Pimpri Chinchwad New Town Development Authority, Pune V. Income-tax Officer, Ward - 10(1), Pune

ITA 407/PUN/2018

AI Insights

The case involves two cross appeals by the Pimpri Chinchwad New Town Development Authority and the Revenue, challenging the order of the Commissioner of Income-tax (Appeals)-10, Pune, related to the assessment year 2006-07. The primary legal issue was the initiation of reassessment proceedings under section 147 of the Income-tax Act, 1961, after a period of four years from the end of the relevant assessment year. The Tribunal found that the reassessment was based on a change of opinion by the Assessing Officer regarding the income reported and the depreciation claimed, rather than on any undisclosed material facts by the assessee.

• Counselvise Citation: [2023] 140 COUNSELVISE.COM (IT) 137751 (ITAT-PUNE)
• Duration Of Justice: 4 year(s) 11 month(s) 10 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 07-02-2023
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 06-02-2023
• Assessment Year: 2006-2007
• Appeal Filed On: 27-02-2018
• Other Referred Cases: Honda Siel Power Products Ltd. Vs. DCIT (2011) 197 taxman 415 (Delhi)
• Laws Referred To: Income-tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Depreciation; Tangible material; Difference of opinion; Benefit of exemption; Change of opinion; Reassessment proceedings
• Section: 147; 11; 13

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH, ‘A’ PUNE BEFORE SHRI R.S. SYAL, VICE PRESIDENT AND SHRI S.S. VISWANETHRA RAVI, JUDICIAL MEMBER आयकर अपील सं. / ITA No.407/PUN/2018 नधा रण वष / Assessment Year : 2006-07 Pimpri Chinchwad New Town Development Authority, Sector 26, Pradhikaran, Pune 411 044 Maharshtra PAN : AAALP0279Q Vs. ITO, Ward-10(1), Pune Appellant Respondent आयकर अपील सं. / ITA No.484/PUN/2018 नधा रण वष / Assessment Year : 2006-07 DCIT (Exemption) Circle, Pune Vs. Pimpri Chinchwad New Town Development Authority, Sector 26, Pradhikaran, Pune 411 044 Maharshtra PAN : AAALP0279Q Appellant Respondent आदेश / ORDER PER R.S. SYAL, VP : These two cross appeals – one by the assessee and the other by the Revenue assail the correctness of the order passed by the Assessee by Shri Shantanu Pendse Revenue by Shri Keyur Patel Date of hearing 07-02-2023 Date of pronouncement 08-02-2023 ITA Nos.407 and 484/PUN/2018 Pimpri Chinchwad New Town Development Authority 2 ld. Commissioner of Income-tax (Appeals)-10, Pune on 08-01-2018 in relation to the assessment year 2006-07. 2. The first issue raised by the assessee in its appeal is against the initiation of reassessment proceedings. 3. Briefly stated, the facts of the case are that the assessee is an institution set up by the State Government for providing housing facilities, promoting townships within the area of jurisdiction as directed by the Govt. of Maharastra. The assessee was enjoying the benefit of exemption u/s.10(20A) of the Income-tax Act, 1961 (hereinafter referred to as `the Act’) up to A.Y. 2002-03. Return for the year was filed declaring total income of Rs.20,12,10,721/-. No benefit of exemption either u/s.10 or section 11 was claimed because the application for registration u/s.12A was pending at that point of time. The assessment was completed u/s.143(3) on 12-12-2008 determining total income at Rs.21,84,62,230/-. Thereafter, a notice u/s.148 dated 28-03-2013 was issued on certain grounds, which we will advert to a little later. Eventually, the assessment was completed u/s 147 at a total income of Rs.102,94,72,690. The assessee challenged the initiation of reassessment proceedings as well as the merits before the ld. ITA Nos.407 and 484/PUN/2018 Pimpri Chinchwad New Town Development Authority 3 CIT(A). Though the challenge to the initiation of reassessment proceedings was jettisoned, the ld. CIT(A) allowed certain relief on merits. Both the sides have come up with their respective appeals against the impugned order. 4. We have heard both the sides and gone through the relevant material on record. The first challenge by the assessee is to the initiation of reassessment proceedings. It is seen that the assessment u/s.143(3) was completed on 12-12-2008. Thereafter, notice u/s.148 dated 28-03-2013 was issued. Thus, it is apparent that the original assessment in this case was completed u/s.143(3) and the notice u/s.148 was issued after a period of four years from the end of the relevant assessment year, namely, 2006-07. Proviso to section 147, at the material time, provides that when an assessment has been completed u/s.143(3) and the Assessing Officer seeks to reopen the assessment after a period of four years from the end of the relevant assessment year, it is incumbent upon the AO to first show that the income chargeable to tax had escaped assessment by reason of failure on the part of the assessee, inter alia, to disclose fully and truly all material facts necessary for assessment. As the period of four years in this case ITA Nos.407 and 484/PUN/2018 Pimpri Chinchwad New Town Development Authority 4 expired much before the issuance of notice u/.148, we need to examine if the requisite condition of failure on the part of the assessee to disclose fully and truly all material facts necessary for assessment, was complied with? 5. The reasons recorded by the AO for the initiation of reassessment proceedings have been set out at page 103 onwards of the department paper book. The first reason is “Income not fully offered as income’. The AO noted in the reasons that the assessee enclosed Income and Expenditure statement wherein the following receipts were shown : i. Income from Development Activities Rs.13,34,65,693 ii. Interest Accrued Rs.19,28,63,331 iii. Rents Accrued Rs.1,31,03,803 Total Rs.33,94,32,827 6. Thereafter, he recorded details of the above three items in the next para. Then the issue was concluded by observing that the assessee recognized ‘Revenue on sale of plots’ at Rs.10,48,99,770/-, as against 10% of the amount realised from leasing of plots of land during the year which ought to have been considered. This, in the opinion of the AO, led to escapement of ITA Nos.407 and 484/PUN/2018 Pimpri Chinchwad New Town Development Authority 5 income. Similarly for ‘Transfer Premium’ of Rs.5.31 crore, the AO observed that the assessee recognized only Rs.7,18,220/- for taxation, which led to escapement of income. Similar is the position anent to the item ‘Rent accrued’ which in the opinion of the AO ought to have been offered at a higher level. 7. We have examined the assessee’s Income and Expenditure account, whose copy has been placed at page 8 of the Departmental paper book. It is apparent that the above referred three items, as noticed by the AO totalling to Rs.33.94 crore and odd, were promptly disclosed on the credit side. There is nothing in the reasons to indicate that the assessee did not disclose fully and truly all material facts necessary for assessment on this count. Such details were already before the AO when the return was filed and the original assessment u/s.143(3) was completed. At that time, the AO accepted such income after due verification. However, later on, he realised that the assessee had recorded income at a lower level which amounted to escapement of income. In our considered opinion, it is only change of opinion of the AO de hors any failure on the part of the assessee to disclose fully and truly all material facts necessary for assessment. ITA Nos.407 and 484/PUN/2018 Pimpri Chinchwad New Town Development Authority 6 8. The second reason noted by the AO is that the assessee claimed depreciation of leased properties amounting to Rs.7,15,18,379/-. After considering and discussing the difference between finance and operating leasing with reference to the accounting standards, the AO observed in the reasons that it was a case of under-reporting of income by claiming excess depreciation to the tune of Rs.7.15 crore. 9. As can be seen from the assessee’s Income and Expenditure account that the total amount of depreciation has been reflected on the face of it at Rs.8.74 crore. Such depreciation includes depreciation of leased properties amounting to Rs.7.15 crore. Here again, the AO changed his opinion from the original assessment in allowing deduction for the depreciation as claimed to now pointing out that the claim of depreciation was not permissible. There is no reference to any tangible material taken note of by the AO in concluding that the income escaped assessment. Further, the AO has nowhere brought out as to how the claim of depreciation at higher level in the original assessment proceedings can be construed as failure of the assessee to disclose fully and truly all facts necessary for assessment. It is only ITA Nos.407 and 484/PUN/2018 Pimpri Chinchwad New Town Development Authority 7 change of the opinion by the AO, which in our considered opinion, cannot lead to initiation of reassessment proceedings after a period of four years from the end of the relevant assessment year. 10. The next item considered by the AO in the reasons recorded is ‘Capital receipts’ not credited to the Income and Expenditure account amounting to Rs.117,40,84,184/-. This was done on the strength of clause 13(e) of the Tax Audit Report wherein the Auditor had reported items totalling to Rs.117.40 crore as not credited to the Income & Expenditure account. Thereafter, the AO recorded in the next para that the assessee claimed entire amount as exempt u/s.11 of the Act. Another connecting point taken note of by the AO in the reasons is that the assessee changed the accounting system from ‘Cash system’ to ‘Accrual method’ due to which proper income was not reflected. 11. Here again, we find that the AO erred in initiating the reassessment proceedings on this score, primarily for the reason that the assessee did not claim any exemption u/s.11 in the return filed originally because the income was offered for taxation without claiming benefit of any exemption. Further, the AO ITA Nos.407 and 484/PUN/2018 Pimpri Chinchwad New Town Development Authority 8 referred only to the Audit report filed by the assessee itself indicating certain amounts as ‘Capital receipts not offered for taxation’. By no standard, claim by the assessee of certain amounts as capital receipt in the annual accounts, can be construed as failure of the assessee to disclose fully and truly all material facts necessary for assessment, more so, when the case of the AO in the reasons is based on the assessee claiming exemption u/s.11, which is actually not the position. The next connecting point about change of method as a reason for reassessment has also no legs to stand. Income and Expenditure account was drawn as per the changed method of accounting. It was on that basis only that the AO completed the assessment u/s.143(3). Having done so, the AO cannot turn around to claim that the change of method by the assessee was not bona fide, more so, when all such facts were open before him during the course of original assessment proceedings. This point again does not fall in the realm of failure on the part of assessee to disclose fully and truly all material facts necessary for assessment. 12. The above discussion manifests that the initiation of reassessment proceedings was founded on certain factors, which ITA Nos.407 and 484/PUN/2018 Pimpri Chinchwad New Town Development Authority 9 the AO was not entitled to proceed, because he had already completed the assessment u/s.143(3) and there was nothing to show on these issues that the assessee failed to disclose fully and truly all material facts necessary for assessment. 13. The ld. DR heavily relied on the judgment of Hon’ble Delhi High Court in Honda Siel Power Products Ltd. Vs. DCIT (2011) 197 taxman 415 (Delhi), SLP against which also came to be dismissed. The question in that case was about the making of disallowance u/s.14A. The Hon’ble High Court approved the initiation of reassessment proceedings by observing that merely because material lies embedded in material or evidence, which the AO could have uncovered but did not uncover, is not a good ground to deny or strike down a notice for assessment. In our opinion, the Department cannot gain any ground from this decision. Primarily, it is a case of writ petition against the initiation of reassessment proceedings. Secondly, the case has developed on the findings that the material particulars referred to in the first proviso to section 147 not only refer to details in return but also to explanations and details furnished during course of assessment proceedings. We fail to comprehend as to how this ITA Nos.407 and 484/PUN/2018 Pimpri Chinchwad New Town Development Authority 10 judgment advances the case of the Revenue. Instantly, we are concerned with a situation in which the assessee made full and true disclosure of its particulars of income. Not only that, the AO did enquire about various items of income during the course of original assessment, as have been resorted to in the reasons. The assessee furnished reply. Copy of reply furnished by the assessee in Annexure 11, 12, 13 and 14 etc. has been placed on record. This shows that the AO was duly conscious of his decision in the original assessment proceedings and he took an informed decision accepting such items, based on his requisitions and the reply furnished by the assessee, which culminated into the assessment u/s.143(3) of the Act. Thus, it is clear that the reliance on Honda Siel Power Products Ltd. (supra) does not come to the rescue of the Revenue. In that view of the matter, we hold that the reassessment was wrongly initiated. The same is, therefore, quashed. 14. In view of our decision on the legal issue, the other grounds raised by the assessee as well as the Revenue on merits have become infructuous and do not require any adjudication. ITA Nos.407 and 484/PUN/2018 Pimpri Chinchwad New Town Development Authority 11 15. In the result, the appeal of the assessee is allowed in above terms and that of the Revenue is dismissed as having become academic. Order pronounced in the Open Court on 08 th February, 2023. Sd/- Sd/- (S.S. VISWANETHRA RAVI) (R.S.SYAL) JUDICIAL MEMBER VICE PRESIDENT पुणे Pune; िदनांक Dated : 08 th February, 2023 सतीश आदेश की ितिलिप अ ेिषत/Copy of the Order is forwarded to: 1. अपीलाथ / The Appellant; 2. थ / The Respondent 3. 4. 5. The CIT(A)-10, Pune The CIT Exemption Circle, Pune DR, ITAT, ‘A’ Bench, Pune 6. गाड फाईल / Guard file. आदेशानुसार/ BY ORDER, // True Copy // Senior Private Secretary आयकर अपीलीय अिधकरण ,पुणे / ITAT, Pune ITA Nos.407 and 484/PUN/2018 Pimpri Chinchwad New Town Development Authority 12 Date 1. Draft dictated on 07-02-2023 Sr.PS 2. Draft placed before author 07-02-2023 Sr.PS 3. Draft proposed & placed before the second member JM 4. Draft discussed/approved by Second Member. JM 5. Approved Draft comes to the Sr.PS/PS Sr.PS 6. Kept for pronouncement on Sr.PS 7. Date of uploading order Sr.PS 8. File sent to the Bench Clerk Sr.PS 9. Date on which file goes to the Head Clerk 10. Date on which file goes to the A.R. 11. Date of dispatch of Order. *