R.RAJAGOPAL TONDAIMAN, TRICHY V. DCIT CENTRAL CIRCLE-1, TRICHY

ITA 525/CHNY/2020

• Counselvise Citation: [2022] 104 COUNSELVISE.COM (IT) 1064 (ITAT-CHENNAI)
• Duration Of Justice: 2 year(s) 7 month(s) 6 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-10-2022
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 14-09-2022
• Assessment Year: 2010-2011
• Appeal Filed On: 05-03-2020
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Search and seizure; Retrospective amendment; Tangible material; Difference of opinion; Reason to believe; Change of opinion; Set aside; Capital Gains
• Section: 147; 139; 143(3); 54F; 80HHC

Judgement Text

आयकर अपीलीय अिधकरण, ‘ए’ Ɋायपीठ, चेɄई IN THE INCOME-TAX APPELLATE TRIBUNAL ‘A’ BENCH, CHENNAI ŵी वी. दुगाŊ राव, Ɋाियक सद˟ एवं ŵी मनोज कु मार अŤवाल, लेखा सद˟ के समƗ । Before Shri V. Durga Rao, Judicial Member & Shri Manoj Kumar Aggarwal, Accountant Member आयकर अपील सं./I.T.A. No.525/Chny/2020 िनधाŊरण वषŊ/Assessment Year: 2010-11 Sri R. Rajagopal Tondaiman, Old No. 4-D, New No. 22, Collector Office Road, Trichy 620 001. [PAN:AFBPR0712E] Vs. The Deputy Commissioner of Income Tax, Central Circle 1, Trichy. (अपीलाथŎ/Appellant) (ŮȑथŎ/Respondent) अपीलाथŎ की ओर से / Appellant by : Shri R. Viswanathan, CA ŮȑथŎ की ओर से/Respondent by : Shri G. Johnson, Addl. CIT सुनवाई की तारीख/ Date of hearing : 15.09.2022 घोषणा की तारीख /Date of Pronouncement : 12.10.2022 आदेश /O R D E R PER V. DURGA RAO, JUDICIAL MEMBER: This appeal filed by the assessee is directed against the order of the ld. Commissioner of Income Tax (Appeals) 1, Trichy, dated 30.12.2019 relevant to the assessment year 2010-11. 2. Facts are, in brief, that the assessee is a hereditary of Raja of Pudukottai and stated that he is assessed to tax in the status of HUF and Individual. The property at Cenotaph Road, Chennai was given to M/s. Doshi Housing Ltd. on a development agreement entered into on 30.01.2006 through a Power of Attorney. The Assessing Officer has I.T.A. No.525/Chny/20 2 noted that sale agreement was entered into on 10.09.2009 in Document No. 698/2009 BEFORE DR, Chennai Central, Chennai for Rs.75,79,210/- . The said property was purchased in 1961 and the sale proceeds have been entirely invested in the purchase of an apartment No. 302, Hiranandani Palace Gardens, Devon Phase I, in Senthamangalam Village, Chengalput Tk. and furnished details of payment vide letters of HIRCO and payment of cheques on 28.08.2012, within a period of 3 years from the date of sale. The total cost if the apartment is Rs.1,22,46,054/- and as on the date, the property is yet to be registered. In the circumstances, the Assessing Officer observed that the capital gain on sale of the property has been exempt. 2.1 Subsequently, the Assessing Officer issued notice under 148 of the Income Tax Act, 1961[“Act” in short] on 07.03.2016 on the ground that there is an escapement of income. The reasons recorded and communicated to the assessee are extracted as under: “During the relevant previous year, the assessee sold 35% of UDS of the land owned by him to M/s. Doshi Housing Ltd. for a sale consideration of Rs.75,79,210/- through sale deed dated 10.09.2009. The assessee has purchased Flat for a consideration of Rs.1,12,37,097/- on 04.05.2012 and claimed exemption u/s 54F of the Act. As per section 54F, the assessee has to construct a house within 2 years from the date of sale. Whereas, in the present case, the assessee entered into a purchase agreement only after 2 years. Hence, the deduction claimed u/s 54F needs to be brought to tax. Therefore, I have reason to believe that this income has escaped assessment and the case needs to be reopened u/s 147 of the IT Act. Necessary approval may kindly be granted for issuing notice u/s. 148. I.T.A. No.525/Chny/20 3 After following due procedure and considering the submissions of the assessee, the Assessing Officer has completed the assessment under section 143(3) r.w.s. 147 of the Act dated 29.12.2016 by assessing total income of the assessee at Rs.76,95,635/- after disallowing the claim of exemption under section 54F of the Act. On appeal, the ld. CIT(A) confirmed the assessment order passed by the Assessing Officer. 3. On being aggrieved, the assessee is in appeal before the Tribunal. The ld. Counsel for the assessee has submitted that the reopening of assessment is beyond four years, reasons are not based on any evidence or any tangible materials. It was further submission that the Assessing Officer has examined the issue while concluding the assessment under section 143(3) of the Act. It was further submission that there was no failure on the part of the assessee to disclose any material. Subsequently, the assessment was reopened by the Assessing Officer based on the same material and there was no new tangible material and thus, the ld. Counsel has submitted that it was only a change of opinion and the judgement of the Hon’ble Supreme Court in the case of CIT v. Kelvinator of India Ltd. 320 ITR 561 applies. He further argued that the assessment was reopened by issuing notice dated 07.03.2016 under section 148 of the Act is beyond four years from the end of the I.T.A. No.525/Chny/20 4 relevant assessment year under consideration and submitted that the Assessing Officer has to establish that there is a failure on the part of the assessee to disclose fully and truly all material facts to complete the assessment. In this case, the Assessing Officer has failed to establish that there is a failure on the part of the assessee and therefore the reopening of the assessee is invalid and bad in law. 4. On the other hand, the ld. DR strongly supported the order passed by the authorities below and submitted that based on the information available on record, the assessment can be reopened. 5. We have heard both the sides, perused the materials available on record and gone through the orders of authorities below. In this case, the assessment was completed under section 143(3) of the Act dated 31.01.2013 and by considering all the materials, the Assessing Officer has held that the capital gains on sale of the property is exempt from tax. Subsequently, on the same facts and materials available on record, the Assessing Officer came to conclusion that there is an escapement of income, that is capital gains on sale of property is not exempt. On perusal of the orders of authorities below, we find that no new material or any fresh information was brought on record. We also find that the subsequent reopening on the same set of facts with no failure on the part I.T.A. No.525/Chny/20 5 of the assessee to disclose material facts would tantamount to mere "change of opinion". In this regard, the Hon'ble Supreme Court in CIT v. Kelvinator of India [2010] 320 ITR 561 (SC) has observed and held as under: (quote)"Therefore, post 1-4-1989, power to reopen is much wider. However, one needs to give a schematic interpretation to the words "reason to believe" failing which, we are afraid, section 147 would give arbitrary powers to the Assessing Officer to re-open assessments on the basis of "mere change of opinion", which cannot be per se reason to reopen. We must also keep in mind the conceptual difference between power to review and power to re-assess. The Assessing Officer has no power to review; he has the power to reassess. But reassessment has to be based on fulfillment of certain pre-condition and if the concept of "change of opinion" is removed, as contended on behalf of the Department, then, in the garb of reopening the assessment, review would take place. One must treat the concept of "change, of opinion" as an in-built test to check abuse of power by the Assessing Officer. Hence, after 1-4-1989, Assessing Officer has power to reopen, provided there is "tangible material" to come to the conclusion that there is escapement of income from assessment. Reasons must have a live link with the formation of the belief. Our view gets support from the changes made to section 147 of the Act, as quoted hereinabove. Under the D irect Tax Laws (Amendment) Act, 1987, Parliament not only deleted the words "reason to believe" but also inserted the word “opinion” in section 147 of the Act. 5.1 Respectfully following the above decision of the Hon’ble Supreme Court in the case of CIT v. Kelvinator of India Ltd. (supra), we hold that the action of the Assessing Officer in reopening the assessment under section 147 of the Act is bad in law. 6. Apart from the above, in this case, the assessment was reopened beyond four years from the end of the relevant assessment I.T.A. No.525/Chny/20 6 year under consideration; the proviso to section 147 of the Act applies. Once the proviso to section 147 of the Act applies, it is the duty of the Assessing Officer to prove that the assessee has failed to furnish fully and truly all material facts to complete the assessment. In this case the Assessing Officer was not able to establish that there is failure on the part of the assessee to disclose fully and truly all materials. Therefore, in our opinion, the reopening is invalid beyond four years from the end of the relevant assessment year. 6.1 In this connection, in the case of Fenner (India) Ltd. v. DCIT 241 ITR 672, the Hon’ble Jurisdictional High Court has held that the reasons recorded by the Assessing Officer did not establish even prima facie, a failure on the part of the assessee to fully and truly disclose the material fact for the assessment and accordingly quashed the notice. The head-notes of the above judgement are reproduced as under: Mere escape of income is insufficient to justify the initiation of action under section 147 of the Income-tax Act, 1961, after the expiry of four years from the end of the assessment year. Such escapement must be by reason of the failure on the part of the assessee either to file a return referred to in the proviso or to truly and fully disclose the material facts necessary for the assessment. Unless the condition in the proviso to section 147 of the Income tax Act, 1961, is satisfied, the Assessing Officer does not acquire jurisdiction to initiate any proceeding under section 147 of the Act after the expiry of four years from the end of the assessment year. Thus, in cases where the initiation of the proceedings is beyond the period of four years from the end of the I.T.A. No.525/Chny/20 7 assessment year, the Assessing Officer must necessarily record not only his reasonable belief that income has escaped assessment but also the default or failure committed by the assessee. Failure to do so would vitiate the notice and the entire proceedings. If the Assessing Officer chooses to entertain the belief that the assessment has been made in the background of the assessee's failure to disclose truly and fully all material facts, it is necessary for him to record that fact. A notice issued without recording such a fact cannot be regarded as a valid notice. If the details placed by the assessee before the Assessing Officer were in conformity with the requirements of all applicable laws and known accounting principles, and material details had been exhibited before the Assessing Officer, it is for the Assessing Officer to reach such conclusions as he considered warranted from such data and any failure on his part to do so cannot be regarded as the assessee's failure to furnish the material facts truly and fully. Any lack of comprehension on the part of the Assessing Officer in understanding the details placed before him cannot confer a justification for reopening the assessment, long after the period of four years had expired. By notice dated December 18, 1996, the Assessing Officer reopened the assessment of the petitioner for the assessment year 1989-90, for the following reasons: (a) that excessive deduction had been allowed under section 80HHC; (b) that excessive allowance had been granted under section 32AB; and (c) that adjustment from the Modvat account had wrongly been allowed as deduction as payment of excise duty. On a unit petition: Held, that the reasons recorded by the Assessing Officer did not establish, even prima facie, a failure on the part of the assessee to fully and truly disclose the material facts for the assessment, because: (a) the assessee had placed before the Assessing Officer all statements, a perusal of which clearly showed that all the materials required for calculating the extent of benefits under sections 80HHC and 32AB and the actual calculation had been placed before the officer, The mistake, if any, was solely due to the mistake made by the officer and was not a mistake attributable to any failure on the part of the assessee. (b) a perusal of the statements filed by the assessee in the assessment proceedings showed that the assessee had placed before the Assessing Officer every relevant detail regarding the excise duty paid, the manner in which the payment was effected, the amounts paid through the deposit account, the amount adjusted from the Modvat account, the opening balance in the Modvat accrual account, the extent of the credit taken from that account, the extent of the amount utilised from that account, as also the closing balance as on March 31, 1989. All the information required in relation to the account had been placed before the Assessing Officer. The assessee could not have I.T.A. No.525/Chny/20 8 done anything more. The utilisation of the Modvat credit results in the payment of the excise duty on the final products to the extent of the credit utilised. The description given by the assessee to the payment so made as excise duty paid was the correct and normal term to describe the payment and no fault could be found with the assessee for using that term and not bifurcating that amount into the amount paid through the deposit account and the amount paid by adjustment of the Modvat credit. There was no failure on the part of the assessee to disclose truly and fully any fact in relation to the Modvat account or the amount of excise duty paid. The notice was liable to be quashed. 6.2 In the case of Hindustan Lever Ltd. v. R.B. Wadkar, ACIT (1) 268 ITR 332, the Hon’ble Bombay High Court has held as under: “Held, that the notice was clearly beyond the period of four years. The reasons recorded by the Assessing Officer nowhere stated that there was failure on the part of the assessee to disclose fully and truly all material facts necessary for assessment for that assessment year. Hence, the Assessing officer had no jurisdiction to reopen the assessment proceedings. The notice was not valid and was liable to be quashed.” Similarly, in the case of Hindustan Lever Ltd. v. R.B. Wadkar, ACIT (2) 268 ITR 332, the Hon’ble Bombay High Court has held as under: “Held, that it was clear that the Revenue could not establish any lapse or failure on the part of the assessee-petitioner to disclose fully and truly all material necessary for the assessment of the petitioner for the assessment year in question. The notice was not valid and was liable to be quashed.” 6.3 Further, in the case of Sadbhav Engineering Ltd. v. DCIT [2011] 333 ITR 483 (Guj), the Hon’ble Gujarat High Court has held as under: “Held, allowing the petitions, that on a plain reading of the reasons recorded, it was apparent that they were totally silent as regards any failure on the part of the assessee to disclose fully and truly all material facts necessary for its assessments for the relevant assessment years. Whether or not there was any failure on the part of the assessee in disclosing fully and truly all material facts necessary for his assessment, was a matter of fact and there could be no deemed failure as was sought to be contended on behalf of the income-tax authorities. Therefore, in the absence of any failure on the I.T.A. No.525/Chny/20 9 part of the assessee to disclose fully and truly all material facts necessary for its assessment for the assessment years 2003-04 and 2004-05, the notices under section 148 having been issued after the expiry of period of four years from the end of the relevant assessment years, the very initiation of proceedings under section 147 stood vitiated and could not be sustained.” 6.4 In the case of CIT v. Sil Investments Ltd. 339 ITR 166, the Hon’ble Delhi High Court has observed and held as under: “The assessments of the assessee for the assessment years 2001-02 and 2002-03 were reopened after four years on the ground that an amendment to section 80HHC of the Income-tax Act, 1961, had been made with retrospective effect from April 1, 1998. The conditions were not there in section 80HHC at the time when the assessee filed the returns or even the original assessments were made. The Commissioner (Appeals) and the Tribunal held that the invocation of the proviso to section 147 to be invalid and set aside the reassessments under section 147/148. On appeal: Held, dismissing the appeals, that the findings of the Tribunal was that all the relevant facts were available on record and that it could not be said that at the time when the assessee filed the returns, he had failed to disclose fully and truly all material facts necessary for the assessments because the amendment which was introduced retrospectively was not there. The law cannot contemplate the performance of an impossible act. Thus, the Tribunal rightly concluded that the proviso to section 147 could not be invoked merely because there was an amendment in the future which was introduced retrospectively and covered the period in question.” 6.5 Over and above, way back in 1976 itself, the Hon’ble Apex Court has predominantly laid down the law that the impugned notice issued after four years of the end of the relevant assessment year is not sustainable in law and is liable to be quashed, when there was not even a whisper in the reasons that there was any omission or failure on the part of the assessee in disclosing fully and truly the material facts for assessment. The relevant head-notes in the judgement delivered by I.T.A. No.525/Chny/20 10 the Hon’ble Supreme Court in the case of ITO v. Lakhmani Mewal Das reported in (1976) 103 ITR 437 are reproduced as under: “The reasons for the formation of the belief contemplated by section 147(a) of the Income-tax Act, 1961, for the reopening of an assessment must have a rational connection or relevant bearing on the formation of the belief. Rational connection postulates that there must be a direct nexus or live link between the material coming to the notice of the Income-tax Officer and the formation of his 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. It is no doubt true that the court cannot go into the sufficiency or adequacy of the material and substitute its own opinion for that of the Income-tax Officer on the point as to whether action should be initiated for re-opening the assessment. At the same time we have to bear in mind that it is not any and every material, howsoever vague and indefinite or distant, remote and far-fetched, which would warrant the formation of the belief relating to escapement of the income of the assessee from assessment. The fact that the words "definite information" which were there in section 34 of the Act of 1922 at one time before its amendment in 1948 are not there in section 147 of the Act of 1961 would not lead to the conclusion that action can now be taken for reopening the assessment even if the information is wholly vague, indefinite, far- fetched and remote, The reason for the formation of the belief must be held in good faith and should not be a mere pretence. The original assessment for the assessment year 1958-59 was made on the respondent after allowing deduction of a sum of Rs. 10,494 'towards interest to certain creditors. Thereafter, by a notice under section 148 of the Income-tax Act, 1961, dated March 8, 1967, served on the respondent on March 14, 1967, the Income-tax Officer sought to reopen the assessment. In his report made in February, 1967, to the Commissioner for reopening the assessment of the respondent for the assessment year 1958-59 after four years under section 147(a) of the Income-tax Act, 1961, two reasons were mentioned: (i) that M. K., who was shown to be one of the creditors of the respondent had since confessed that he was doing only name- lending; and (ii) that N.M., D.K.N., B.S. and others, whose names too were mentioned in the list of the creditors of the respondent, were known name-lenders. The respondent thereupon filed a writ petition claiming that there was no material before the Income-tax Officer on which he could have reason to believe that income chargeable to assessment for the year had escaped assessment by reason of the respondent's failure to disclose material facts, and stated that he had produced all books of account, bank statements and other necessary documents in connection with his return. The High Court, by a majority, held that the pre-conditions for the exercise of jurisdiction under section 147 were not fulfilled. On appeal: Held, affirming the decision of the High Court, on the facts, (i) that the second ground could not have led to the formation of the belief that the income of the respondent chargeable to tax had escaped assessment for the assessment year 1958-59 because of failure of the assessee to disclose fully and truly all material facts; CHHUGAMAL RAJPAL V. S. P. CHALIHA [1971] 79 ITR 603 (SC) followed I.T.A. No.525/Chny/20 11 (ii) that since there was nothing to show that the confession of M.K, related to a loan to the assessee, much less to the loan which was shown to have been advanced by that person to the respondent, in the first ground the live link or close nexus which should be there between the material before the Income-tax Officer and the belief which he was to form was missing or in any event too tenuous to provide legally sound basis for reopening the assessment. Two conditions have to be satisfied before an Income-tax Officer acquires jurisdiction to issue notice under section 148 in respect of an assessment beyond the period of Jour years but within a period of eight years from the end of the relevant year, viz., (i) the Income-tax Officer must have reason to believe that income chargeable to tax has escaped assessment, and (ii) he must have reason to believe that such income has escaped assessment by reason of the omission or failure on the part of the assessee (a) to make a return under section 139 for the assessment year to the Income-tax Officer, or (b) to disclose fully and truly material facts necessary for his assessment for that year. Both these conditions must co-exist to confer jurisdiction on the Income-tax Officer. It is also imperative for the Income-tax Officer to record his reasons before initiating proceedings as required by section 148(2). Another requirement is that before notice is issued after the expiry of Jour years from the end of the relevant assessment years, the Commissioner should be satisfied on the reasons recorded by the Income-tax Officer that it is a fit case for the issue of such notice. The duty which is cast upon the assessee is to make a true and full disclosure of the primary facts at the time of the original assessment. Production before the Income-tax Officer of the account books or other evidence from which material evidence could with due diligence have been discovered by the Income-tax Officer will not necessarily amount to disclosure contemplated by law. The duty of the assessee in any case does not extend beyond making a true and full disclosure of primary facts. Once he has done that his duty ends. It is for the Income-tax Officer to draw the correct inference from the primary facts. It is no responsibility of the assessee to advise the Income-tax Officer with regard to the inference which he should draw from the primary facts. If an Income-tax Officer draws an inference which appears subsequently to be erroneous, mere change of opinion with regard to that inference would not justify initiation of action for reopening assessment. The grounds or reasons which lead to the formation of the belief contemplated by section 147(a) of the Act must have a material bearing on the question of escapement of income of the assessee from assessment because of his failure or omission to disclose fully and truly all material facts. Once there exist reasonable grounds for the Income-tax Officer to form the above belief, that would be sufficient to clothe him with jurisdiction to issue notice. Whether the grounds are adequate or not is not a matter for the court to investigate. The sufficiency of grounds which induce the Income-tax Officer is, therefore, not a justiciable issue. It is, of course, open to the assessee to contend that the Officer did not hold the belief that there had been such non-disclosure. The existence of the belief can be challenged by the assessee but not the sufficiency of reasons for the belief. The expression "reason to believe" does not mean a purely subjective satisfaction on the part of the Income-tax Officer. The reason must be held in good faith. It cannot be merely a pretence. It is open to the court to examine whether the reasons for the formation of the belief have a rational connection with or a relevant bearing on the formation of the belief and are not extraneous or irrelevant for the purpose of the section. To this limited extent, I.T.A. No.525/Chny/20 12 the action of the Income-tax Officer in starting proceedings in respect of income escaping assessment is open to challenge in a court of law.” 6.6 Under the above facts and circumstances and various case law referred hereinabove, we set aside the order passed by the ld. CIT(A) and quash the assessment order passed under section 143(3) r.w.s. 147 of the Act. 7. In the result, the appeal filed by the assessee is allowed. Order pronounced on 12 th October, 2022 at Chennai. Sd/- Sd/- (MANOJ KUMAR AGGARWAL) ACCOUNTANT MEMBER (V. DURGA RAO) JUDICIAL MEMBER Chennai, Dated, 12.10.2022 Vm/- आदेश की Ůितिलिप अŤेिषत/Copy to: 1. अपीलाथŎ/Appellant, 2.ŮȑथŎ/ Respondent, 3. आयकर आयुƅ (अपील)/CIT(A), 4. आयकर आयुƅ/CIT, 5. िवभागीय Ůितिनिध/DR & 6. गाडŊ फाईल/GF.