Usha Anandan, CHENNAI V. ITO, CHENNAI

ITA 434/CHNY/2017

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 4775 (ITAT-CHENNAI)
• Duration Of Justice: 2 month(s) 5 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-04-2017
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: D
• Assessment Year: 2006-2007
• Appeal Filed On: 20-02-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: M MURALI MOHAN IRS
• Assessee Lawyers: NITHYA SANKARAN
• Keywords: Gift; Reason to believe
• Section: 147; 148

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL D (SMC) BENCH : CHENNAI . , [BEFORE SHRI ABRAHAM P. GEORGE, ACCOUNTANT M EMBER ] ./I.T.A. NOS.434, 435, 436, 437 & 438/MDS/2017 / ASSESSMENT YEARS :2006-07, 2007-08, 2008-09, 200 9-10 & 2010-11. SMT. USHA ANANDAN, NO.169/10, R.K.MUTT ROAD, MANDAVELI, CHENNAI 600 028. [PAN AABPU 0407E] VS. THE INCOME TAX OFFICER, NON CORPORATE WARD 2(1) CHENNAI. ( !' / APPELLANT) ( #$!' /RESPONDENT) / APPELLANT BY : MS. NITHYA SANKARAN, C.A. /RESPONDENT BY : SHRI.M. MURALI MOHAN, IRS, JCIT. /DATE OF HEARING : 25-04-2017 !' /DATE OF PRONOUNCEMENT : 26-04-2017 % / O R D E R ASSESSEE IN THESE APPEALS ASSAILS AN ORDER DATED 2 3.12.2016 OF LD. COMMISSIONER OF INCOME TAX (APPEALS)-2, CHEN NAI FOR THE IMPUGNED ASSESSMENT YEARS. ITA NOS. 434 TO 439/MDS/2017. :- 2 -: 2. AMONG THE VERY MANY GROUNDS TAKEN BY THE ASSESSEE, GROUNDS THREE AND FOUR ASSAILS THE REOPENING DONE FOR THE IMPUGNED ASSESSMENT YEARS. SINCE THESE GROUNDS GO TO THE R OOT OF THE JURISDICTION FOR MAKING AN ASSESSMENT, THESE ARE TA KEN UP FIRST FOR DISPOSAL. 3. LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT ASSESS MENTS FOR ALL THESE YEARS EXCEPT FOR ASSESSMENT YEAR 2010-201 1, WERE ORIGINALLY COMPLETED U/S.143(1) OF THE INCOME TAX ACT 1961, ( IN SHORT THE ACT). AS PER LD. AUTHORISED REPRESENTATIVE FOR AS SESSMENT YEAR 2010- 2011 ASSESSEE HAD FILED A RETURN OF INCOME ONLY AFT ER ISSUE OF NOTICE U/S.148 OF THE ACT. LD. AUTHORISED REPRESENTATIVE POINTED OUT THAT REASONS FOR REOPENING FOR ALL THE IMPUGNED ASSESSME NT YEARS WERE TYPICALLY WORDED. THAT FOR ASSESSMENT YEAR 2006-200 7 WAS SPECIFICALLY REFERRED BY LD. AUTHORISED REPRESENTATIVE. CONTENT ION OF THE LD. AUTHORISED REPRESENTATIVE WAS THAT THE REASONS GIVE N BY THE LD. ASSESSING OFFICER FOR RESORTING TO THE REOPENING RE FERRED TO A SETTLEMENT DEED DATED 25.11.2005 REGISTERED BY ASSE SSEES HUSBAND, WHEREBY UNDIVIDED 630 SQ.FT. OF LAND RIGHT TOGETHER WITH FULLY CONSTRUCTED BASEMENT FLOOR MEASURING 1700 SQ.FT AN D A SHOP IN THE GROUND FLOOR HAVING 150 SQ.FT. IN NOS. 97 & 98, R. K. MUTT ROAD, MANDAVELI, CHENNAI -28 WAS SETTLED IN FAVOUR OF THE ASSESSEE. ITA NOS. 434 TO 439/MDS/2017. :- 3 -: CONTENTION OF THE LD. AUTHORISED REPRESENTATIVE WAS THAT BY VIRTUE OF SECTION 27(I) OF THE ACT, INCOME FROM PROPERTY TRANSFERRED TO A SPOUSE, OTHERWISE THAN FOR ADEQUATE CONSIDERATION, WAS TO BE CONSIDERED ONLY IN THE HANDS OF THE TRANSFEROR. AS PER LD. AUTHORISED REPRESENTATIVE THE REASONS CITED FOR REOPENING THE ASSESSMENTS FOR THE IMPUGNED ASSESSMENT YEARS HAD NO LEGS TO STAND AND COULD NOT BE CONSIDERED AS A REASON AT ALL, SINCE THERE WAS NO ESCAPEMENT OF INCOME IN THE HANDS OF THE ASSESSEE, ON ACCOUNT OF THE PROPERTY SETTLED BY THE ASSESSEES HUSBAND IN HER FAVOUR. IN ANY CASE AS PER LD. AUTHORISED REPRESENTATIVE ANNUAL VALUE FIXED BY THE LD. ASSESSING OFFICER WAS BASED ON INSPECTORS REPORT, IGNORING T HE MUNICIPAL VALUATION AS PER CORPORATION TAX RECORDS. FURTHER, AS PER LD. AUTHORISED REPRESENTATIVE THE REPORT OF THE INSPECT OR HAD ESTIMATED THE RENT AT G15/- PER SQ.FT WHEREAS THE LD. ASSESS ING OFFICER, IN THE REASONS FOR REOPENING CONSIDERED G25/- PER SQ.FT, F OR WHICH THERE WAS NO BASIS. 4. CONTRA, LD. DEPARTMENTAL REPRESENTATIVE SUBMITTED THAT ASSESSEE NOR HER HUSBAND HAD RETUNED RENTAL INCOME FROM THE IMPUGNED PROPERTY EXCEPT FOR ASSESSMENT YEAR 2006-2 007. ACCORDING TO HIM, EXCEPT FOR ASSESSMENT YEAR 2006-2007, THE RENTAL INCOME FROM THE IMPUGNED PROPERTY WAS NOT OFFERED BY ASSE SSEES HUSBAND ITA NOS. 434 TO 439/MDS/2017. :- 4 -: SHRI. V. ANANDAN. FURTHER, ACCORDING TO HIM, FOR ASSESSMENT YEAR 2010-2011, ASSESSEE HAD NOT FILED A RETURN WITHIN T HE TIME ALLOWED U/S.139 OF THE ACT. RELYING ON THE JUDGMENT OF HON BLE APEX COURT IN THE CASE OF ACIT VS. RAJESH JHAVERI STOCK BROKERS P. LTD 291 IT R 500 , LD. DEPARTMENTAL REPRESENTATIVE SUBMITTED THAT ORI GINAL ASSESSMENT HAVING BEEN COMPLETED U/S.143(1) OF THE ACT, THE RE OPENING DONE FOR THE IMPUGNED ASSESSMENT YEARS WERE VALID. 5. I HAVE CONSIDERED THE RIVAL CONTENTIONS AND PERUSED THE ORDERS OF THE AUTHORITIES BELOW. REASONS GIVEN BY T HE LD. ASSESSING OFFICER FOR REOPENING THE ASSESSMENT FOR THE IMPUG NED ASSESSMENT YEAR ARE SIMILAR, EXCEPT FOR FIGURES, WITH REGARD TO THE RENT RECEIVED BY THE ASSESSEE. THAT FOR ASSESSMENT YEAR 2006-200 7 IS REPRODUCED HEREUNDER:- ''DURING THE FINANCIAL YEAR RELEVANT TO THE ASSESSMENT YEAR 2006-01; THE ASSESSEE HAS RECEIVED AN UNDIVIDED 630 SQ.FT. OF LAND RIGHT TOGETHER WITH THE FULLY CONSTRUCTED THE BASEMENT FLOOR MEASURING ABOUT 1700 SQ.FT: OR THEREABOUTS AND THE SHOP IN THE GROUND FLOOR HAVING A CARPET AREA OF 150 SQ.FT./ OR THEREABOUTS/ SITUATED IN NOS.97 & 98, R.K.MUTT ROAD, . MANDAVELI CHENNAI- 600028' FROM HER HUSBAND THROUGH SETTLEMENT DEED. THE SETTLEMENT DEED WAS REGISTERED IN SRO/ MYLAPORE VIDE DOCUMENT NO.3252/2005 DATED 25.11.2005. THE ASSESSEE HAS NOT ADMITTED THE RENTAL INCOME FROM OUT OF THE ABOVE PROPERTY IN HER RETURN OF INCOME. THE VALUE OF THE RENT RECEIVABLE BY ASSESSEE FOR THE ABOVE PROPERTY DURING THE ASSESSMENT YEAR 2006-07 WOULD BE 1,61,875/- ( 1850 SQ.FT. X 25 X 5 MONTHS = 2,31,250 ITA NOS. 434 TO 439/MDS/2017. :- 5 -: 69,375 ( 30%) = 1,61,875/- IN VIEW OF THE ABOVE/ I HAVE REASON TO BELIEVE THAT THERE IS AN ESCAPEMENT OF INCOME OF RS.1,61,875/- FOR THE ASSESSMENT YEAR 2006-07. IT IS CLEAR FROM THE ABOVE REASONS THAT LD. ASSESSI NG OFFICER CAME TO KNOW OF THE SETTLEMENT OF THE IMPUGNED PROPERTY IN FAVOUR OF THE ASSESSEE BASED ON THE SETTLEMENT DEED DATED 25.11. 2005. A COPY OF THE SETTLEMENT DEED PLACED AT PAPER BOOK PAGES 2 TO 9 MENTIONS IN THE PREAMBLE AS UNDER:- AND WHEREAS THE SETTLOR OUT OF LOVE AND AFFECTION TOWARDS HIS WIFE THE SETTLEE HEREIN HAD DECIDED T O SETTLE THE B SCHEDULE MENTIONED PROPERTY TO TH IS SETTLEMENT DEED TO AND IN FAVOUR OF HER ABSOLUTELY WILL FULL POWERS OF ALIENATION ETC. AND THIS DEED OF SETTLEMENT WITNESSETH THAT THE ABO VE NAMED SETTLER OUT OF HIS NATURAL LOVE AND AFFECTION TOWARDS THE SETTLEE HEREBY THE B SCHEDULE MENTIO NED PROPERTY TO THIS SETTLEMENT DEED IN FAVOUR OF HER ABSOLUTELY . THUS THE SETTLEMENT DONE BY THE ASSESSEES HUSBAND SHRI. V. ANANDAN IN FAVOUR OF THE ASSESSEE WAS FOR LOVE AND AFFECTI ON. IT WAS A CLEAR GIFT AND NOT A TRANSFER FOR ADEQUATE CONSIDERATION. AT THIS JUNCTURE IT WILL BE APPOSITE TO REPRODUCE SEC. 27(I) OF THE AC T. (I) AN INDIVIDUAL WHO TRANSFERS OTHERWISE THAN FO R ADEQUATE CONSIDERATION ANY HOUSE PROPERTY TO HIS OR ITA NOS. 434 TO 439/MDS/2017. :- 6 -: HER SPOUSE, NOT BEING A TRANSFER IN CONNECTION WITH AN AGREEMENT TO LIVE APART, OR TO A MINOR CHILD NOT BE ING A MARRIED DAUGHTER, SHALL BE DEEMED TO BE THE OWNER O F THE HOUSE PROPERTY SO TRANSFERRED. BY APPLICATION OF THE ABOVE SECTION, IT IS CLEAR TH AT THE OWNER OF THE PROPERTY, WHICH WAS SETTLED IN FAVOUR OF THE ASSES SEE WAS ASSESSEES HUSBAND FOR THE PURPOSE OF ASSESSING THE INCOME UND ER THE HEAD INCOME FROM HOUSE PROPERTY. THUS INCOME DERIV ED FROM THE SUBJECT PROPERTY WAS ASSESSABLE ONLY IN THE HANDS OF THE A SSESSEES HUSBAND. IT IS TRUE THAT ORIGINAL ASSESSMENTS FOR ALL THE I MPUGNED ASSESSMENT YEAR EXCEPT FOR ASSESSMENT YEAR 2010-2011 WERE COMP LETED U/S.143(1) OF THE ACT. IT IS ALSO TRUE THAT FOR ASS ESSMENT YEAR 2010- 2011, ASSESSEE HAD NOT FILED A RETURN AT ALL WITHIN THE TIME LIMIT ALLOWED U/S.139 OF THE ACT. WHAT HAS BEEN HELD BY T HE HONBLE APEX COURT IN THE CASE OF RAJESH JHAVERI STOCK BROKERS P . LTD (SUPRA) AS IT APPEAR IN PARA 16 & 17 OF ITS JUDGMENT IS REPRODU CED HEREUNDER:- 16. SECTION 147 AUTHORISES AND PERMITS THE ASSESS ING OFFICER TO ASSESS OR REASSESS INCOME CHARGEABLE TO TAX IF HE HAS REASON TO BELIEVE THAT INCOME FOR ANY ASSESSMENT YEAR HAS ESCAPED ASSESSMENT. THE WORD 'REASON' IN THE PHRASE 'REASON TO BELIEVE' WOULD ME AN CAUSE OR JUSTIFICATION. IF THE ASSESSING OFFICER HA S CAUSE OR JUSTIFICATION TO KNOW OR SUPPOSE THAT INCO ME HAD ESCAPED ASSESSMENT, IT CAN BE SAID TO HAVE REASON TO BELIEVE THAT AN INCOME HAD ESCAPED ASSESSMENT. THE EXPRESSION CANNOT BE READ TO MEAN THAT THE ASSESSING OFFICER SHOULD HAVE FINALLY ITA NOS. 434 TO 439/MDS/2017. :- 7 -: ASCERTAINED THE FACT BY LEGAL EVIDENCE OR CONCLUSIO N. THE FUNCTION OF THE ASSESSING OFFICER IS TO ADMINIS TER THE STATUTE WITH SOLICITUDE FOR THE PUBLIC EXCHEQUE R WITH AN INBUILT IDEA OF FAIRNESS TO TAXPAYERS. AS OBSERVED BY THE SUPREME COURT IN CENTRAL PROVINCES MANGANESE ORE CO. LTD. V. ITO [1991] 191 ITR 662 , FOR INITIATION OF ACTION UNDER SECTION 147(A) (AS THE PROVISION STOOD AT THE RELEVANT TIME) FULFILMENT OF THE TWO REQUISITE CONDITIONS IN THAT REGARD IS ESSENTIA L. AT THAT STAGE, THE FINAL OUTCOME OF THE PROCEEDING IS NOT RELEVANT. IN OTHER WORDS, AT THE INITIATION STAGE, WHAT IS REQUIRED IS 'REASON TO BELIEVE', BUT NOT THE ESTABLISHED FACT OF ESCAPEMENT OF INCOME. AT THE ST AGE OF ISSUE OF NOTICE, THE ONLY QUESTION IS WHETHER TH ERE WAS RELEVANT MATERIAL ON WHICH A REASONABLE PERSON COULD HAVE FORMED A REQUISITE BELIEF. WHETHER THE MATERIALS WOULD CONCLUSIVELY PROVE THE ESCAPEMENT I S NOT THE CONCERN AT THAT STAGE. THIS IS SO BECAUSE T HE FORMATION OF BELIEF BY THE ASSESSING OFFICER IS WIT HIN THE REALM OF SUBJECTIVE SATISFACTION (SEE ITO V. SELECTED DALURBAND COAL CO. P. LTD. [1996] 217 ITR 597 (SC) ; RAYMOND WOOLLEN MILLS LTD. V. ITO [1999] 236 ITR 34 (SC). 17. THE SCOPE AND EFFECT OF SECTION 147 AS SUBSTITU TED WITH EFFECT FROM APRIL 1, 1989, AS ALSO SECTIONS 14 8 TO 152 ARE SUBSTANTIALLY DIFFERENT FROM THE PROVISIONS AS THEY STOOD PRIOR TO SUCH SUBSTITUTION. UNDER THE OL D PROVISIONS OF SECTION 147, SEPARATE CLAUSES (A) AND (B) LAID DOWN THE CIRCUMSTANCES UNDER WHICH INCOME ESCAPING ASSESSMENT FOR THE PAST ASSESSMENT YEARS COULD BE ASSESSED OR REASSESSED. TO CONFER JURISDIC TION UNDER SECTION 147(A) TWO CONDITIONS WERE REQUIRED T O BE SATISFIED : FIRSTLY THE ASSESSING OFFICER MUST H AVE REASON TO BELIEVE THAT INCOME, PROFITS OR GAINS CHARGEABLE TO INCOME TAX HAVE ESCAPED ASSESSMENT, AND SECONDLY HE MUST ALSO HAVE REASON TO BELIEVE TH AT SUCH ESCAPEMENT HAS OCCURRED BY REASON OF EITHER OMISSION OR FAILURE ON THE PART OF THE ASSESSEE TO DISCLOSE FULLY OR TRULY ALL MATERIAL FACTS NECESSAR Y FOR HIS ASSESSMENT OF THAT YEAR. BOTH THESE CONDITIONS WERE CONDITIONS PRECEDENT TO BE SATISFIED BEFORE TH E ASSESSING OFFICER COULD HAVE JURISDICTION TO ISSUE NOTICE UNDER SECTION 148 READ WITH SECTION 147(A). BUT UNDER THE SUBSTITUTED SECTION 147 EXISTENCE OF ONLY THE FIRST CONDITION SUFFICES. IN OTHER WORDS IF THE ITA NOS. 434 TO 439/MDS/2017. :- 8 -: ASSESSING OFFICER FOR WHATEVER REASON HAS REASON TO BELIEVE THAT INCOME HAS ESCAPED ASSESSMENT IT CONFE RS JURISDICTION TO REOPEN THE ASSESSMENT. IT IS, HOWEV ER, TO BE NOTED THAT BOTH THE CONDITIONS MUST BE FULFIL LED IF THE CASE FALLS WITHIN THE AMBIT OF THE PROVISO TO S ECTION 147. THE CASE AT HAND IS COVERED BY THE MAIN PROVISION AND NOT THE PROVISO. THUS, IT IS A NECESSARY PREREQUISITE THAT INGREDIE NTS OF SEC. 147 OF THE ACT HAVE TO BE FULFILLED FOR INITIATING PROCEEDING S U/S.147 OF THE ACT. AT THE STAGE OF ISSUE OF NOTICE, THERE HAS TO BE SO ME RELEVANT MATERIAL ON WHICH A REASONABLE PERSON COULD HAVE FORMED A B ELIEF OF ESCAPEMENT OF INCOME. NO DOUBT WHERE THE ORIGINAL ASSESSMENT WAS COMPLETED U/S.143(1) OF THE ACT AND WHERE AN ORIGIN AL ASSESSMENT WAS NOT DONE AT ALL, THE CONDITION REGARDING OMISS ION OR FAILURE OF THE ASSESSEE AND /OR CONDITION REGARDING CHANGE OF OPI NION WILL NOT APPLY. HOWEVER, THE FIRST CONDITION THAT THERE SHOULD BE A REASON FOR BELIEVING ESCAPEMENT OF INCOME IS NECESSARY INGREDIENT. A REA DING OF THE REASONS REPRODUCED BY US ABOVE DO NOT INDICATE HO W THERE COULD HAVE BEEN ESCAPEMENT OF INCOME IN ASSESSEES HAND W HERE THE PROPERTY WAS SETTLED IN FAVOUR OF THE ASSESSEE BY H ER HUSBAND, INCOME FROM WHICH WAS ASSESSABLE IN THE HANDS OF HER HUSBAND. IN MY OPINION, THEREFORE THE REASONS CITED FOR REOPENI NG THE ASSESSMENT HAD NO LEGS TO STAND AND SMACK OF TOTAL NON-APPLI CATION OF MIND. EX- CONSEQUENTI THE REASSESSMENTS DONE FOR THE IMPUGNE D ASSESSMENT ITA NOS. 434 TO 439/MDS/2017. :- 9 -: YEARS ARE SET ASIDE. SINCE THE APPEALS ARE DECIDED IN FAVOUR OF THE ASSESSEE ON THE ISSUE OF JURISDICTION, THE GROUNDS RELATING TO THE MERITS ARE NOT CONSIDERED. 6. IN THE RESULT, APPEALS OF THE ASSESSEE ARE ALLOWED. ORDER PRONOUNCED ON WEDNESDAY, THE 26TH DAY OF A PRIL, 2017, AT CHENNAI. #$% & ( . ) (ABRAHAM P. GEORGE) / ACCOUNTANT MEMBER '( / CHENNAI )* / DATED: 26TH APRIL, 2017. KV *+ ,-.- / COPY TO: 1 . / APPELLANT 3. /01 / CIT(A) 5. -23 4 / DR 2. / RESPONDENT 4. / / CIT 6. 35 / GF