Shri Jagdishchandra C.Shah, HUF, Tapi V. The Income Tax Officer, Ward-2, Bardoli

ITA 232/AHD/2016

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 1493 (ITAT-AHMEDABAD)
• Duration Of Justice: 3 month(s) 29 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-05-2016
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: SMC
• Next Hearing Date: 11-05-2016
• Assessment Year: 2007-2008
• Appeal Filed On: 01-02-2016
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: ANITA HARDASANI
• Keywords: Reopening of assessment; Capital asset; Reason to believe; Reassessment proceedings
• Section: 143(3); 147; 148

Judgement Text

I.T.A. NO . 232 /AHD/ 20 1 6 ASSESSMENT YEAR: 200 7 - 08 PAGE 1 OF 6 IN THE INCOME TAX APPELLATE TRIBUNAL, AHMEDABAD A BENCH, AHMEDABAD [CORAM : PRAMOD KUMAR AM AND S.S. GODARA JM ] I.T.A. NO. 232 /AHD/ 20 1 6 ASSESSMENT Y EAR : 200 7 - 08 JAGDISHCHANDRA C. SHAH HUF .... .......... .APPELLANT 7/28, KANCHWALA STREET, GO LWADA, VYARA, TAPI. [ PAN: A ABHJ 2680 J ] VS. INCOME TAX OFFICER , WARD - 2, BARDOLI . ............. . RESPONDENT APPEARANCES BY: MEHUL SHAH , FOR THE APPELLANT ANITA HARDASANI , FOR THE RESPONDENT D ATE OF CONCLUDING THE HEARING : MAY 1 1 TH , 201 6 DATE OF PRONOUNCING THE ORDER : MAY 31 ST , 201 6 O R D E R PER PRAMOD KUMAR AM : THIS IS AN APPEAL FILED BY THE ASSESSEE CHALLENGING CORRECTNESS OF ORDER DATED 13 .01.2016 PASSED BY THE LD . CIT ( A ) IN THE MATTER O F ASSESSMENT UNDER SECTION 143(3) READ WITH SECTION 147 OF THE INCOME TAX ACT, 1961 ( THE ACT FOR SHORT) , FOR THE ASSESSMENT YEAR 2007 - 08. 2. IN THE FIRST GROUND OF APPEAL , THE ASSESSEE HAS RAISED THE FOLLOWING GRIEVANCE : - ON THE FACTS AND CIRCUMSTANCE OF T HE CASE AS WELL A S LAW ON T HE SUBJECT, THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) HAS ERRED IN CONFIRMING THE ACTION OF THE ASSESSING OFFICER IN REOPENING THE ASSESSMENT U/S. 147 BY ISSUING NOTICE U/S. 148 OF THE I.T. ACT, 1961. I.T.A. NO . 232 /AHD/ 20 1 6 ASSESSMENT YEAR: 200 7 - 08 PAGE 2 OF 6 3. IT IS A CASE OF REOPENING THE ASSESSMENT ON 29.0 3 .2014. THE ASSESSING O F FICER REOPENED THE ASSESSMENT BY RECORDING THE FOLLOWING REASONS: - REASONS RECORDED FOR REOPENING THE CASE U/S. 148 OF THE I.T. ACT. IN THIS CASE, INFORMATI ON HAVE BEEN RECEIVED FROM DCIT , CIRCL E - 6, SURAT, THAT 'DURING THE COURSE OF ASSESSMENT PROCEEDINGS IN THE CASE OF LATE SH RI J.C. S HAH FOR A.Y. 2011 - 12, IT IS NOTICED THAT RESIDENTIAL PROPERTY WAS SHOWN AS FIXED ASSETS IN THE BALANCE SHEET VALUED AT RS.8,10,090/ - . REGARDING THE SOURCE OF INVES TMENT IN THE SAID PROPERTY THE ASSESSEE CONTENDED THAT THE PROPERTY IS ANCESTRAL PROPERTY IN THE NAME OF SHRI J.C.SHAH IN HIS INDIVIDUAL CAPACITY. LATER THIS PROPERTY WAS TAKEN IN THE BOOKS OF SHRI J.C. SHAH (HUF). THEREAFTER, THE SAID PROPERTY WAS TAKEN I NTO POLLAR PROPERTY MANAGEMENT PVT. LTD., WHICH COMPANY WAS INCORPORATED ON 19.04.2006. LATER AFTER THE ALLEGED DISPUTE AMONGST THE DIRECTORS OF THE SAID COMPANY PROPERTY WAS BROUGHT TO THE BOOKS OF SHRI J.C. SHAH. HOWEVER, THE ASSESSEE CONTENDED THAT THE PROPERTY EXCHANGE HANDS WITHOUT ANY CONSIDERATIO N/TRANSFER DEED BEING EFFECTED. ' SINCE, THE PROPERTY WAS TRANSFERRED FROM SHRI J.C. SHAH (HUF) TO POLLAR PROPERTY MANAGEMENT PVT. LTD, CAPITA! G AIN SHOULD HAVE BEEN OFFE RED FOR THE F.Y. 2006 - 07 RELEVANT TO A.Y. 2007 - 08, WHICH MAY NOT HAVE BEEN OFFERED IN THE RETURN OF INCOME. IN VIEW OF THE ABOVE, I HAVE A REASON TO BELIEVE THAT AN AMOUNT OF RS.8,10,090/ - HAS ESCAPED ASSESSMENT IN THE HANDS OF THE ASSESSEE FOR THE YEAR UNDER CONSIDERATION, WITHIN THE MEANIN G OF SECTION 147 OF THE ACT. I AM SATISFIED THAT THE CASE OF THE ASSESSEE IS A FIT CASE FOR ACTION U/S 147 OF THE I. T. ACT AND ISSUE OF NOTICE U/S. 148 OF THE I. T. ACT FOR ASSESSMENT YEAR 2007 - 08. 4. THE ASSESSEE DID OBJECT AGAINST THE REOPENING SO PROPOS ED BY THE ASSESSING OFFICER AND FILED HIS DETAILED SUBMISSION BEFORE THE ASSESSING OFFICER. ASSESSING OFFICER , HOWEVER, BRUSHED ASIDE THESE OBJECTIONS BY OBSERVING RATHER CRYPTICALLY THAT THE OBJECTION SO RAISED BY THE ASSESSEE HA S BEEN PERUSED AND FOUND UNREASONABLE . AGGRIEVED , THE ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE LD . CIT ( A ) BUT AGAIN WITHOUT ANY SUCCESS. LD. CIT(A) ALSO DISMISSED THE GRIEVANCE OF THE ASSESSEE, AGAINST REOPENING OF THE ASSESS MENT AND OBSERVED AS FOLLOWS : - 6. THE MAIN CONTENTION OF THE APPELLANT REMAINED THAT SAID PROPERTY WAS ANCESTRAL PROPERTY WHICH WAS GIVEN TO POLAR PROPERTY MANAGEMENT PVT. LTD. FOR USE FOR THE BUSINESS WITHOUT ANY CONSIDERATION. THE SAID PROPERTY WAS NEVER TRANSFERRED TO THE SAID COMPANY AND WAS L ATER ON TAKEN BACK FROM THE COMPANY. IN VIEW OF THESE FAC T S, THE ASSESSEE HAS CONTENDED THAT SINCE THE PROPERTY WAS NOT TRANSFERRED, THERE WAS NO QUESTION OF TAXING THE VALUE OF PROPERTY I.E. I.T.A. NO . 232 /AHD/ 20 1 6 ASSESSMENT YEAR: 200 7 - 08 PAGE 3 OF 6 RS.8,10,090 / - AS CAPITAL GAIN. SO, WHEN THERE WAS NO MONETARY TR ANSACTION, NO PROFIT OR GAIN WAS EARNED BY THE ASSESSEE. IT IS ALSO CONTENDED BY THE ASSESSEE THAT THERE WAS NO TRANSFER WITHIN THE MEANING OF SEC. 2(47) OF IT ACT OR 53A OF TRANSFER OF PROPERTY ACT. AS PER THE ASSESSEE THE CASE WAS RE OPENED ON THE BASIS OF VAGUE REASON RECORDED BY THE AO I.E. WITHOUT SPECIFYING THE AMOUNT OF ESCAPED CAPITAL GAIN. THE ID. AR RELIED UPON CERTAIN CASE LAWS TO STR E SS UPON THE POINT THAT ANY ASSESSMENT CANNOT BE REOPENED ON THE BASIS OF VAGUE OR SCANTY REASONS (CIT VS. AT UL JA IN, CIT VS. VINITA JAIN) OR CASE CANNOT BE RE - OPENED FOR CARRYING OUT FURTHER ENQUIRY OR INVESTIGATION (CHUUGAMAL RAJPAL CASE & HOTEL OASIS (SURAT) PVT. LTD. CASE) AND REASON TO BELIEVE DOES NOT MEAN 'REASON TO SUSPECT (ITO VS. LAKHMANI ME WAL DAS) . THE C R UX OF THE ARGUMENT OF ID. AR IS THAT REASSESSMENT PROCEEDINGS WERE INITIATED IN THIS CASE ON THE BASIS OF VAGUE AND SUPERFLUOUS REASONS WITHOUT CLEARLY POINTING OUT THE QUANTUM OF INCOME WHICH HAD ESCAPED ASSESSMENT. THEREFORE, THE REASSESSMENT PROCEEDINGS INITIATED IN THIS CASE ARE BAD IN LAW AND VOID AB INITIO AND THE SAME ARE LIABLE TO BE QUASHED. 6.1 THE CONTENTIONS, ARGUMENTS AND CASE LAWS HAVE BEEN DULY CONSIDERED IN THE LIGHT OF THE FACTS OF THE CASE. THE ID. AR OF THE ASSESSEE HAS MISINTERPRETED THE ENTIRE PROVISIONS RELATING TO THE REOPENING. AT THE TIME OF REOPENING OF THE ASSESSMENT, THE AO ONLY REQUIRED TO SEE WHETHER THERE IS PRIMA FACIE MATERIAL/INFORMATION TO ARRIVE AT A REASONABLE CONCLUSION THAT THERE WAS ESCAPEMENT OF INCOME. SUFFICIENCY OF THE REASON IS NOT OPEN TO QUESTION IN A COURT OF LAW BUT THE EXISTENCE OF BELIEF CAN BE CHALLENGED. COURTS CAN EXAMINE WHETHER THE REASONS ARE RELEVANT AND HAVE A BEARING ON THE MATTERS WITH REGARD TO WHICH HE IS REQUIRED TO ENTERTAIN THE BELIEF BEFORE HE CAN ISSUE NOTICE. SIMILAR FINDING HAS BEEN ARRIVED AT BY VARIOUS COURTS IN THE FOLLOWING CASES: - ITO VS. LAKHMANI MEWAL DAS (SC) 103 I TR 437 PHOOL CHAND BAJRANG LAL & ANRS (SC) 203 ITR 456 RAYMOND WOOLEN MILLS VS. ITO & ANR (SC) 236 ITR 34 6.2 THE HON'BLE SUPREME COURT IN THE CASE OF KALYANI MAVJI & CO. VS. CIT (S C 102 ITR 287 HAS OBSERVED THAT THE EXPRESSION HAS REASON TO BELIEVE IS WIDER THAN IS SATISFIED . IF FURTHER OBSERVED THAT INFORMATION MAY COME FROM EXTERNAL SOURCES OR EV EN FROM MATERIALS ALREADY ON RECORD OR MAY DERIVED FROM DISCOVERY OF NEW AND IMPORTANT MATTER OR FRESH FACTS. IN THE INSTANT CASE, THE AO RECEIVED INFORMATION FROM ANOTHER OFFICER ABOUT THE TRANSFER OF PROPERTY TO POLAR PROPERTY MANAGEMENT CO. WITHOUT ANY CONSIDERATION. NO RETURN OF INCOME WAS FILED NOR ANY CAPITAL GAIN TAX WAS PAID, THUS THE ASSESSEE CANNOT TAKE SHELTER OF 'TRUE & FULL DISCLOSURE OF MATERIAL FACTS' BECAUSE THERE WAS A TOTAL LACK OF DISC L OSURE. BY NO STRETCH OF IMAGINATION, THE REASONS COUL D BE TERMED AS 'VAGUE' OR 'SUPERFLUOUS'. CONSIDERING THE ENTIRE FACTS OF THE CASE, I DO NOT SEE ANYTHING WITH THE ACTION OF THE ID. AO IN REOPENING OF THE ASSESSMENT. THE HON'BLE S UPREME COURT IN THE CASE OF SRI KRISHNA (P) LTD. VS. CIT (SC) 221 ITR 538 HA S HELD THAT AT THE TIME OF REOPENING, AO IS NOT REQUIRED TO ESTABLISH ESCAPEMENT OF INCOME. IN VIEW OF THE ABOVE DISCUSSION, I UPHOLD THE REOPENING OF THE ASSESSMENT AS VALID AND IN ACCORDANCE WITH THE LAW. HENCE, THE GROUND OF APPEAL IS DISMISSED. I.T.A. NO . 232 /AHD/ 20 1 6 ASSESSMENT YEAR: 200 7 - 08 PAGE 4 OF 6 5. T H E ASSESSEE IS S TILL NOT SATISFIED AND IS IN FURTHER APPEAL BEFORE US. A PLAIN READING OF THE REASONS FOR REOPENING THE ASSESSMENT REPRODUCED BEFORE US SHOW S THAT THERE IS NOTHING MORE THAN SUSPICION AT THE FOUNDATION OF THE REOPENING . THE ASSESSING OFFIC ER HIMSELF HAS STATED THAT CAPITAL GAIN S HOULD HAVE BEEN OFFERED FOR FINANCIAL YEAR 2006 - 07 RELEVANT TO ASSESSMENT YEAR 2007 - 08, WHICH MAY NOT HAVE BEEN OFFERED IN THE RETURN OF INCOME . ESSENTIALLY WHAT THE ASSESSING OFFICER , THEREFORE , WANTED WAS A VER IFICATION OF WHETHER OR NOT THE AMOUNT HAS BEEN OFFERED IN TH E RETURN OF INCOME BUT THEN THE SCHEME OF THE ACT DOES NOT PERMIT SUCH REOPENING OF THE ASSESSMENT TO CARRY OUT SUCH AN EXERCISE. IT IS IMPORTANT TO BEAR IN MIND THAT EVEN THOUGH REASON S, AS REC O R DED , MAY NOT NECESSAR ILY PROVE ESCAPEMENT OF INCOME AT THE STAGE OF RECO R DING THE REASONS , S UCH REASONS MUST POINT OUT TO AN INCOME ES C APING ASSESSMENT AND NOT MERELY NEED OF AN ENQUIRY WHICH MAY RE SULT IN DETECTION OF AN INCOME ESCAP ING ASSESSMENT. UND OUBTEDLY, AT THE STAGE OF RECORDING THE REASONS FOR REOPENING THE ASSESSMENT, ALL THAT IS NECESSARY IS THE FORMATION OF PRIM A FA C IE BELIEF THAT AN INCOME HAS ESCAPED THE ASSESSMENT AND IT IS NOT NECESSARY THAT THE FACT OF INCOME HAVING ESCAPED ASSESSMENT I S PROV ED TO THE HILT. WHAT IS , HOWEVER , NECESSARY IS THAT THERE MUST BE SOMETHING WHICH INDICATE S , EVEN IF NOT ESTABLISHE S , THE ESCAPEMENT OF INCOME FROM ASSESSMENT. IT IS ONLY ON THIS BASIS THAT THE ASSESSING OFFICER CAN FORM THE BELIEF THAT AN INCOME H AS ESCAPED ASSESSMENT. IN OUR CONSIDERED VIEW , MERELY BECAUSE SOME FURTHER INVESTIGATION S HAVE NOT BEEN CA RRIED OUT, WHICH, IF MADE, COULD HAVE LED TO DETECTION TO AN INCOME ESCAPING ASSESSMENT, CANNOT BE REASON ENOUGH TO HOLD THE VIEW THAT INCOME HAS ESC APED ASSESSMENT. IT IS ALSO IMPORTANT TO BEAR IN MIND THE SUBTLE BUT VERY SIGNIFICANT DISTINCTION BETWEEN THE FACTORS WHICH INDICAT E AN INCOME ESCAPING THE ASSESSMENT S AND THE FACTORS WHICH INDICATE A LEGITIMATE SUSPICION ABOUT INCOME ESCAPING THE ASSESSM ENT. THE FORMER CATEGORY CONSIST S OF T HE FACTS WHICH, IF ESTABLISHE D TO BE COR R ECT , WILL HAVE A CAUSE AND EFFECT RELATIONSHIP WITH THE INCOME I.T.A. NO . 232 /AHD/ 20 1 6 ASSESSMENT YEAR: 200 7 - 08 PAGE 5 OF 6 ESCAPING THE ASSESSMENT. THE LATTER CATEGORY CONSISTS OF THE FACTS, WHICH , IF ESTABLISHED TO BE CORRECT, COULD L EGITIMATELY LEAD TO FURTHER ENQUIR IES WHICH MAY LEAD TO DETECTION OF AN INCOME WHICH HAS ESCAPED ASSESSMENT. B UT THEN THESE CATEGORIES OF REASONS DO NOT PERMIT REOPENING OF COMPLETED A SSESSMENT S . WHILE DEALING WITH THIS ASPECT OF THE MATTER, IT IS USEFUL TO BEAR IN MIND OBSERVATION MADE BY HON BLE SUPREME COURT IN THE C A SE OF ITO VS . LAKHMANI MEW A L DAS [(1976) 103 ITR 437] . R EASONS FOR THE FORMATION OF BELIEF MUST HAVE RATIONAL CONNECTION WITH OR RELEVANT BEARING ON THE FORMATION OF THE BELIEF. RATIONA L CONNECTION POSTULATES THAT THERE MUST BE A DIRECT NEXUS OR LIVE LINK BETWEEN THE MATERIAL COMING TO THE NOTICE OF THE ITO AND THE FORMATION OF THIS BELIEF THAT THERE HAS BEEN ESCAPEMENT OF THE INCOME OF THE ASSESSEE FROM ASSESSMENT IN THE PARTICULAR YEAR BECAUSE OF HIS FAILURE TO DISCLOSE FULLY AND TRULY ALL MATERIAL FACTS. 6. VIEWED IN THIS PERSPECTIVE AND HAVING NOTED THAT THE REASONS RECORDED FOR REOPENING OF THE ASSESSMENT DO NOT S UG G EST ANYTHING MORE THAN THE VERIFICATION , WE ARE OF THE CONSIDER ED VIEW THAT THE VERY INITIATION OF REASSESSMENT PROCEEDINGS ON THE FACTS OF THIS CASE IS UNSUSTAINABLE IN LAW . AS PER THE LEARNED DEPARTMENTAL REPRESENTATIVE S SUGGESTION THAT THOUGH REASONS MAY NOT HAVE BEEN PROPERLY RECORDED , REOPENING OF ASSESSMENT WA S VE R Y MUCH JUSTIFIED ON FACTS OF THIS CASE , WE ONLY REFER TO THE OBSERVATION S MADE BY THE HON BLE BOMBAY HIGH COURT, IN THE CASE OF HINDUSTAN LEVER LTD. VS. R.B. WADKAR [(2004) 268 ITR 332] WHEREIN IT IS, INTER ALIA, OBSERVED THAT ' .IT IS NEEDLESS TO M ENTION THAT THE REASONS ARE REQUIRED TO BE READ AS THEY WERE RECORDED BY THE AO. NO SUBSTITUTION OR DELETION IS PERMISSIBLE. NO ADDITIONS CAN BE MADE TO THOSE REASONS. NO INFERENCE CAN BE ALLOWED TO BE DRAWN ON THE BASIS OF REASONS NOT RECORDED. IT IS FO R THE AO TO DISCLOSE AND OPEN HIS MIND THROUGH THE REASONS RECORDED BY HIM. HE HAS TO SPEAK THROUGH THE REASONS.' THEIR LORDSHIPS ADDED THAT 'THE REASONS RECORDED SHOULD BE SELF - EXPLANATORY AND I.T.A. NO . 232 /AHD/ 20 1 6 ASSESSMENT YEAR: 200 7 - 08 PAGE 6 OF 6 SHOULD NOT KEEP THE ASSESSEE GUESSING FOR REASONS. REASONS PRO VIDE LINK BETWEEN CONCLUSION AND THE EVIDENCE .'. 7. I N VIEW OF THE S E DISCUSSION S AND BEARING IN MIND ENTIRETY OF THE CASE , WE DEEM IT FIT AND PROPER TO QUASH THE REASSESSMENT PROCEEDINGS. GROUND NO.1 IS THUS ALLOWED. 8. WHEN THE REASSESSMENT PROCEEDING S STAND QUASHED , WE S EE NO NEED TO REFER TO GROUND N O.2 OF APPEAL OF THE ASSESSEE WHICH CALLS INTO QUESTION CORRECTNESS OF THE LD. CIT(A) S SUSTAINING ADDITION OF RS.8,10,090 / - ON ACCOUNT OF UNDISCLOSED LONG TERM CAPITAL GAIN , ON MERITS. THAT ASPECT OF TH E MATTER, IN VIEW OF REOPENING PROCEEDINGS HAVING BEEN QUASHED, RENDERED INFRUCTUOUS. THUS, GROUND NO.2 OF ASSESSEE IS DISMISSED AS INFRUCTUOUS. 9. IN THE RESULT, APPEAL IS PARTLY ALLOWED IN THE TERMS INDICATED AS ABOVE . PRONOUNCED IN THE OPEN COUR T T ODAY ON THE 31 ST DAY OF MAY , 2016 . SD/ - SD/ - S.S. GODARA PRAMOD KUMAR (JUDICIAL MEMBER) (ACCOUNTANT MEMBER) DATED: THE 31 ST DAY OF MAY , 2016. COPIES TO: (1) THE APPELLANT (2) THE RESPOND ENT (3) CIT (4) CIT(A) (5) DR (6) GUARD FILE BY ORDER ASSISTANT REGISTRAR INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCHES, AHMEDABAD