INFORMATION. THE REOPENI NG HAS BEEN MADE AFTER COLLECTING INFORMATION WHICH HAS A DIRECT NEXUS WIT H FORMATION OF BELIEF DEMONSTRATING THE ESCAPEMENT OF INCOME, THUS, THE D ECISION RELIED UPON BY THE LEARNED COUNSEL FOR THE ASSESSEE FOR BUTTRESSIN G HIS PROPOSITION THAT REOPENING SHOULD NOT BE RESORTED ON MERE SUSPICION, NOTICE UNDER SEC. 148 SHOULD NOT BE ISSUED WITHOUT COLLECTION OF FRESH IN FORMATION AND REASSESSMENT NOTICE UNDER SEC. 148 SHOULD NOT BE IS SUED ON THE DIRECTIONS OF HIGHER AUTHORITIES, HAVE NO RELEVANCY IN THE FACTS AND CIRCUMSTANCES AVAILABLE ON THE RECORD. ALL THESE DECISIONS ARE QU ITE DISTINGUISHABLE. HE FURTHER CONTENDED THAT HON'BLE SUPREME COURT IN THE CASE OF RAYMOND WOOLLEN MILLS REPORTED IN 236 ITR 34 HAS POINTED TH AT SUFFICIENCY OF THE REASONS CANNOT BE TESTED AT THE STAGE OF ISSUANCE O F NOTICE UNDER SEC. 148. IT IS THE PRIMA FACIE OPINION OF THE ASSESSING OFFICER AT THAT POINT OF TIME. HE ALSO REFERRED THE DECISION OF HON'BLE DELHI HIGH CO URT IN THE CASE OF JINDAL PHOTO FILMS REPORTED IN 234 ITR 178 DISCUSSED BY TH E FULL BENCH OF THE HON'BLE DELHI HIGH COURT IN THE CASE OF KELVINATOR, WHEREIN HON'BLE DELHI HIGH COURT HAS OBSERVED THAT IF REASONS TO BELIEF, BE AVAILABLE, THE WRIT COURT 16 WILL NOT EXERCISE ITS POWER OF JUDICIAL REVIEW TO G O INTO THE SUFFICIENCY OR ADEQUACY OF THE MATERIAL AVAILABLE, MEANING THEREBY , IT IS NOT ADVISEABLE TO TEST THE ADEQUACY OF REASONS FOR UPHOLDING OR QUASH ING THE REOPENING OF THE ASSESSMENT. THE ADJUDICATING AUTHORITY HAS TO SEE W HETHER PRIMA FACIE, SOME INFORMATION IS AVAILABLE WITH THE ASSESSING OFFICE R WHICH HAS A DIRECT NEXUS FOR FORMATION OF BELIEF THAT INCOME HAS ESCAPED THE N ASSESSING OFFICER WOULD HAVE POWER TO ISSUE NOTICE UNDER SEC. 148 OF THE ACT. HE FURTHER RELIED UPON THE DECISION OF HON'BLE SUPREME COURT IN THE C ASE OF CLSAGET BRACHI CO. LTD. REPORTED IN 117 ITR 409. ON THE STRENGTH O F THIS DECISION, HE CONTENDED THAT THE ASSESSEE IN THIS CASE IS A NON- RESIDENT COMPANY WHOSE MAIN BUSINESS CONSIST IN THE PURCHASE OF TOBACCO FR OM INDIA AND ITS SALES OUTSIDE. THE TOBACCO IS SOLD DIRECTLY ON THE ASSESS EES OWN ACCOUNT AND FOR COMMISSION ON BEHALF OF THE OTHERS. THE PURCHASE OF TOBACCOS WERE EFFECTED THROUGH BRITISH INDIA CORPORATION LTD. GUNTOR WHO, WERE APPOINTED AGENTS OF THE ASSESSEE UNDER SEC. 43 OF THE INCOME-TAX ACT , 1922. FOR ASSESSMENT YEARS 1959-60 AND 1960-61, THE AGENTS FILED THE RET URNS OF THE INCOME ON BEHALF OF THE ASSESSEE. ASSESSING OFFICER AFTER EX AMINING THE BALANCE SHEET, COMPLETED THE ASSESSMENT UNDER SEC. 23(3) OF THE IN DIAN INCOME-TAX ACT, 1922. FOR THE YEAR 1958, THE GP ON THE SALE OF INDI AN TOBACCO, INCLUDING COMMISSION, WAS SHOWN IN THE BALANCE SHEET AND PROF IT AND LOSS ACCOUNT OF 17 THE ASSESSEE AT 11108 POUNDS. AS THE ASSESSEE CARRI ED ON BUSINESS, NOT ONLY IN INDIA BUT IN OTHER PLACES ALSO, THE ITO WORKED O UT THE PROPORTIONATE OVERHEAD EXPENSES OF THE ASSESSEE FOR ITS BUSINESS IN INDIA. SUBSEQUENTLY, IN THE COURSE OF ASSESSMENT PROCEEDINGS FOR ASSESSMENT YEARS 1962-63, THE ITO APPEARS TO HAVE NOTICED THAT A MISTAKE HAD BEEN COM MITTED IN THE COMPUTATION OF THE OVERHEAD EXPENDITURE. HE ISSUED A NOTICE UNDER SEC. 148 OF THE ACT. HON'BLE SUPREME COURT HAS UPHELD THE RE OPENING OF THE ASSESSMENT ON THE GROUND THAT THE CASE OF THE ASSES SEE FALLS WITHIN CLAUSE (B) OF SEC. 147 OF THE ACT. LEARNED DR SUBMITTED THAT E VEN IF FROM THE EXISTING INFORMATION, IT IS DISCERNIBLE THAT ASSESSING OFFIC ER HAS COMMITTED AN ERROR THAN THAT CAN BE REMOVED BY EXERCISING THE POWERS U NDER SEC. 148 OF THE ACT. HE POINTED OUT THAT BENEFIT OF THE PROVISO APPENDED TO SECTION 147 IS NOT AVAILABLE TO THE ASSESSEE IN THE PRESENT APPEALS, B ECAUSE NOTICE HAS BEEN ISSUED WITHIN FOUR YEARS FROM THE END OF THE RELEVA NT ASSESSMENT YEARS. THUS, EVEN IF THE ASSESSMENT WAS MADE UNDER SEC. 143(3), THE BENEFIT OF THE PROVISO WOULD NOT BE AVAILABLE TO THE ASSESSEE. IN SUCH SITUATION, IF THE ASSESSING OFFICER HAS INFORMATION INDICATING ESCAPE MENT OF INCOME THEN, HE CAN REOPEN THE ASSESSMENT. HE FURTHER RELIED UPON T HE DECISION OF THE HON'BLE SUPREME COURT IN THE CASE OF ITO VS. PURSHO TAM DASS BANGER REPORTED IN 224 ITR 362. ON THE STRENGTH OF THIS DE CISION, HE POINTED OUT THAT 18 ASSESSING OFFICER HAS INFORMATION INDICATING ESCAPE MENT OF INCOME THEN, HE CAN REOPEN THE ASSESSMENT. HE FURTHER RELIED UPON T HE DECISION OF THE HON'BLE SUPREME COURT IN THE CASE OF ITO VS. PURSHO TAM DASS BANGER REPORTED IN 224 ITR 362. ON THE STRENGTH OF THIS DE CISION, HE FURTHER POINTED OUT THAT INSPECTION REPORT OF LEARNED CIT IS AN INF ORMATION AND NOT A DIRECTION. HE ALSO REFERRED THE ORDER OF THE ITAT I N THE CASE OF RAJ WOOLLEN INDUSTRIES VS. CIT REPORTED IN (2011) 007 ITR (TRIB ) 0339. HE ALSO RELIED UPON THE DECISION OF HON'BLE KERALA HIGH COURT IN T HE CASE OF CIT VS. BESTWOOD INDUSTRIES & SAW MILLS REPORTED IN 331 ITR 63. HE FURTHER RELIED UPON THE DECISION OF HON'BLE DELHI HIGH COURT IN TH E CASE OF DIWAKAR ENGINEERS VS. ITO REPORTED IN 329 ITR 28. HE PRAYED THAT THE GROUNDS CHALLENGING THE REOPENING OF ASSESSMENT BE REJECTED . 11. WE HAVE DULY CONSIDERED THE RIVAL CONTENTIONS A ND GONE THROUGH THE RECORD CAREFULLY. SECTION 147 HAS A DIRECT BEARING ON THE CONTROVERSY, THEREFORE, IT IS SALUTARY UPON US TO TAKE NOTE OF T HIS SECTION WHICH READS AS UNDER: 147. IF THE 73 [ASSESSING] OFFICER 74 [HAS REASON TO BELIEVE 75 ] THAT ANY INCOME CHARGEABLE TO TAX HAS ESCAPED ASSESSMENT 75 FOR ANY ASSESSMENT YEAR, HE MAY, SUBJECT TO THE PROVISIONS OF SECTIONS 148 TO 153 , ASSESS OR REASSESS 75 SUCH INCOME AND ALSO ANY OTHER INCOME CHARGEABLE TO TAX WHICH HAS ESCAPE D ASSESSMENT AND WHICH COMES TO HIS NOTICE SUBSEQUENTLY IN THE COURSE OF THE PRO CEEDINGS UNDER THIS SECTION, OR 19 RECOMPUTE THE LOSS OR THE DEPRECIATION ALLOWANCE OR ANY OTHER ALLOWANCE, AS THE CASE MAY BE, FOR THE ASSESSMENT YEAR CONCERNED (HEREAFTE R IN THIS SECTION AND IN SECTIONS 148 TO 153 REFERRED TO AS THE RELEVANT ASSESSMENT YEAR) : PROVIDED THAT WHERE AN ASSESSMENT UNDER SUB-SECTION (3) OF SECTION 143 OR THIS SECTION HAS BEEN MADE FOR THE RELEVANT ASSESSMENT Y EAR, NO ACTION SHALL BE TAKEN UNDER THIS SECTION AFTER THE EXPIRY OF FOUR YEARS F ROM THE END OF THE RELEVANT ASSESSMENT YEAR, UNLESS ANY INCOME CHARGEABLE TO TA X HAS ESCAPED ASSESSMENT FOR SUCH ASSESSMENT YEAR BY REASON OF THE FAILURE 76 ON THE PART OF THE ASSESSEE TO MAKE A RETURN UNDER SECTION 139 OR IN RESPONSE TO A NOTICE ISSUED UNDER SUB-SECTIO N (1) OF SECTION 142 OR SECTION 148 OR TO DISCLOSE FULLY AND TRULY ALL MATERIAL FACTS 76 NECESSARY FOR HIS ASSESSMENT, FOR THAT ASSESSMENT YEAR: 77 [ PROVIDED FURTHER THAT THE ASSESSING OFFICER MAY ASSESS OR REASSESS SUCH INCOME, OTHER THAN THE INCOME INVOLVING MATTERS WHICH ARE T HE SUBJECT MATTERS OF ANY APPEAL, REFERENCE OR REVISION, WHICH IS CHARGEABLE TO TAX AND HAS ESCAPED ASSESSMENT.] EXPLANATION 1. PRODUCTION BEFORE THE ASSESSING OFFICER OF ACCOUNT BOOKS OR OTHER EVIDENCE FROM WHICH MATERIAL EVIDENCE COULD WITH DU E DILIGENCE HAVE BEEN DISCOVERED BY THE ASSESSING OFFICER WILL NOT NECESS ARILY 76 AMOUNT TO DISCLOSURE WITHIN THE MEANING OF THE FOREGOING PROVISO. EXPLANATION 2. FOR THE PURPOSES OF THIS SECTION, THE FOLLOWING SH ALL ALSO BE DEEMED TO BE CASES WHERE INCOME CHARGEABLE TO TAX H AS ESCAPED ASSESSMENT, NAMELY : ( A ) WHERE NO RETURN OF INCOME HAS BEEN FURNISHED BY T HE ASSESSEE ALTHOUGH HIS TOTAL INCOME OR THE TOTAL INCOME OF ANY OTHER PERSON IN R ESPECT OF WHICH HE IS ASSESSABLE UNDER THIS ACT DURING THE PREVIOUS YEAR EXCEEDED THE MAXIMUM AMOUNT WHICH IS NOT CHARGEABLE TO INCOME-TAX ; 20 ( B ) WHERE A RETURN OF INCOME HAS BEEN FURNISHED BY TH E ASSESSEE BUT NO ASSESSMENT HAS BEEN MADE AND IT IS NOTICED BY THE ASSESSING OF FICER THAT THE ASSESSEE HAS UNDERSTATED THE INCOME OR HAS CLAIMED EXCESSIVE LOS S, DEDUCTION, ALLOWANCE OR RELIEF IN THE RETURN ; ( C ) WHERE AN ASSESSMENT HAS BEEN MADE, BUT ( I ) INCOME CHARGEABLE TO TAX HAS BEEN UNDERASSESSED ; OR ( II ) SUCH INCOME HAS BEEN ASSESSED AT TOO LOW A RATE ; OR ( III ) SUCH INCOME HAS BEEN MADE THE SUBJECT OF EXCESSIV E RELIEF UNDER THIS ACT ; OR ( IV ) EXCESSIVE LOSS OR DEPRECIATION ALLOWANCE OR ANY O THER ALLOWANCE UNDER THIS ACT HAS BEEN COMPUTED.] 78 [ EXPLANATION 3. FOR THE PURPOSE OF ASSESSMENT OR REASSESSMENT UNDE R THIS SECTION, THE ASSESSING OFFICER MAY SSESS OR RE ASSESS THE INCOME IN RESPECT OF ANY ISSUE, WHICH HAS ESCAPED ASSESSMENT, AND SUCH I SSUE COMES TO HIS NOTICE SUBSEQUENTLY IN THE COURSE OF THE PROCEEDINGS UNDER THIS SECTION, NOTWITHSTANDING THAT THE REASONS FOR SUCH ISSUE HAVE NOT BEEN INCLU DED IN THE REASONS RECORDED UNDER SUB-SECTION (2) OF SECTION 148 .] 12. A PLAIN READING OF THE SECTION WOULD INDICATE T HAT IF ASSESSING OFFICER HAS REASON TO BELIEVE THAT ANY INCOME CHARGEABLE TO TAX HAS ESCAPED FOR ANY ASSESSMENT YEAR THEN HE MAY SUBJECT TO THE CONDITIO NS ENUMERATED IN SECTION 148 TO 153 OF THE ACT, ASSESS OR REASSESS SUCH INCO ME. THUS, THE PRIMARY FACTOR FOR EXERCISING THE POWERS UNDER SEC. 147 IS THAT THERE SHOULD BE SOME REASONS WHICH PERSUADE THE ASSESSING OFFICER TO BEL IEVE THAT INCOME CHARGEABLE TO TAX HAS ESCAPED. IN OTHER WORDS, SOME INFORMATION POSSESSED 21 BY THE ASSESSING OFFICER EXHIBITING THE ESCAPEMENT OF INCOME WOULD ENABLE HIM TO HARBOUR THE BELIEF THAT INCOME HAS ESCAPED A SSESSMENT AND HE WOULD BE AUTHORIZED TO ISSUE NOTICE UNDER SEC. 148 OF THE ACT. HOWEVER, IF AN ASSESSMENT UNDER SEC. 143(3) WAS PASSED AND 4 YEARS HAVE EXPIRED FROM THE END OF RELEVANT ASSESSMENT YEAR, IF ASSESSING OFFIC ER WANTS TO REOPEN THE ASSESSMENT THEN INTERDICTION PROVIDED IN THE PROVIS O WOULD COME IN HIS WAY, IN THAT CASE, HE CAN REOPEN THE ASSESSMENT, IF HE H AS REASON TO BELIEVE THAT INCOME HAS ESCAPED ASSESSMENT BY REASON OF THE FAIL URE ON THE PART OF THE ASSESSEE TO MAKE RETURN UNDER SEC. 139 OR IN RESPON SE TO A NOTICE UNDER SEC. 142(1) OR UNDER SEC. 148 OF THE ACT AND THE ASSESSE E FAILED TO DISCLOSE ALL MATERIAL FACTS FULLY AND TRULY FOR THE ASSESSMENT O F THAT YEAR. IN THE PRESENT APPEALS, NOTICE UNDER SEC. 148 HAS BEEN ISSUED WITH IN FOUR YEARS, THEREFORE, THE PROVISO APPENDED TO SECTION 147 HAS NO APPLICAT ION ON THE DISPUTE IN HANDS. THUS, WE DO NOT WISH TO MAKE ANY ELABORATE D ISCUSSION ON THIS ISSUE. THE FIRST PROPOSITION CANVASSED BY THE ASSESSEE BEF ORE US IS THAT AFTER EXPIRY OF LIMITATION FOR ISSUE OF NOTICE UNDER SE. 143(2), ASSESSING OFFICER CANNOT ISSUE NOTICE UNDER SEC. 148, UNLESS A FRESH INFORMA TION CAME TO HIS POSSESSION. THE EMPHASIS OF THE LEARNED COUNSEL FOR THE ASSESSEE WAS THAT DETAILS IN RESPECT OF INTEREST EXPENSES WAS ALREADY ON THE RECORD, THEREFORE, NO FRESH INFORMATION CAME TO THE POSSESSION OF THE ASSESSING OFFICER WHICH 22 CAN ENABLE HIM TO ISSUE NOTICE UNDER SEC. 148 PARTI CULARLY IN ASSESSMENT YEARS 2002-03 AND 2003-04. WE HAVE EXTRACTED THE R EASONS RECORDED BY THE ASSESSING OFFICER IN THE FOREGOING PARAGRAPHS. ON P ERUSAL OF THESE REASONS, IT REVEAL THAT LEARNED CIT ON AN INSPECTION OF THE RECORD IN HIS JURISDICTION FOUND CERTAIN EXCESS RELIEF CLAIMED BY THE ASSESSEE IN RESPECT OF INTEREST EXPENSES. HE TRANSMITTED THE INSPECTION REPORT TO T HE ASSESSING OFFICER, WHO FORMED AN OPINION THAT INCOME HAS ESCAPED ASSESSMEN T. THERE IS NO SCRUTINY ASSESSMENT IN THE ASSESSMENT YEARS 2002-03 AND 2003 -04. THUS, THE ASSESSING OFFICER HAS NOT FORMED ANY OPINION ON THE SE ISSUES I.E. ABOUT THE ASSESSABILITY OF INTEREST EXPENSES. THERE IS NO CON DITION IN SECTION 147 THAT INFORMATION SHOULD HAVE FLOWN FROM AN EXTERNAL SOUR CE AFTER FILING OF THE RETURN AND ONLY THEN A NOTICE UNDER SECTION 148 CAN BE ISSUED. HON'BLE SUPREME COURT IN THE CASE OF RAJESH JHAVERI REPORTE D IN 291 ITR 500 HAS CONSIDERED THIS ASPECT AND OBSERVED THAT FAILURE TO TAKE STEPS UNDER SEC. 143(3) WILL NOT RENDERED THE ASSESSING OFFICER POWE RLESS TO INITIATE REASSESSMENT PROCEEDINGS EVEN WHEN THE INTIMATION U NDER SEC. 143(1) HAD BEEN ISSUED. THE RELEVANT OBSERVATIONS OF THE HON'B LE SUPREME COURT IN THIS CASE READ AS UNDER: THE SCOPE AND EFFECT OF SECTION 147 AS SUBSTITUTED WITH EFFECT FROM APRIL 1, 1989, AS ALSO SECTION 148 TO 152 ARE SUBST ANTIALLY DIFFERENT FROM THE PROVISIONS AS THEY STOOD PRIOR TO SUCH SUB STITUTION. UNDER THE 23 OLD PROVISIONS OF SEC. 147, SEPARATE CLAUSES (A) AN D (B) LAID DOWN THE CIRCUMSTANCES UNDER WHICH INCOME ESCAPING ASSESSMEN T FOR THE PAST ASSESSMENT YEARS COULD BE ASSESSED OR REASSESSED. T O CONFER JURISDICTION UNDER SEC. 147(A) TWO CONDITIONS WERE REQUIRED TO BE SATISFIED: FIRSTLY THE ASSESSING OFFICER MUST HAVE REASON TO BELIEVE THAT INCOME, PROFITS OR GAINS CHARGEABLE TO INCOME TAX H AVE ESCAPED ASSESSMENT, PROFITS OR GAINS CHARGEABLE TO INCOME T AX HAVE ESCAPED ASSESSMENT, AND SECONDLY HE MUST ALSO HAVE REASON T O BELIEVE THAT SUCH ESCAPEMENT HAS OCCURRED BY REASON OF EITHER OM ISSION OR FAILURE ON THE PART OF THE ASSESSEE TO DISCLOSE FULLY OR TR ULY ALL MATERIAL FACTS NECESSARY FOR HIS ASSESSMENT OF THAT YEAR. BOTH THE SE CONDITIONS WERE CONDITIONS PRECEDENT TO BE SATISFIED BEFORE THE ASS ESSING OFFICER COULD HAVE JURISDICTION TO ISSUE NOTICE UNDER SECTION 148 READ WITH SEC. 147(A). BUT UNDER THE SUBSTITUTED SECTION 147 EXIS TENCE OF ONLY THE FIRST CONDITION SUFFICES. IN OTHER WORDS, IF THE AS SESSING OFFICER FOR WHATEVER REASON HAS REASON TO BELIEVE THAT INCOME H AS ESCAPED ASSESSMENT IT CONFERS JURISDICTION TO REOPEN THE AS SESSMENT. IT IS, HOWEVER, TO BE NOTED THAT BOTH THE CONDITIONS MUST BE FULFILLED IF THE CASE FALLS WITHIN THE AMBIT OF PROVISO TO SEC. 147. THE CASE AT HAND IS COVERED BY THE MAIN PROVISION AND NOT THE PROVISO. SO LONG AS THE INGREDIENTS OF SECTION 147 ARE FULFI LLED, THE ASSESSING OFFICER IS FREE TO INITIATE PROCEEDING UNDER SEC. 1 47 AND FAILURE TO TAKE STEPS UNDER SEC. 143(3) WILL NOT RENDER THE ASSESSI NG OFFICER POWERLESS TO INITIATE REASSESSMENT PROCEEDINGS EVEN WHEN THE INTIMATION UNDER SEC. 143(1) HAD BEEN ISSUED. 24 13. WE COULD APPRECIATE THE CONTENTION OF THE ASSES SEE THAT HAD THERE BEEN ANY CHANGE OF OPINION BUT IN THESE TWO YEARS, THERE IS NO OPINION EXPRESSED BY THE ASSESSING OFFICER ON THIS ISSUE. THE ASSESSE E HAD REFERRED NUMBER OF DECISIONS OF HON'BLE DELHI HIGH COURT NOTICED EARLI ER, BUT PUT EMPHASES ON THE CASE OF SHIPRA SRIVASTAVA REPORTED IN 319 ITR 2 21. IN THIS CASE, THERE WAS ONLY AN INTIMATION UNDER SEC. 143(1) OF THE ACT. TH E LEARNED ASSESSING OFFICER HAD ISSUED NOTICE UNDER SEC. 148. HON'BLE H IGH COURT HAS OBSERVED THAT ASSESSING OFFICER HAS NOT APPLIED HIS MIND ON THE INFORMATION FOR ARRIVING AT A CONCLUSION THAT REASONS ARE AVAILABLE DEMONSTRATING THE ESCAPEMENT OF INCOME. IN THAT CASE, THE ASSESSEE IS A DOCTOR IN ESCORT HEART INSTITUTE AND RESEARCH CENTRE. ACCORDING TO THE ASS ESSING OFFICER, SHE HAS BEEN PROVIDED A RENT FREE UNFURNISHED ACCOMMODATION AND SHE HAS NOT DISCLOSED THE PERQUISITE VALUE OF THE RESIDENTIAL A CCOMMODATION AT 10% OF SALARY, HONBLE COURT HAS FOUND AS A MATTER OF FACT THAT ASSESSEE WAS NOT OCCUPYING RENT FREE ACCOMMODATION FROM THE EMPLOYER . THE ASSESSEE AND HER HUSBAND SHIFTED THE ACCOMMODATION MENTIONED BY THE ASSESSING OFFICER IN THE REASONS RECORDED, INTO THEIR OWN ACCOMMODATI ON AT SHIPRA SUN CITY. THEY HAVE SHIFTED FROM DELHI ALSO IN AUGUST 2003 AN D THEY WERE POSTED BY THEIR EMPLOYER AT RAIPUR (MP). THE ASSESSMENT YEAR INVOLVED IS 2005-06, 25 THEREFORE, THERE COULD NOT BE ANY OCCASION FOR THE ASSESSING OFFICER TO SAY THAT PERQUISITE VALUE OF RENT FREE ACCOMMODATION ES CAPED ASSESSMENT AND THE ASSESSING OFFICER HAS TO REOPEN THE ASSESSMENT. TO OUR MIND, THE FACTS OF THIS CASE ARE QUITE DISTINGUISHABLE FROM THE FACTS OF THE CASE IN HAND. IN THE REASONS RECORDED, ASSESSING OFFICER HAS MADE A REFE RENCE TO THE DETAILS AVAILABLE IN THE BALANCE SHEET DEMONSTRATING THE FA CT THAT AMOUNT OF INTEREST CLAIMED BY THE ASSESSEE IN RESPECT OF THE LOAN WERE EXCLUSIVELY NOT USED FOR THE PURPOSE OF CONSTRUCTION, THEREFORE, THE DEDUCTI ON CLAIMED BY THE ASSESSEE UNDER SEC. 24(B) WOULD NOT BE AVAILABLE. ON THE BAS IS OF THIS INFORMATION, HE HAS REOPENED THE ASSESSMENT. AT THAT STAGE, ONLY A PRIMA FACIE OPINION HAS TO BE MADE. IT IS NOT FOR THE ASSESSING OFFICER TO CON CLUSIVELY COLLECT THE EVIDENCE AND DEMONSTRATE THAT ULTIMATELY DISALLOWAN CE/ADDITION WOULD BE MADE. IN A GIVEN CASE, IF AN ASSESSEE IS ABLE TO EX PLAIN THE FACTUAL INACCURACY TO THE ASSESSING OFFICER, THEN HE MAY DROP THE PROC EEDINGS. A REFERENCE FOR FORTIFYING THIS VIEW CAN BE MADE TO THE DECISION OF HON'BLE SUPREME COURT IN THE CASE OF RAYMOND WOOLEN MILLS AS WELL AS TO T HE DECISION OF THE HON'BLE DELHI HIGH COURT IN THE CASE OF JINDAL PHOT O FILMS. THE NEXT PROPOSITION RAISED BY THE ASSESSEE IS THAT REOPENIN G IS BASED ON MERE SUSPICION. HOWEVER, THE LEARNED COUNSEL FOR THE ASS ESSEE WAS UNABLE TO SUBSTANTIATE THIS PROPOSITION FROM THE FACT. ON REA DING OF THE REASONS, PRIMA 26 FACIE, IT IS DISCERNIBLE THAT THE ASSESSING OFFICER HAS THE INFORMATION IN RESPECT OF HIS OPINION. HE HAS NOT ISSUED THE NOTI CE UNDER SECTION 148 ON SUSPICION. THE NEXT PROPOSITION RAISED BY THE ASSES SEE IS THAT NOTICE UNDER SEC. 148 WAS ISSUED UNDER THE DIRECTION OF THE LEAR NED CIT, HOWEVER, WE DO NOT FIND ANY FORCE IN THIS SUBMISSIONS ALSO, BECAUS E NOWHERE LEARNED CIT HAS DIRECTED THE ASSESSING OFFICER TO REOPEN THE ASSESS MENT. HE HAS ONLY TRANSMITTED THE INFORMATION WHICH HAS BEEN ANALYSIZ ED BY THE ASSESSING OFFICER AND HE HAD FORMED HIS INDEPENDENT OPINION. THE NEXT PROPOSITION RAISED BY THE ASSESSEE IS THAT ASSESSING OFFICER HA S FORMED HIS OPINION ON THE BASIS OF INCORRECT FACTS. WE HAVE SEEN THE BALA NCE SHEET AS WELL AS THE REASONS RECORDED BY THE ASSESSING OFFICER. IN THE U NDERSTANDING OF THE ASSESSING OFFICER, ONLY A SUM OF RS.1.66 CRORES WAS USED OUT OF THE LOAN TAKEN FROM VYSYA BANK FOR REPAYMENT OF CANARA BANK S LOAN, WHEREAS ACCORDING TO THE ASSESSEE, THE LOAN OF CANARA BANK OUTSTANDING ON THAT DAY WAS RS.1,89,08,019. IN OUR OPINION, IT IS NOT SUCH AN INACCURACY OF FACTS WHICH CAN GOAD THE ASSESSING OFFICER AT A WRONG CON CLUSION. BASIC ISSUE WAS WHETHER LOAN OF RS.4 CRORES TAKEN FROM VYSYA BA NK WAS UTILIZED FOR CONSTRUCTION OF THE BUILDING GIVING RENTAL INCOME O R REPAYMENT OF THE LOAN EARLIER USED FOR THE CONSTRUCTION OF THE BUILDING. IF THERE IS A SMALL VARIATION OF RS.22 LACS, IT CAN BE LOOKED INTO AFTER HEARING THE ASSESSEE. BUT THIS 27 VARIATION DID NOT INFLUENCE THE ASSESSING OFFICER F OR ARRIVING AT A WRONG CONCLUSION IN FORMING THE BELIEF. 14. AS FAR AS THE CASE LAWS RELIED UPON BY ASSESSEE FOR THE ASSESSMENT YEARS 2002-03 AND 2003-04 ARE CONCERNED, THEY ARE Q UITE DISTINGUISHABLE ON FACTS. WE HAVE ALREADY DEALT WITH THE DECISION REND ERED IN THE CASE OF SHIPRA SRIVASTAVA (SUPRA). IN THE CASE OF JAI BHARAT MARUT I RELIED UPON BY THE ASSESSEE, WE FIND THAT HON'BLE HIGH COURT, AS A MAT TER OF FACT FOUND THAT ASSESSING OFFICER WAS NOT POSSESSING ANY MATERIAL O N THE BASIS OF WHICH A REASONABLE PERSON COULD COME TO A CONCLUSION THAT I NCOME HAS ESCAPED ASSESSMENT. THIS OBSERVATION IS AVAILABLE AT PAGE 2 98 OF THE REPORT IN PARA 28 OF THE JUDGMENT. THUS, IN THIS CASE, FACTUALLY, THE RE WAS NO INFORMATION WITH THE ASSESSING OFFICER TO FORM THE OPINION THAT INCO ME HAS ESCAPED ASSESSMENT AND ON THE BASIS OF THIS CATEGORICAL FIN DING OF FACT, HON'BLE HIGH COURT DID NOT UPHELD THE REOPENING. THE OTHER DECIS IONS NOTICED BY US ARE ALSO DISTINGUISHABLE ON FACTS. WE HAVE GONE THROUGH THEM AND WE ARE OF THE VIEW THAT ASSESSEE CANNOT DRAW ANY BENEFIT FROM THE M. THE ASSESSEE HAS PLACED ON RECORD A CITATION OF MORE THAN 50 DECISIO NS ON THIS SINGLE PROPOSITION AND WE DO NOT DEEM IT NECESSARY TO DISC USS ALL THOSE DECISIONS IN THIS ORDER. 28 15. IN VIEW OF THE ABOVE DISCUSSION, WE ARE OF THE VIEW THAT ASSESSING OFFICER HAS RIGHTLY REOPENED THE ASSESSMENT IN ASSE SSMENT YEARS 2002-03 AND 2003-04. 16. AS FAR AS REOPENING OF ASSESSMENT IN ASSESSMENT YEARS 2004-05 AND 2005-06 IS CONCERNED, WE FIND THAT FACTS ARE LITTLE DIFFERENT. IN THESE TWO ASSESSMENT YEARS, THE SCRUTINY ASSESSMENT ORDERS UN DER SEC. 143(3) WERE PASSED. THE ASSESSEE HAS PLACED ON RECORD COPY OF T HE COMPUTATION OF INCOME AND THE DOCUMENTS ATTACHED WITH IT. ON PAGE 19 OF THE PAPER BOOK, COPY OF FORM NO. 2D FOR ASSESSMENT YEAR 2004-05 IS AVAILABLE. ALONGWITH THE RETURN, ASSESSEE HAS FILED COPY OF PARTNERSHIP DEED, TDS DETAILS AND OTHER DETAILS. IN THE REASONS RECORDED BY THE ASSESSING O FFICER, HE ASSIGNED TWO REASONS, NAMELY, THAT ON 30 TH OF SEPTEMBER, 2003, ASSESSEE FIRM WAS DISSOLVED AND THUS THE TRANSFER OF CAPITAL ASSETS O N DISSOLUTION OF THE FIRM FALLS WITHIN THE AMBIT OF SEC. 45(4) OF THE ACT AND A CAPITAL GAIN REQUIRED TO BE COMPUTED. THE SECOND REASON ASSIGNED BY THE ASS ESSING OFFICER IS THAT ASSESSEE CLAIMED EXCESS DEDUCTION IN RESPECT OF INT EREST PAID UNDER SEC. 24 OF THE ACT. THE DETAILS IN RESPECT OF INTEREST EXPENSE S WAS ALSO FILED BY THE ASSESSEE. BOTH THESE ISSUES WERE BEFORE THE ASSESSI NG OFFICER, WHEN HE 29 PASSED THE SCRUTINY ASSESSMENT, THOUGH NO DISCUSSIO N ON THESE ISSUES IS DISCERNIBLE BUT IN VIEW OF THE FULL BENCH DECISION OF THE HON'BLE DELHI HIGH COURT IN THE CASE OF KELVINATOR, IT IS TO BE CONSTR UED THAT THESE MUST HAVE BEEN LOOKED INTO. LEARNED CIT(APPEALS) HAS UPHELD T HE REOPENING OF ASSESSMENT BASICALLY FOR TWO REASONS. IN HER UNDERS TANDING, THE NUMBER OF DOCUMENTS I.E. PARTNERSHIP DEED ETC. WERE NOT ONLY VOLUMINOUS BUT SPREAD OVER A NUMBER OF YEARS AND MEANINGFUL REFERENCE COU LD ONLY BE DRAWN AFTER, SOME ONE DELVE DEEP INTO THEM . ASSESSING OFFICER I N THE SCRUTINY ASSESSMENT FAILED TO CONSIDER THE ISSUE. THE OBSERV ATIONS OF THE LEARNED CIT(APPEALS) ON PAGE 5 READ AS UNDER: IN THE CASE AT HAND, THE NUMBER OF DOCUMENTS (PART NERSHIP DEEDS, RECONSTITUTION DEEDS, RETIREMENT DEEDS, BANK LOAN S ANCTION PAPERS ETC.) WERE NOT ONLY VOLUMINOUS, BUT SPREAD OVER A NUMBER OF YEARS, (FROM 1995 TO 2003), AND MEANINGFUL INFERENCES COULD BE D RAWN ONLY AFTER DELVING DEEP INTO THEM. THUS, IT CANNOT BE SAID THA T ALL THE DOCUMENTS RELIED UPON FOR REOPENING THE ASSESSMENT WERE READI LY MADE AVAILABLE TO THE ASSESSING OFFICER BY THE ASSESSEE OR THAT TH E NOTICE U/S. 148 WAS THE RESULT OF A CHANGE IN OPINION BY THE ASSESSING OFFICER. 17. LEARNED CIT(APPEALS) THEREAFTER EXTENSIVELY REF ERRED THE DECISION OF HON'BLE GUJARAT HIGH COURT IN THE CASE OF PRAFUL KU MAR CHUNNI LAL (SUPRA), ON PAGE NOS. 7 & 8 OF THE IMPUGNED ORDER. BEFORE CO MMENTING ON THOSE 30 ASPECTS, WE WOULD LIKE TO REFER THE CONCLUDING PARA GRAPH OF HON'BLE DELHI HIGH COURTS DECISION IN THE CASE OF KELVINATOR WHI CH READ AS UNDER: WE, HOWEVER, MAY HASTEN TO ADD THAT IF REASON TO BELIEVE OF THE ASSESSING OFFICER IS FOUNDED ON AN INFORMATION WHIC H MIGHT HAVE BEEN RECEIVED BY THE ASSESSING OFFICER AFTER THE CO MPLETION OF ASSESSMENT, IT MAY BE A SOUND FOUNDATION FOR EXERCI SING THE POWER UNDER SEC. 147 READ WITH SEC. 148 OF THE ACT. WE ARE UNABLE TO AGREE WITH THE SUBMISSION OF MR. J OLLY TO THE EFFECT THAT THE IMPUGNED ORDER OF REASSESSMENT CANN OT BE FAULTED AS THE SAME WAS BASED ON INFORMATION DERIVED FROM THE TAX AUDIT REPORT. THE TAX AUDIT REPORT HAD ALREADY BEEN SUBMITTED BY THE ASSESSEE. IT IS ONE THING TO SAY THAT THE ASSESSING OFFICER HAD REC EIVED INFORMATION FROM AN AUDIT REPORT WHICH WAS NOT BEFORE THE INCOM E-TAX OFFICER, BUT IT IS ANOTHER THING TO SAY THAT SUCH INFORMATION CA N BE DERIVED BY THE MATERIAL WHICH HAD BEEN SUPPLIED BY THE ASSESSEE HI MSELF. WE ALSO CANNOT ACCEPT THE SUBMISSION OF MR. JOLLY T O THE EFFECT THAT ONLY ANALYSIS IN THE ASSESSMENT ORDER, DETAILE D REASONS HAVE NOT BEEN RECORDED AN ANALYSIS OF THE MATERIALS ON THE R ECORD BY ITSELF MAY JUSTIFY THE ASSESSING OFFICER TO INITIATE A PROCEED ING UNDER SEC. 147 OF THE ACT. THE SAID SUBMISSION IS FALLACIOUS. AN ORDE R OF ASSESSMENT CAN BE PASSED EITHER IN TERMS OF SUB-SECTION(1) OF SEC. 143 OR SUB-SECTION (3) OF SEC. 143. WHEN A REGULAR ORDER OF ASSESSMENT IS PASSED IN TERMS OF THE SAID SUB-SECTION (3) OF SEC. 143 A PRESUMPTI ON CAN BE RAISED THAT SUCH AN ORDER HAS BEEN PASSED ON APPLICATION OF MIN D. IT IS WELL KNOWN THAT A PRESUMPTION CAN ALSO BE RAISED TO THE EFFECT THAT IN TERMS OF CLAUSE (E) OF SECTION 114 OF THE INDIAN EVIDENCE ACT JUDICIAL AND 31 OFFICIAL ACTS HAVE BEEN REGULARLY PERFORMED. IF IT BE HELD THAT AN ORDER WHICH HAS BEEN PASSED PURPORTEDLY WITHOUT APPLICATI ON OF MIND WOULD ITSELF CONFER JURISDICTION UPON THE ASSESSING OFFIC ER TO REOPEN THE PROCEEDING WITHOUT ANYTHING FURTHER, THE SAME WOULD AMOUNT TO GIVING A PREMIUM TO AN AUTHORITY EXERCISING QUASI-J UDICIAL FUNCTION TO TAKE BENEFIT OF ITS OWN WRONG. FOR THE REASONS AFOREMENTIONED, WE ARE OF THE OPINI ON THAT THE ANSWER TO THE QUESTION RAISED BEFORE THIS BENCH MUS T BE RENDERED IN THE AFFIRMATIVE, I.E., IN FAVOUR OF THE ASSESSEE AN D AGAINST THE REVENUE. NO ORDER AS TO COSTS. 18. BOTH THE REASONING ASSIGNED BY THE LEARNED FIRS T APPELLATE AUTHORITY RUN CONTRARY TO THE LAW LAID DOWN BY THE FULL BENCH OF THE HON'BLE JURISDICTIONAL HIGH COURT. THE HONBLE COURT HAS EM PHASIZED THAT ASSESSING OFFICER CANNOT BE GIVEN PREMIUM FOR HIS OWN WRONGS. THEREFORE, WE ARE OF THE VIEW THAT NO NEW INFORMATION CAME TO THE POSSES SION OF THE ASSESSING OFFICER AFTER PASSING OF SCRUTINY ASSESSMENT IN THE SE TWO ASSESSMENT YEARS. HE HAS REOPENED THE ASSESSMENT ON THE BASIS OF THOS E VERY INFORMATION UPON WHICH HE COULD HAVE PASSED A MORE DETAILED ORDER UN DER SEC. 143(3) IN THE FIRST ROUND. THUS, REOPENING OF ASSESSMENT IS MEREL Y BASED ON CHANGE OF OPINION. THE DECISION OF HON'BLE DELHI HIGH COURT I N THE CASE OF KELVINATOR HAS BEEN FURTHER UPHELD BY THE HON'BLE SUPREME COUR T ALSO. THUS, IN VIEW OF THE ABOVE DISCUSSION, WE ARE OF THE VIEW THAT RE-OP ENING OF ASSESSMENT IN 32 ASSESSMENT YEARS 2004-05 AND 2005-06 ARE NOT SUSTAI NABLE. THEY ARE QUASHED. 19. THE NEXT COMMON ISSUE INVOLVED IN ALL THE APPEA LS RELATES TO ALLOWABILITY OF INTEREST EXPENSES UNDER SEC. 24(B) OF THE INCOME-TAX ACT, 1961. THE FACTS AS OBSERVED EARLIER ARE COMMON IN A LL THE ASSESSMENT YEARS. FOR THE FACILITY OF REFERENCE, WE ARE TAKING UP THE FACTS FROM ASSESSMENT YEAR 2002-03. THE ASSESSEE HAS CLAIMED DEDUCTION OF RS. 78,57,499 UNDER SEC. 24(B) OF THE ACT. IT COMPRISED A SUM OF RS.24,96, 0 15 AS PREVIOUS YEAR, 1/5 TH INTEREST ON BORROWED CAPITAL AND RS.53,61,484 AS CU RRENT YEAR INTEREST ON ACCOUNT OF BORROWED CAPITAL FROM CANARA BANK, VYSYA BANK, UNSECURED LOANS, CREDITORS AND LOAN RAISED BY THE PARTNERS. A SSESSING OFFICER HAS ALLOWED THE CLAIM OF PREVIOUS YEAR INTEREST OF RS.2 4,96,050 BUT RESTRICTED THE CURRENT YEAR INTEREST TO RS.26,51,953 COMPRISING OF RS.11,99,972 INTEREST PAID TO CANARA BANK AND PROPORTIONATE INTEREST OF R S.14,51,953 PAID TO VYSYA BANK. ASSESSING OFFICER DID NOT ALLOW INTERES T EXPENSES ALLEGED TO HAVE BEEN PAID ON UNSECURED LOANS AND LOANS RAISED BY THE PARTNERS OF THE FIRM. DISSATISFIED WITH THE ACTION OF THE ASSESSING OFFICER, ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE LEARNED CIT(APPEALS ). IT POINTED OUT THAT A 33 SUM OF RS.4 CRORES WAS BORROWED FROM VYSYA BANK AND IT WAS USED AS UNDER: S.NO. UTILIZATION AMT. (RS.) I. ADDITION TO COMMERCIAL COMPLEX. 20,62,512 II REPAYMENT OF CANARA BANK LOAN 1,89,08,019 III REPAYMENT OF UNSECURED LOAN RAISED BY THE FIRM. 1,07,51.505 IV PAYMENT TO CREDITORS FOR BUILDING/CONSTRUCTION 17,25,713 V REPAYMENT OF LOAN TO PARTNERS. 83,15,420 TOTAL 4,17,63,169 20. LEARNED FIRST APPELLATE AUTHORITY HAS ALLOWED T HE APPEAL PARTLY. SHE OBSERVED THAT INTEREST EXPENSES TO BE ACTUALLY ALLO WED AS DEDUCTION UNDER SEC. 24(B) OUT OF THE CURRENT YEAR INTEREST EXPENSE S CLAIMED BY THE ASSESSEE AT RS.53,61,484 WILL BE THE INTEREST OF RS.11,99,972 P AYABLE TO CANARA BANK AND THE INTEREST WORKED OUT ON LOAN OF RS.2,26,82,2 44 PAYABLE TO VYASYA BANK. LEARNED FIRST APPELLATE AUTHORITY HAS ACCEPTE D THE CONTENTIONS OF THE ASSESSEE THAT LIABILITY TO PAY CANARA BANK WAS AT R S.1.89 CRORES AND ASSESSING OFFICER HAS WRONGLY CONSTRUED IT AT RS.1. 66 CRORES. SIMILARLY, SHE 34 ACCEPTED THE UTILIZATION OF RS.20,62,512 TOWARDS AD DITION TO THE BUILDING AND RS.17,25,713 FOR CONSTRUCTION ACTIVITY OF THE BUILD ING. HER CONCLUSION IN PARAGRAPH NO.7.5.3 READS AS UNDER: 7.5.3 THE SUM AND SUBSTANCE OF THE FINDINGS MA DE ABOVE IS THAT THE DEDUCTION U/S.24(B) IN RESPECT OF INTEREST PAYABLE TO VYASYA BANK, WILL BE ALLOWABLE ON THE LOAN AMOUNT OF RS.2,26,82,244 ( RS.1,89,08,019 UTILIZED TO REPAY THE OUTSTANDING OLD LOAN OF CANAR A BANK + RS.20,62,512 UTILIZED FOR MAKING THE ADDITION ON TH E COMMERCIAL PROPERTY +RS.17,11,713, UTILIZED FOR CONSTRUCTION A CTIVITY BY WAY OF REPAYMENT OF OUTSTANDING CREDITORS). THE ASSESSING OFFICER IS ACCORDINGLY DIRECTED TO REWORK THE INTEREST PAYABLE TO VYASYA BANK DURING THE RELEVANT YEAR ON RS.2,26,82,244. AS A RE SULT, OUT OF THE APPELLANTS CLAIM OF CURRENT YEAR INTEREST OF RS.53 ,61,484, THE INTEREST TO BE ACTUALLY ALLOWED AS DEDUCTION U/S. 24(B) WILL BE THE INTEREST OF RS.11,99,972 PAYABLE TO CANARA BANK AND THE INTERES T WORKED OUT ON LOAN OF RS.2,26,82,244 PAYABLE TO VYASYA BANK. 21. THE LEARNED COUNSEL FOR THE ASSESSEE WHILE IMPU GNING THE ORDER OF THE LEARNED CIT(APPEALS) SUBMITTED THAT LEARNED FIRST A PPELLATE AUTHORITY HAS DENIED THE CLAIM OF ASSESSEE BASICALLY FOR TWO REAS ONS. ACCORDING TO THE LEARNED CIT(APPEALS), ASSESSEE TOOK A LOAN OF RS.4. 33 CRORES FROM CANARA BANK ON 1.9.1997. THE CONSTRUCTED VALUE OF THE PROP ERTY WAS STANDING AT RS.4,19,37,073 IN THE BALANCE SHEET TILL 31 ST MARCH 2001. THUS, ACCORDING TO 35 THE LEARNED CIT(APPEALS), THE LOAN WAS TAKEN FOR TH E PURPOSE OF CONSTRUCTION OF COMMERCIAL COMPLEX AND THE CONSTRUC TION MUST HAVE BEEN COMPLETED BY THE BORROWED FUNDS. THE CURRENT LOAN T AKEN FROM VYSAYA BANK WAS THUS NOT UTILIZED FOR THE PURPOSE OF THE CONSTR UCTION. THE SECOND REASONING ASSIGNED BY THE LEARNED CIT(APPEALS) IS T HAT FROM THE RECORD, ASSESSEE FAILED TO BRING ANY SUBSTANTIVE DIRECT EVI DENCE DEMONSTRATING THE FACT THAT REDUCTION OF THE CANARA BANK LOAN TO RS.1 .89 CRORES WAS ACHIEVED WITH THE HELP OF BORROWED FUNDS BY THE PARTNERS OR UNSECURED LOAN. IN OTHER WORDS, ACCORDING TO THE LEARNED CIT(APPEALS), THERE IS NOTHING ON THE RECORD TO SUGGEST THAT UNSECURED LOAN TAKEN BY THE ASSESSEE OR BY ITS PARTNERS WAS UTILIZED FOR REPAYMENT OF CANARA BANK IN EARLIE R YEARS. IN ORDER TO SUBSTANTIATE ASSESSEES CLAIM, LEARNED COUNSEL FOR THE ASSESSEE DREW OUR ATTENTION TOWARDS PAGE NO. 24 OF THE PAPER BOOK WHE RE BALANCE SHEET AS ON 21.3.2001 IN THE CASE OF ASSESSEE IS AVAILABLE. SIM ILARLY, HE DREW OUR ATTENTION TOWARDS PAGE NO. 60 OF THE PAPER BOOK WHE RE BALANCE SHEET AS ON 31.3.2002 OF PARTNER M/S. RAKSHA PROPERTIES PVT. LT D. IS AVAILABLE. HE POINTED OUT THAT ON THE LIABILITY SIDE, ASSESSEE HA S SHOWN IN ITS BALANCE SHEET THE CAPITAL ACCOUNT OF DAISY ESTATES PVT. LTD. AND M/S. RAKSHA PROPERTIES PVT. LTD. THERE IS A SECURED LOAN I.E. LOAN FROM CA NARA BANK. THIS LOAN HAS BEEN SHOWN AT RS.1.89 CRORES ON THE ASSETS SIDE. TH E ONLY FIXED ASSET WITH 36 THE ASSESSEE IS THE PLOT OF LOAN AND BUILDING. IT H AS BEEN VALUED AT RS.4.20 CRORES. APART FROM THIS MAIN ASSET, THERE ARE CERTA IN CURRENT ASSETS I.E. CASH IN HAND, BANK DEPOSIT, DEPOSITS WITH DELHI VIDYUT BOAR D ETC. IN THE BALANCE SHEET OF THE PARTNERS, M/S. RAKSHA PROPERTIES PVT. LTD. HAS SHOWN A LIABILITY OF R.1.14 CRORES IN THE PREVIOUS YEAR. AT THE CLOSE OF 31.3.2002, IT REDUCED TO RS.30,90,881. THUS, THE LIABILITY HAS BEEN REDUCED ROUGHLY BY A SUM OF RS. 83 LACS. THIS LOAN OF RS. 83 LACS WAS SHOWN AS INVE STMENT IN THE ASSESSEE M/S. DELHI INDUSTRIES AND ENTERPRISES. THE INVESTME NT AS ON 31.3.2002 WAS RS.1,12,19,330. HE POINTED OUT THAT THE ONLY ASSET WITH THE PARTNER IS THE CAPITAL INVESTMENT IN THE ASSESSEES FIRM AND THE C ORRESPONDING LIABILITY IS THE LOAN AMOUNT REPRESENTING THIS ASSET WHICH CLEAR LY INDICATES THAT THE FUNDS BORROWED BY THE PARTNERS WERE INVESTED IN THE ASSES SEES FIRM AND WHICH WAS USED FOR THE PURPOSE OF REPAYMENT OF LOAN. ON THE S TRENGTH OF THESE DETAILS, HE POINTED OUT THAT LEARNED FIRST APPELLATE AUTHORI TY HAS ERRED IN NOT APPRECIATING THE FACTS IN TOTALITY, RATHER DISSECTI NG THE FACTS IN A HALF WAY UNDER THE BELIEF THAT DIRECT EVIDENCE IS NOT AVAILA BLE. IN THIS WAY, HE PRAYED THAT FUNDS USED BY THE ASSESSEE FROM INTEREST BEARI NG FUNDS OF THE PARTNERS AND UNSECURED LOANS ARE TO BE CONSIDERED AS USED FO R THE PURPOSE OF THE CONSTRUCTION AND INTEREST EXPENSES DESERVES TO BE A LLOWED. 37 22. LEARNED DR ON THE OTHER HAND RELIED UPON THE OR DER OF THE LEARNED CIT(APPEALS). HE POINTED OUT THAT WHEN CONSTRUCTION WAS COMPLETED BY THE BORROWED FUND TAKEN FROM CANARA BANK THEN IT IS FOR THE ASSESSEE TO SHOW THAT THE CURRENT LOAN TAKEN FROM VYSYA BANK WAS USE D FOR THE PURPOSE OF THE CONSTRUCTION OF THE BUILDING WHICH GIVES RISE TO HO USE PROPERTY INCOME. HE POINTED OUT THAT LEARNED CIT(APPEALS) HAS SPECIFICA LLY OBSERVED THAT THERE IS NO DIRECT EVIDENCE ON THE RECORD FOR SUBSTANTIATING THIS CLAIM. 23. WE HAVE DULY CONSIDERED THE RIVAL CONTENTIONS A ND GONE THROUGH THE RECORD CAREFULLY. THE ASSESSEE HAS SUBMITTED A STAT EMENT EXHIBITING THE UTILIZATION OF CURRENT LOAN TAKEN FROM VYSYA BANK W HICH HAS BEEN NOTICED BY THE LEARNED CIT(APPEALS) AND EXTRACTED BY US IN THE FOREGOING PARAGRAPHS. THE STAND OF THE ASSESSEE IS THAT IF THE BALANCE SH EET OF THE PARTNERS AND OF THE ASSESSEE ARE READ TOGETHER THEN IT WOULD REVEAL THAT THE ASSESSEE IS NOT HAVING ANY OTHER FIXED ASSETS ON THE ASSETS SIDE E XCEPT THIS BUILDING. IN THE BALANCE SHEET OF THE PARTNERS, THEY HAVE SHOWN LIAB ILITY TOWARDS BORROWED FUNDS AS WELL AS CAPITAL INVESTMENT IN THE ASSESSEE S FIRM. THE CLAIM OF THE ASSESSEE THAT PARTNERS HAVE BORROWED FUNDS, WHICH W AS UTILIZED BY THE ASSESSEE FIRM. THE GRIEVANCE OF REVENUE AUTHORITIES IS THAT THERE IS NO NEED TO READ ALL THESE DOCUMENTS IN A HARMONIOUS WAY. THE U TILIZATION OF FUNDS OR 38 INVESTMENT IN THE CONSTRUCTION OF THE BUILDING BY T HE ASSESSEE NEEDS NOT TO BE EXPLAINED THROUGH THE DEDUCTIVE DETAILS AVAILABLE I N THE DIFFERENT BALANCE SHEET RATHER IT SHOULD PRODUCE DIRECT EVIDENCE EXHI BITING THE SOURCE OF FUND AND ITS UTILIZATION. LEARNED CIT(APPEALS) HAS OBSER VED THAT ASSESSEE HAS ADOPTED DEDUCTIVE REASONING FOR EXPLAINING ITS STAN D. IN OUR OPINION, IT DOES NOT MAKE ANY DIFFERENCE AS TO HOW ONE EXPLAIN ITS P OSITION I.E. BY DEDUCTIVE REASONING ON INDUCTIVE REASONING. ONE METHOD ENABLE S THE ADJUDICATION TO ARRIVE AT FAIR CONCLUSION BY DRAWING INFERENCE FROM THE MATERNAL AVAILABLE ON RECORD. THE OTHER METHODS PROVIDE THE EXTERNAL AID FOR THE ABOVE OBJECT. THE IDEA UNDER BOTH THE METHODS TO ARRIVE AT JUST CONC LUSION, WHICH IS ADMISSIBLE IN LAW. ON DUE CONSIDERATION OF THIS LOGIC, WE ARE OF THE VIEW THAT HAD THESE DETAILS WERE AVAILABLE THEN THAT WOULD BE AN IDEAL SITUATION AND THERE MAY NOT BE ANY CONTROVERSY BUT CAN THE DEPARTMENT PUT THE A SSESSEE UNDER TAX LIABILITY ON THE GROUND THAT WHY IT USED THE FUNDS BORROWED BY THE PARTNERS FOR THE CONSTRUCTION PURPOSES OR WHETHER THE PARTNE RS AS WELL AS THE ASSESSEE MUST HAVE USED THIS AMOUNT FOR SOME OTHER ACTIVITIE S. THE REVENUE IS UNABLE TO COLLECT ANY EVIDENCE DEMONSTRATING THE OTHER ACT IVITIES. AS FAR AS OTHER ASPECTS ARE CONCERNED, THERE IS NO DISPUTE BETWEEN THE DEPARTMENT AND THE ASSESSEE. THE INTEREST EXPENSES INCURRED BY THE ASS ESSEE ON THE BORROWED FUNDS IF USED FOR THE PURPOSE OF CONSTRUCTION THEN DEDUCTION OF SUCH 39 EXPENSES WILL BE ADMISSIBLE TO THE ASSESSEE UNDER S EC. 24(B) OF THE INCOME- TAX ACT, 1961. THE ONLY DISPUTE BETWEEN THE PARTIES RELATES TO THE QUANTIFICATION OF AMOUNTS USED FOR THE PURPOSE OF C ONSTRUCTION. ON AN ANALYSIS OF THE BALANCE SHEET, WE ARE OF THE VIEW T HAT THE ASSESSEE IS ABLE TO DEMONSTRATE, UTILIZATION OF FUNDS FOR THE PURPOSE O F THE CONSTRUCTION. LEARNED REVENUE AUTHORITIES WITHOUT SPECIFYING ANY REASON R EFUSED TO TAKE COGNIZANCE OF THE BALANCE SHEET OF THE PARTNERS. IN VIEW OF TH E ABOVE DISCUSSION, WE ALLOW THIS GROUND OF APPEAL RAISED BY THE ASSESSEE IN ALL THE ASSESSMENT YEARS AND DIRECT THE ASSESSING OFFICER TO GRANT DEDUCTION OF INTEREST EXPENSES WITH REGARD TO CURRENT INTEREST CHARGES ALSO. THE FACTS IN OTHER YEARS ARE ALSO COMMON. THUS, IN VIEW OF THE ABOVE DISCUSSION, THE GROUNDS OF APPEAL RAISED BY THE ASSESSEE IN ALL THE YEARS ARE ALLOWED AND TH E SOLITARY GROUND RAISED BY THE REVENUE IN ASSESSMENT YEAR 2005-06 IS REJECTED. 24. IN ASSESSMENT YEAR 2004-05, THE ASSESSEE HAS PL EADED ONE MORE GROUND. IN THIS GROUND OF APPEAL, THE GRIEVANCE OF THE ASSESSEE IS THAT THE LEARNED CIT(APPEALS) HAS ERRED IN CONFIRMING THE AD DITION OF RS.7,89,71,703 TO THE TAXABLE INCOME OF THE ASSESSE E ON THE GROUND THAT ON RETIREMENT OF PARTNER, A CAPITAL GAIN HAS ARISEN TO THE ASSESSEE. 40 25. LEARNED FIRST APPELLATE AUTHORITY IN ORDER TO A DJUDICATE THIS ISSUE HAS NOTICED THE COMPLETE HISTORY OF THE ASSESSEES FIRM RIGHT FROM 16 TH SEPTEMBER 1973 WHEN IT WAS SET UP FOR THE FIRST TIME. AT THAT POINT OF TIME, THERE WERE THREE PARTNERS, NAMELY, SHRI AMAR NATH GUPTA, SHRI PREM NATH GUPTA AND SHRI JAI NATH GUPTA EACH HAVING 1/3 RD SHARE. ON 17,.1.1987, SHRI JAI NATH GUPTA EXPIRED. HIS FIVE LEGAL HEIRS STEPPED INTO TH E SHOES OF LATE SHRI JAI NATH GUPTA AND BECAME PARTNERS IN THE FIRM. THEREAF TER, MANY CHANGES HAVE BEEN TAKEN PLACE. THE FIRM WAS RECONSTITUTED ON RET IREMENT OF EXISTING PARTNERS OR INCLUSION OF NEW PARTNERS. FOR THE PURP OSE OF THE DISPUTE INVOLVED IN THIS YEAR, THE FACTS ARE THAT ON 2 ND OF SEPTEMBER 2003, THE FIRM WAS RECONSTITUTED BY INCLUSION OF FOUR PARTNERS, NA MELY, BAL KRISHAN GUPTA, KRISHAN GUPTA, ANKIT GUPTA AND AASHIS GUPTA. THEIR PROFIT SHARING RATIO IS 20%, 20% & 10% 10% EACH. THE EXISTING TWO PARTNERS M/S. DAISY ESTATES PVT. LTD. AND M/S. RAKSHA PROPERTIES PVT. LTD. WERE HAVING 20% SHARE EACH. THE FIRM WAS RECONSTITUTED ON 30 TH SEPTEMBER 2003, TWO PARTNERS M/S. DAISY ESTATES PVT. LTD. AND M/S. RAKSHA PROPERTIES PVT. L TD. HAVE RETIRED AND THE FIRM CONTINUED ITS BUSINESS WITH THE REMAINING FOUR PARTNERS. THE DISPUTE BETWEEN THE REVENUE AND ASSESSEE IS WHETHER ON RETI REMENT OF THESE TWO PARTNERS, THERE IS DISTRIBUTION OF ASSETS GIVING RI SE OF CAPITAL GAIN WITHIN THE 41 MEANING OF EXPRESSION ON DISSOLUTION OF FIRM OR OT HERWISE EMPLOYED IN SEC. 45(4) READ WITH SEC. 2(47) OF THE ACT. 26. AS PER THE ASSESSING OFFICER, IT IS THE DISTRIB UTION OF ASSETS WITHIN THE MEANING OF SEC. 45(4) AND THUS A CAPITAL GAIN ON TR ANSFER OF CAPITAL ASSETS DESERVE TO BE COMPUTED. ON THE OTHER HAND, CASE OF THE ASSESSEE IS THAT THE FIRM WAS NOT DISSOLVED. IT HAS NOT DISTRIBUTED ITS ASSETS. IT IS CONTINUING WITH THE BUSINESS AND, THEREFORE, ON RETIREMENT OF FEW P ARTNERS, IT CANNOT BE CONSTRUED THAT ASSESSEE HAS TRANSFERRED THE ASSETS WHICH CAN AUTHORIZE THE ASSESSING OFFICER TO COMPUTE THE CAPITAL GAIN. 27. WITH THE ASSISTANCE OF LEARNED REPRESENTATIVES, WE HAVE GONE THROUGH THE RECORD CAREFULLY. LEARNED DR RELIED UPON THE O RDER OF THE LEARNED CIT(APPEALS). HE ALSO BROUGHT TO OUR NOTICE THE DEF INITION OF TRANSFER CONTAINED IN SEC. 2(47) OF THE ACT AS WELL AS SEC. 45(4) OF THE ACT. BOTH THESE CLAUSES READ AS UNDER: 2(47) TRANSFER, IN RELATION TO A CAPITAL ASSET, INCLUDES, - (I) THE SALE, EXCHANGE OR RELINQUISHMENT OF THE ASSET OR (II) THE EXTINGUISHMENTS OF ANY RIGHTS THEREIN; OR 42 (IV) ANY TRANSACTION (WHETHER BY WAY OF BECOMING A MEMBER OF, OR ACQUIRING SHARES IN, A CO-OPERATIVE SOCIETY, COMPANY OR OTHER ASSOCIATION OF PERSONS OR BY WAY OF ANY AGREE MENT OR ANY ARRANGEMENT OR IN ANY OTHER MANNER WHATSOEVER) WHIC H HAS THE EFFECT OF TRANSFERRING, OR ENABLING THE ENJOYMENT O F ANY IMMOVABLE PROPERTY. EXPLANATION- FOR THE PURPOSES OF SUB-CLAUSES (V) AN D (VI), IMMOVABLE PROPERTY SHALL HAVE THE SAME MEANING AS IN CLAUSE (D) OF SEC. 269UA. 45(4) THE PROFITS OR GAINS ARISING FROM THE TRANSFE R OF A CAPITAL ASSET BY WAY OF DISTRIBUTION OF CAPITAL ASSETS ON THE DIS SOLUTION OF A FIRM OR OTHER ASSOCIATION OF PERSONS OR BODY OF INDIVIDUALS (NOT BEING A COMPANY OR A CO-OPERATIVE SOCIETY) OR OTHERWISE, SH ALL BE CHARGEABLE TO TAX AS THE INCOME OF THE FIRM, ASSOCIATION OR BO DY, OF THE PREVIOUS YEAR IN WHICH THE SAID TRANSFER TAKES PLACE AND, FO R THE PURPOSE OF SEC. 48, THE FAIR MARKET VALUE OF THE ASSET ON THE DATE OF SUCH TRANSFER SHALL BE DEEMED TO BE THE FULL VALUE OF THE CONSIDERATION RECEIVED OR ACCRUING AS A RESULT OF THE TRANSFER. 28. LEARNED DR POINTED OUT THAT ERSTWHILE PARTNERS M/S. DAISY ESTATES PVT. LTD. AND M/S. RAKSHA PROPERTIES PVT. LTD. HAVE RELINQUISHED ALL THEIR RIGHTS IN THE PARTNERSHIP. THEY HAVE WITHDREW THEIR CAPITAL INVESTMENT AND THE FOUR PARTNERS WHO HAVE BEEN INTRODUCED IN THE M ONTH OF SEPTEMBER 2003 ITSELF BECOME THE OWNER OF THE ASSETS OF THE FIRM. THUS, IT IS A CLASSICAL EXAMPLE OF TRANSFER OF CAPITAL ASSETS AND IF IT CAN NOT BE CONSTRUED AS TRANSFER 43 OF A CAPITAL ASSETS BY WAY OF DISTRIBUTION OF CAPIT AL ASSETS OR OTHERWISE MENTIONED IN SEC. 45(4) THEN THERE CANNOT BE ANY OT HER EXAMPLE. HE FURTHER POINTED OUT THAT THIS ISSUE HAS BEEN CONSIDERED REC ENTLY BY THE HON'BLE KARNATAKA HIGH COURT IN THE CASE OF CIT VS. GURUNAT H TALKIES REPORTED IN 328 ITR 59 ( 189 TAXMAN 171). HE PLACED ON RECORD C OPY OF THE DECISION. HE ALSO RELIED UPON THE DECISION OF HON'BLE KERALA HIGH COURT IN THE CASE OF CIT VS. SOUTHERN TUBES REPORTED IN 306 ITR 216 AND THE DECISION OF HON'BLE MUMBAI HIGH COURT IN THE CASE OF CIT VS. AN NAYAK A SSOCIATES REPORTED IN 256 ITR 346. ON THE OTHER HAND, LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT HON'BLE KERALA HIGH COURT DECIDED THE APPEAL I N THE CASE OF GURUNATH TALKIES ON 7.7.2009. IN A RECENT DECISION, THE HON' BLE KERALA HIGH COURT DELIVERED ON 28.10.2010 IN THE CASE OF CIT VS. SRI M.V. NARAYANAN HAS OBSERVED THAT SEC. 45(4) IS NOT APPLICABLE ON RETIR EMENT OF PARTNERS WHEN THE FIRM IS CONTINUING WITH THE BUSINESS. THERE IS NO D ISTRIBUTION OF ASSETS OF THE FIRM. HE PLACED ON RECORD COPY OF THE JUDGMENT OF H ON'BLE KERALA HIGH COURT. APART FROM THIS DECISION, HE POINTED OUT THA T THERE ARE DECISIONS IN FAVOUR OF THE ASSESSEE RENDERED BY THE HON'BLE MADH AYA PRADESH HIGH COURT IN THE CASE OF CIT VS. MOPEN & MACHINE REPORTED IN 281 ITR 52, 256 ITR 540 (MADRAS). HE FURTHER POINTED OUT THAT THERE ARE NUMBER OF DECISIONS RENDERED BY THE ITAT ON THIS ISSUE WHICH ARE IN FAV OUR OF THE ASSESSEE. HE 44 MAINLY DREW OUR ATTENTION TOWARDS THE DECISION OF T HE ITAT, MUMBAI IN THE CASE OF ITO VS. SMT. PARU D. DAVE REPORTED IN 110 I TD 410. 29. ON DUE CONSIDERATION OF THE FACTS AND CIRCUMSTA NCES, WE FIND THAT HON'BLE MUMBAI HIGH COURT IN THE CASE OF CIT VS. A. N. NAYAK ASSOCIATES (SUPRA) HAS CONSIDERED THIS ASPECT IN DETAILS. HON' BLE HIGH COURT IS OF THE OPINION THAT BY FINANCE ACT, 1987, THE HONBLE PARL IAMENT BROUGHT ON THE STATUTE BOOK A NEW SUB-SECTION (4) IN SEC. 45 OF TH E ACT, THE EFFECT IS THAT THE PROFITS OR GAINS ARISING FROM THE TRANSFER OF A CAP ITAL ASSETS BY A FIRM TO A PARTNER ON DISSOLUTION OR OTHERWISE WOULD BE CHARGE ABLE AS THE FIRMS INCOME IN THE PREVIOUS YEAR IN WHICH THE TRANSFER T OOK PLACE AND FOR THE PURPOSE OF COMPUTATION OF CAPITAL GAIN, THE FAIR MA RKET VALUE OF THE ASSETS ON THE DATE OF TRANSFER WOULD BE DEEMED TO BE THE FULL VALUE OF THE CONSIDERATION RECEIVED OR ACCRUED AS A RESULT OF THE TRANSFER. AC CORDING TO THE HON'BLE HIGH COURT, IF ONE HAS TO SEE THE OBJECT OF THE ACT AND THE MISCHIEF, IT SEEKS TO AVOID, THEN IT WOULD BE CLEAR THAT THE INTENTION OF THE LEGISLATURE WAS TO BRING INTO THE TRANSACTIONS IN THE TAX NET, WHEREBY ASSET S WERE BROUGHT INTO A FIRM OR TAKEN OUT OF FIRM. HON'BLE HIGH COURT HAS OBSERV ED THAT EXPRESSION OTHERWISE EMPLOYED IN SUB-SECTION (4) OF SEC. 54 HAS TO BE READ WITH THE WORDS TRANSFER OF CAPITAL ASSETS BY WAY OF A DIST RIBUTION OF CAPITAL ASSETS. IF 45 IT IS SO READ THEN IT BECOMES CLEAR THAT EVEN WHEN A FIRM IS IN EXISTENCE AND THERE IS A TRANSFER OF CAPITAL ASSETS, IT COMES WIT HIN THE EXPRESSION OTHERWISE, AS THE OBJECT OF THE AMENDMENT ACT WAS TO REMOVE THE LOOPHOLE WHICH EXISTED, WHEREBY CAPITAL GAIN TAX WA S NOT CHARGEABLE. HON'BLE KERALA HIGH COURT IN THE CASE OF GURUNATH T ALKIES, WHILE DEALING WITH THIS ISSUE HAS OBSERVED IN PARAGRAPH 20 THAT H ON'BLE KARNATAKA HIGH COURT WOULD PREFER THE VIEW EXPRESSED BY THE HON'BL E MUMBAI HIGH COURT IN PREFERENCE TO THE VIEW EXPRESSED BY HON'BLE KERA LA HIGH COURT AND HON'BLE MADHAYA PRADESH HIGH COURT. THE ITAT HAS AL SO MADE A DISCUSSION ON A SIMILAR ISSUE IN THE CASE OF SMT. PARU D. DAVE (SUPRA). THE ASSESSEE SMT. PARU D. DAVE AND HER HUSBAND WERE PARTNERS IN THE FIRM M/S. RAKSHAL CORPORATION HAVING EQUAL SHARES IN THE PROFIT OF TH E BUSINESS. THE FIRM WAS HAVING A FACTORY PREMISES WHOSE BOOK VALUE WAS RS.7 9,452 AS ON 31.3.1993. THE FIRM DID NOT CLAIM ANY DEPRECIATION. THE FACTOR Y PREMISES WAS REVALUED AT RS.23 LACS. ULTIAMTELY, BOTH THE PARTNERS HAVE R ETIRED AND NEW PARTNERS CAME THERE. IN THE ASSESSMENT OF THE ASSESSEE FIRM, THE DIFFERENCE IN REVALUATION OF THE FACTORY PREMISES AT RS.22,20,548 WAS TREATED AS A SHORT TERM CAPITAL GAIN. ON APPEAL, LEARNED CIT(APPEALS) DELETED THE ADDITION FROM THE HANDS OF THE FIRM ON THE GROUND THAT THE P ARTNERS HAVE DIVESTED THEMSELVES OF VALUABLE RIGHTS AND AN ASSETS HANDED OVER THE SAME TO THE NEW 46 PARTNERS. ON THE BASIS OF THIS OBSERVATIONS OF THE LEARNED CIT(APPEALS), THE CASES OF THE PARTNERS HAVE BEEN REOPENED AND CAPITA L GAIN HAS BEEN ASSESSED. THE ITAT HAS MADE AN ELABORATE DISCUSSION WHEREBY I T TOOK INTO CONSIDERATION THE DECISION OF HON'BLE KERALA HIGH C OURT IN THE CASE OF KUNNAMKULAM MILLS BOARD CASE REPORTED IN 257 ITR 544. THIS DECISION HAS BEEN RELIED UPON BY THE ASSESSEE BEFORE US ALSO . THE RELEVANT DISCUSSION OF THE ITAT READS AS UNDER: 9. THE ISSUE FOR OUR ADJUDICATION IS WHETHER SHORT-TE RM CAPITAL GAIN ARISES ON SURRENDER OF RIGHTS IN THE REVALUED PARTN ERSHIP ASSETS. PARTNERSHIP FIRM CONSTITUTED OF ITS PARTNERS IS GOV ERNED BY THE PROVISIONS OF PARTNERSHIP ACT. THE PARTNERSHIP FIRM IS NOT A LEGAL ENTITY AND PROPERTY OF THE PARTNERSHIP VESTS IN ITS PARTNERS INASMUCH AS ALL THE PARTNERS HAVE AN INTEREST IN THE PARTNERSHI P PROPERTY. THE PROVISIONS OF THE PARTNERSHIP ACT CLEARLY PROVIDE T HAT A PROPERTY WHICH IS BROUGHT IN BY THE PARTNERS ON THE FORMATION OF P ARTNERSHIP OR ACQUIRED IN THE COURSE OF BUSINESS OF PARTNERSHIP, BECOMES THE PROPERTY OF THE FIRM. THE PARTNERS OF A PARTNERSHIP FIRM ARE ENTITLED TO A SHARE IN THE PROFITS OF THE BUSINESS TO THE EXTEN T OF THEIR SHARE RATIO. DURING THE SUBSISTENCE OF PARTNERSHIP NO PARTNER HA S ANY ASSIGNED RIGHT OR SHARE IN THE PARTNERSHIP PROPERTY. DURING THE CONTINUANCE OF THE PARTNERSHIP THE PARTNERS HAVE ONLY A RIGHT IN T HE PROFITS OF THE PARTNERSHIP AND NO PARTNER CAN DEAL WITH ANY PORTIO N OF THE PARTNERSHIP PROPERTY AS HIS OWN DURING THE CONTINUANCE OF THE P ARTNERSHIP FIRM. 47 10. THEIR LORDSHIPS OF HONBLE SUPREME COURT IN S.V. CHANDRA PANDIAN V. S.V. SIVALINGA NADAR [1995] 212 ITR 592 1 HELD THAT AS UNDER : '. . . THE ABOVE PROVISIONS MAKE IT CLEAR THAT REGA RDLESS OF THE CHARACTER OF THE PROPERTY BROUGHT IN BY THE PARTNER S ON THE CONSTITUTION OF THE PARTNERSHIP, SUCH PROPERTY SHAL L BECOME THE PROPERTY OF THE FIRM AND AN INDIVIDUAL PARTNER SHAL L ONLY BE ENTITLED TO HIS SHARE OF PROFITS, IF ANY, ACCRUING TO THE PARTNERSHIP FROM THE REALIZATION OF THIS PROPERTY A ND UPON DISSOLUTION OF THE PARTNERSHIP TO A SHARE IN THE MO NEY REPRESENTING THE VALUE OF THE PROPERTY. IT IS WELL- SETTLED THAT THE FIRM IS NOT A LEGAL ENTITY, IT HAS NO LEGAL EXISTEN CE, IT IS MERELY A COMPENDIOUS NAME AND HENCE THE PARTNERSHIP PROPERTY WOULD VEST IN ALL THE PARTNERS OF THE FIRM. ACCORDINGLY, EACH AND EVERY PARTNER OF THE FIRM WOULD HAVE AN INTEREST IN THE P ROPERTY OR ASSET OF THE FIRM BUT DURING ITS SUBSISTENCE NO PAR TNER CAN DEAL WITH ANY PORTION OF THE PROPERTY AS BELONGING TO HI M, NOR CAN HE ASSIGN HIS INTEREST IN ANY SPECIFIC ITEM THEREOF TO ANYONE.' ON A TRUE READING OF THE AWARD AS A WHOLE, THERE WA S NO DOUBT THAT IT ESSENTIALLY DEALT WITH THE DISTRIBUTION OF THE SURP LUS PROPERTIES BRINGING TO THE DISSOLVED FIRMS. THE AWARD, THEREFO RE, DID NOT REQUIRE CONSIDERATION UNDER SECTION 17(1) OF THE REGISTRATI ON ACT. 11. THEIR LORDSHIPS OF HONBLE SUPREME COURT IN ADDANKI NARAYANAPPA V. BHASKARA KRISHTAPPA AIR 1966 SC 1300 HAD HELD AS UNDER : 48 '. . . DURING THE SUBSISTENCE OF THE PARTNERSHIP, H OWEVER, NO PARTNER CAN DEAL WITH ANY PORTION OF THE PROPERTY A S HIS OWN. NOR CAN HE ASSIGN HIS INTEREST, IN A SPECIFIC ITEM OF THE PARTNERSHIP PROPERTY TO ANYONE. HIS RIGHT IS TO OBT AIN SUCH PROFITS, IF ANY AS FALL TO HIS SHARE FROM TIME TO T IME AND UPON THE DISSOLUTION OF THE FIRM TO A SHARE IN THE ASSETS OF THE FIRM WHICH REMAIN AFTER SATISFYING THE LIABILITIES. . . .' 12. AS THE PARTNERS HAVE NO RIGHT IN THE ASSETS OF THE PARTNERSHIP FIRM, THERE WAS NO TRANSFER OF ANY RIGHT IN THE SAI D PROPERTY ON RECONSTITUTION/RETIREMENT OF A PARTNER. THEIR LORDS HIPS OF HONBLE SUPREME COURT IN ADDL. CIT V. MOHANBHAI PAMABHAI [1987] 165 ITR 166 HAD HELD THAT WHEN A PARTNER RETIRED FROM THE FIRM AND RECEIVED A SHARE OF AMOUNT CALCULATED ON THE VALUE OF NET PART NERSHIP ASSETS INCLUDING GOODWILL OF THE FIRM, THERE WAS NO TRANSF ER OF INTEREST OF THE PARTNER IN THE GOODWILL AND NO PART OF THE AMOUNT R ECEIVED BY HIM WOULD BE ASSESSABLE AS CAPITAL GAINS UNDER SECTION 45 OF THE INCOME- TAX ACT. SIMILAR VIEW WAS TAKEN BY THE HONBLE SUPR EME COURT IN CIT V. R. LINGAMALLU RAGHUKUMAR [2001] 247 ITR 801 1 . IN CASE ANY ASSET/PROPERTY IS ALLOCATED TO A PARTNER IN PROPORT ION TO HIS SHARE IN THE PROFITS OF THE FIRM, THERE IS NO PARTITION OR TRANS FER TAKING PLACE NOR THERE IS ANY RELINQUISHMENT OF INTEREST OF OTHER PA RTNERS IN THE ALLOCATED PROPERTY, IN THE SENSE OF TRANSFER OR EXT INGUISHMENT OF INTEREST AS ENVISAGED UNDER SECTION 17 OF THE REGIS TRATION ACT. THUS, WHEN DISSOLUTION OF PARTNERSHIP FIRM TAKES PLACE AN D RESIDUE IS DISTRIBUTED AMONGST THE PARTNERS AFTER SETTLEMENT O F AMOUNTS, THERE IS NO TRANSFER OR RELINQUISHMENT OF INTEREST AS ENVISA GED UNDER SECTION 17 49 OF THE REGISTRATION ACT. THIS VIEW WAS HELD BY THE HONBLE SUPREME COURT IN S.V. CHANDRA PANDIANS CASE ( SUPRA ). THE INCOME-TAX ACT HAS BROUGHT IN BY WAY OF AN AMENDMENT TO SECTION 45 OF THE INCOME- TAX ACT THAT ON DISSOLUTION OF PARTNERSHIP FIRM PRO VISIONS OF SECTION 45(4) OF THE ACT SHALL BE APPLICABLE WHICH TREATS T HE DISSOLUTION OF A PARTNERSHIP AS DEEMED TRANSFER OF ASSETS FROM THE P ARTNERSHIP FIRM TO ITS PARTNERS. 13. IN A PARTNERSHIP AMONGST PARTNERS, EACH AND EVERY PARTNER OF THE FIRM HAS AN INTEREST IN EACH AND EVERY PROPERTY OF THE PARTNERSHIP FIRM. TILL THE ACCOUNTS ARE SETTLED AND THE RESIDUE /SURPLUS IS NOT DISTRIBUTED AMONGST THE PARTNERS, NO PARTNER CAN CL AIM ANY SHARE IN SUCH ASSETS OF THE PARTNERSHIP FIRM. EACH PARTNER I S ENTITLED TO ITS SHARE OF PROFITS IN THE PARTNERSHIP FIRM BUT THE ENTITLEM ENT OF RIGHT IN THE ASSETS/PROPERTY OF THE PARTNERSHIP FIRM ARISES ONLY ON DISSOLUTION. 14. THE OTHER ISSUE TO BE CONSIDERED IS WHETHER THERE IS A RELINQUISHMENT OF A RIGHT IN THE PROPERTY OF THE FI RM ON RECONSTITUTION OF PARTNERSHIP FIRM. THE PARTNER OF A PARTNERSHIP F IRM HAS ONLY AN INTEREST IN THE PROPERTY DURING THE SUBSISTENCE OF THE PARTNERSHIP FIRM. THERE IS NO RELINQUISHMENT OF ANY RIGHT IN THE PART NERSHIP PROPERTY ON RECONSTITUTION/RETIREMENT OF A PARTNER. 15. THEIR LORDSHIP OF KERALA HIGH COURT IN KUNNAMKULAM MILL BOARDS CASE ( SUPRA ) HAD HELD THAT 'OWNERSHIP OF PROPERTY DOES NOT CHANGE ON CHANGE IN THE CONSTITUTION OF FIRM. AS LONG AS THERE IS NO DISTRI BUTION FOR THE 50 SIMPLE REASON THE FIRMS TOTAL RECONSTITUTION, THERE IS NO TRANSFER OF CAPITAL ASSETS.' IN THE FACTS OF THE CASE BEFORE KERALA HIGH COURT, THERE WAS RECONSTITUTION OF ASSETS OF THE FIRM WHEREIN THE AS SETS WERE REVALUED ON MUTUAL AGREEMENT OF THE PARTNERS. THE DIFFERENCE IN THE REVALUED AMOUNTS WAS CREDITED TO THE RESPECTIVE CAPITAL ACCO UNTS OF THE PARTNERS. THERE WAS RECONSTITUTION OF PARTNERSHIP F IRM WITH INTRODUCTION OF TWO PARTNERS FOR A SHORT TIME AND T HEREAFTER THE ORIGINAL FIVE PARTNERS RETIRED AND THE BUSINESS WAS CARRIED ON IN PARTNERSHIP BY THE SURVIVING TWO PARTNERS. IT WAS HELD THAT IN SUC H CASES OF RECONSTITUTION, THE OWNERSHIP OF THE PROPERTY DOES NOT CHANGE WITH THE CHANGE IN THE CONSTITUTION OF THE FIRM AND ACCORDIN GLY THERE IS NO TRANSFER OF CAPITAL ASSET. IT WAS FURTHER HELD THAT 'IF A PARTNER RETIRES, HE DOES NOT TRANSFER ANY RIG HT IN THE IMMOVABLE PROPERTY IN FAVOUR OF THE SURVIVING PARTN ER BECAUSE HE HAD NO RIGHT WITH RESPECT TO THE PROPERTIES OF T HE FIRM.' 30. ON AN ANALYSIS OF ALL THESE DECISIONS AND THE D ETAILS, WE FIND THAT THERE IS CONFLICT OF OPINION BETWEEN THE VARIOUS HON'BLE HIGH COURTS. THE DECISION OF HON'BLE KERALA HIGH COURT IN THE CASE OF CIT VS. KANNAMKULAM MILLS BOARD IS IN FAVOUR OF THE ASSESSEE. LEARNED DR BROU GHT TO OUR NOTICE THE DECISION OF HON'BLE KERALA HIGH COURT IN THE CASE O F SOUTHERN TUBE REPORTED IN 306 ITR 216 IN FAVOUR OF THE REVENUE BUT WE FIND IN THAT CASE THE FIRM WAS DISSOLVED AND ASSETS WERE TAKEN BY ONE OF THE PARTN ERS IN HIS PROPRIETARYSHIP 51 CONCERN. THE LATEST DECISION OF HON'BLE KERALA HIGH COURT IS AGAIN IN FAVOUR OF THE ASSESSEE. SIMILARLY, THERE ARE DECISIONS AT THE END OF THE ITAT WHICH ARE IN FAVOUR OF ASSESSEE. THE DECISION OF HON'BLE MADHAYA PRADESH HIGH COURT IS ALSO IN FAVOUR OF THE ASSESSEE. ON THE OTH ER HAND, THE DECISION OF HON'BLE KARNATAKA HIGH COURT AND HON'BLE MUMBAI HIG H COURT ARE IN FAVOUR OF THE REVENUE. FACED WITH THIS SITUATION, W E DEEM IT APPROPRIATE TO FOLLOW THE DECISIONS WHICH ARE IN FAVOUR OF THE ASS ESSEE. HON'BLE KERALA HIGH COURT IN ITS LATEST DECISION RENDERED ON 28.10 .2010 IN ITA NO.474 OF 1999 IN THE CASE OF CIT VS. SHRI M.V. NARAYANAN HAS HELD THAT ON RETIREMENT OF PARTNER, IF THE FIRM, CONTINUES WITH THE BUSINES S THEN THERE IS NO DISTRIBUTION OF ASSETS AND SECTION 45(4) OF THE ACT WOULD NOT BE APPLICABLE. THOUGH THE PARTIES HAVE NOT ADVANCED ANY AGREEMENT BUT AT THE TIME OF DECISION, IT STRUCK TO OUR MIND, THAT TRUE SENSE NO THING WAS GAINED BY THE FIRM. IF SOME THING HAS BEEN TRANSFERRED AND ANY GA IN IS THERE, THEN THAT WOULD BE TO ERSTWHILE PARTNER. IN THE CASE SMT. PAR U D. DAVE, AFTER THE ORDER OF THE LEARNED CIT(APPEALS) IN THE CASE OF FIRM, AS SESSMENT OF RETIRED PARTNER WAS REOPENED. IT GIVES AN INDICATION THAT R EAL BENEFICIARY OF GAIN, IF ANY, THEN IT IS THE ERSTWHILE PARTNER. SINCE PARTIE S HAVE NOT ADVANCED ANY ARGUMENT ON THIS ASPECT, THEREFORE, WE DO NOT WISH TO MAKE ANY FINDING. WE ALLOW THIS GROUND OF APPEAL RAISED BY THE ASSESSEE AND HELD THAT NO CAPITAL 52 GAIN TAX WOULD BE IMPOSEABLE UPON IT ON ACCOUNT OF ALLEGED ALLEGATION OF DISTRIBUTION OF ASSETS. 31. WE SUMMARIZE THE RESULT AS UNDER: A) ITA NO. 1464 & 1465/DEL/2010 ARE PARTLY ALLOWED; B) ITA NO. 1534 & 1535/DEL/2010 ARE ALLOWED; AND C) ITA NO. 2303/DEL/2010 IS DISMISSED. DECISION PRONOUNCED IN THE OPEN COURT ON 31.10.201 1 SD/- SD/- ( B.C. MEENA ) ( RAJP AL YADAV ) ACCOUNTANT MEMBER JUDICIAL MEMBE R DATED: 31/10/2011 MOHAN LAL COPY FORWARDED TO: 1) APPELLANT 2) RESPONDENT 3) CIT 4) CIT(APPEALS) 5) DR:ITAT ASSISTANT REGISTRAR