M/s Chaitanya Properties Pvt. Ltd., Bangalore V. DCIT, Bangalore

ITA 557/BANG/2014

• Counselvise Citation: 55721114 RSA 2014
• Duration Of Justice: 6 month(s) 26 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-11-2014
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 29-09-2014
• Assessment Year: 2005-2006
• Appeal Filed On: 25-04-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: V CHANDRASHEKAR
• Keywords: Reopening of assessment; Capital asset; Business income; Depreciation; Search and seizure; Question of law; Cost of acquisition; Tangible material; Fair market value; Difference of opinion; Reason to believe; Change of opinion; Revenue expenditure; Reassessment proceedings
• Section: 45(2); 143(3); 37(1); 147; 148; 263; 139

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH : BANGALORE BEFORE SHRI N.V. VASUDEVAN, JUDICIAL MEMBER AND SHRI JASON P. BOAZ, ACCOUNTANT MEMBER ITA NO.557/BANG/2014 ASSESSMENT YEAR : 2005-06 M/S. CHAITANYA PROPERTIES PVT. LTD., NO.17, SANKEY ROAD, BANGALORE 560 020. PAN : AAACC 5900A VS. THE DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE 2(1), BANGALORE. APPELLANT RESPONDENT APPELLANT BY : SHRI V. CHANDRASHEKAR, ADVOCATE RESPONDENT BY : SHRI FARAHAT HUSSAIN QURESHI, CIT-II(DR) DATE OF HEARING : 12.11.2014 DATE OF PRONOUNCEMENT : 21.11.2014 O R D E R PER N.V. VASUDEVAN, JUDICIAL MEMBER THIS APPEAL BY THE ASSESSEE IS AGAINST THE ORDER DATED 31.3.2014 OF THE CIT(APPEALS)-VI, BANGALORE RELATING TO ASSESSME NT YEAR 2005-06. 2. GROUND NOS. 1 & 2 RAISED BY THE ASSESSEE ARE GEN ERAL IN NATURE AND CALLS FOR NO SPECIFIC ADJUDICATION. ITA NO.557/BANG/2014 PAGE 2 OF 32 3. GROUND NOS. 3 TO 5 RAISED BY THE ASSESSEE ARE WI TH REGARD TO VALIDITY OF INITIATION OF PROCEEDINGS U/S. 147 OF THE INCOME TAX ACT, 1961 (ACT) BY THE ASSESSING OFFICER. FACTS MATERIAL FOR ADJUDIC ATION OF THE ABOVE ISSUE IS AS FOLLOWS. 4. THE ASSESSEE IS A COMPANY. IT IS ENGAGED IN THE BUSINESS OF PROPERTY DEVELOPMENT. FOR THE A.Y. 2005-06, THE AS SESSEE FILED A RETURN OF INCOME ON 31.10.2006 DECLARING A LOSS OF RS.2,22,77 ,004. ASSESSMENT U/S. 143(3) OF THE ACT WAS CONCLUDED BY ORDER DATED 31.12.2007. ONE OF THE ISSUE THAT CAME UP FOR CONSIDERATION IN THE COU RSE OF ASSESSMENT PROCEEDINGS U/S. 143(3) OF THE ACT WAS AS TO, WHETH ER A SUM OF RS.14,27,65,043 WHICH WAS DEBITED TO THE P&L ACCOUN T UNDER THE HEAD COMPENSATION IN LIEU OF CANCELLATION OF CONTRACT AND CLAIMED AS DEDUCTION WHILE COMPUTING INCOME FROM BUSINESS CAN BE ALLOWED OR NOT? 5. THE MATERIAL FACTS WITH REGARD TO THE AFORESAI D CLAIM MADE BY THE ASSESSEE ARE AS FOLLOWS. THE ASSESSEE WAS IN POSSE SSION OF AROUND 100 ACRES OF NON-AGRICULTURAL LAND SITUATED IN WHITEFIE LD AREA (HEREINAFTER REFERRED TO AS WHITEFIELD LAND). ON 17/5/96, IT E NTERED INTO A SHAREHOLDERS AGREEMENT WITH M/S UNITECH LTD. [ UNITECH ] TO JOINTLY DEVELOP THE LAND UNDER A PROJECT CALLED SHANTINIKETAN. UNDER THE T ERMS OF THE AGREEMENT, UNITECH WAS OFFERED 50% SHAREHOLDING OF THE COMPANY . THE PAID UP SHARE CAPITAL OF THE ASSESSEE CONSISTED OF 20,000 EQUITY SHARES OF THE FACE VALUE OF RS.1,000 FOR EACH SHARE, I.E., TOTAL PAID-UP CAP ITAL OF THE COMPANY WAS ITA NO.557/BANG/2014 PAGE 3 OF 32 RS.2 CRORES. BY VIRTUE OF THE AGREEMENT, THE PAID U P CAPITAL WAS INCREASED TO RS 10 CRORES. UNITECH WAS TO SUBSCRIBE 25000 EQ UITY SHARES OF THE FACE VALUE OF RS. 1000 EACH AT A PREMIUM OF RS.7800 EACH . ACCORDINGLY, UNITECH WAS TO MAKE A PAYMENT OF RS.22 CRORES. THE SHAREHOLDING PATTERN BETWEEN THE ORIGINAL GROUP OF SHAREHOLDERS LED BY S HRI D.K. ADIKESAVULU AND UNITECH WAS TO BE IN A RATIO OF 50:50. UNITECH WAS REQUIRED TO MAKE TO THE ASSESSEE A REFUNDABLE ADVANCE OF RS. 33 CRORES FOR MEETING ITS WORKING CAPITAL REQUIREMENTS. IN RETURN, UNITECH WA S ENTITLED TO DEVELOP THE WHITEFIELD LAND BELONGING TO THE ASSESSEE. IN PARTI AL COMPLIANCE, 10,000 SHARES OF THE COMPANY BELONGING TO SH. D.K. ADIKESA VALU AND SH. K.M. SRINIVASAMURTHY WERE LODGED WITH UNITECH AS SECURIT Y. THE SHAREHOLDERS AGREEMENT DT. 17/5/96 WAS REVIEWED BY A BOARD RESOL UTION DT. 31/7/99. UNDER THE NEW AGREEMENT, ADIKESAVULU GROUP AND UNIT ECH WERE TO DEVELOP SHANTINIKETAN AS A CO-OPERATIVE VENTURE B Y SHARING THE LAND OWNED BY THE ASSESSEE BETWEEN THE TWO SHAREHOLDER G ROUPS. THE LAND WAS TO BE DIVIDED IN A RATIO IN TERMS OF THE INVEST MENTS OF THE TWO GROUPS TO THE TOTAL PROJECT. UNITECH WAS ACCORDED ABSOLUTE PR OPRIETARY AND POSSESSORY RIGHT FOR DEVELOPMENT OF THE LAND TO BE GIVEN IN POSSESSION TO IT. THIS WAS TO BE EXECUTED THROUGH AN IRREVOCABLE GENE RAL POWER OF ATTORNEY EXECUTED ON BEHALF OF ASSESSEE BY THE ADIKESAVULU G ROUP. THE LAND ALLOTTED TO UNITECH LTD WAS OF 23 ACRES 15 GUNTAS A ND THE BALANCE OF 76 ACRES AND 27 GUNTAS WERE ALLOTTED TO ADIKESAVULU GR OUP. IN ORDER TO ENFORCE THE BOARD RESOLUTION, AN AGREEMENT DT. 18/1 1/99 WAS ENTERED INTO ITA NO.557/BANG/2014 PAGE 4 OF 32 BY ALL THE PARTIES. ACCORDINGLY UNITECH LTD. TRANSF ERRED A SUM OF RS.22.39 CRORES. WHICH WAS REFLECTED IN THE BOOKS OF ASSESSE E AS RS. 23.22 CRORES ON 1/4/04. THE ASSESSEE EXECUTED A POWER OF ATTORNE Y IN FAVOUR OF UNITECH ON 18/1 1/99 EMPOWERING IT TO DEVELOP OR SELL ITS S HARE OF THE PROPERTY. SUBSEQUENTLY, NO DEVELOPMENT WAS TAKEN UP BY UNITEC H. BUT THE ASSESSEE BUILT A CONVENTION CENTRE AND COMMENCED CONSTRUCTIO N OF A HOTEL BUILDING IN ITS PORTION OF THE PROPERTY. ON 28/2/05, A CANCELL ATION AGREEMENT WAS ENTERED INTO BETWEEN UNITECH, ASSESSEE AND SH. D.K. ADIKESAVULU & SH. K.M. SRINIVASAMURTHY. UNDER THE AGREEMENT, ASSESSEE REPOSSESSED THE LAND BY REVOCATION OF THE POWER OF ATTORNEY FOR A C ONSIDERATION OF RS. 37,50,00,000 PAID TO UNITECH. THE CONSIDERATION WAS PAID OVER A PERIOD BETWEEN 30/12/04 AND 21/2/05. THE ASSESSEE THEN EN TERED INTO A NEW JOINT DEVELOPMENT OF THE PROPERTY WITH MS. PRESTIGE ESTATE PROJECTS PVT. LTD. [ PEPL ] ON 5/2/05 TO DEVELOP A RESIDENTIAL COMPLEX BY TH E NAME PRESTIGE SHANTINIKETAN. CONSEQUENT TO THE CANCEL LATION OF THE AGREEMENT, THE ASSESSEE DEBITED THE DIFFERENCE BETWEEN THE PAY MENT MADE TO UNITECH LTD. OF RS. 37.50 CRORES AND PAYMENT RECEIV ED FROM THEM OF RS. 23.22 CRORES, BEING RS. 4,27,65,043 TO THE P&L ACC OUNT FOR THE PREVIOUS YEAR RELEVANT TO AY 05-06 AS COMPENSATION IN LIEU O F CANCELLATION OF CONTRACT. THE QUESTION BEFORE THE AO WAS AS TO WHET HER THE SAID CLAIM FOR DEDUCTION CAN BE ALLOWED REVENUE EXPENDITURE FOR TH E PREVIOUS YEAR RELEVANT TO AY 2005-06 OR NOT. ITA NO.557/BANG/2014 PAGE 5 OF 32 6. ACCORDING TO THE AO, THE EFFECT OF THE CANCELLAT ION AGREEMENT DT. 28/2/05 WAS TO FREE THE TITLE OF THE LAND FROM THE ENCUMBRANCE CREATED IN FAVOUR OF UNITECH. TAKING INTO CONSIDERATION THE SU BSTANTIAL INCREASE IN THE VALUE OF LAND IN THE INTERVENING PERIOD BETWEEN 199 9 AND 2005, A PREMIUM OF RS. 14.27 CRORES WAS PAID TO UNITECH AND THE SAI D PAYMENT WAS FOR THE PURPOSE OF ENSURING ASSESSEES CLEAR TITLE TO THE W HITEFIELD LAND WHICH WAS TO BE DEVELOPED BY PEPL AND WAS DIRECTLY ATTRIBUTED TOWARDS INCREASE IN THE VALUE OF THE LAND. THE AO ALSO NOTICED THAT TH E WHITEFIELD LAND WAS HELD BY THE ASSESSEE AS INVESTMENT WAS CONVERTED IN TO STOCK-IN-TRADE BY THE ASSESSEE DURING THE PREVIOUS YEAR. THE AO ALSO FOUND THAT THE VALUE OF THE LAND AND ALL EXPENSES PERTAINING TO THE LAND HAS BEEN RECOGNIZED AS WORK-IN-PROGRESS ON THE GROUND THAT INCOME FROM THE PROJECT IS RECOGNIZED ON COMPLETION OF THE PROJECT ON THE LAND. ACCORDING TO THE AO, THE SUM OF RS. 14.27 CRORES, WHICH WAS PAID TO UNITECH WAS A D IRECT EXPENDITURE ATTRIBUTABLE TO THE INCREASE IN THE VALUE OF THE LA ND AND THEREFORE THE SAME OUGHT TO BE RECOGNIZED AS PROJECT EXPENDITURE INCUR RED TOWARDS PRESTIGE SHANTINIKETAN AND BE ACCOUNTED TO INCREASE THE VAL UE OF WORK-IN-PROGRESS. 7. THE AO FURTHER FOUND THAT DURING THE PREVIOUS YE AR RELEVANT TO AY 05-06, THE ASSESSEE HAD RECEIVED INCOME FROM THE FO LLOWING SOURCES: 1. INCOME FROM CONSTRUCTION CONTRACTS 2. INCOME FROM MANAGEMENT DEVELOPMENT FEES 3. SALE OF IML & BEER 4. INCOME FROM PROPERTY 5. OTHER INCOME ITA NO.557/BANG/2014 PAGE 6 OF 32 8. THE AO FOUND THAT INCOME FROM CONSTRUCTION CONTR ACTS AND MANAGEMENT DEVELOPMENT FEE AROSE FROM EXECUTION OF A TURNKEY CIVIL CONTRACT FOR CONSTRUCTION OF A CAMPUS ON BEHALF OF M/S TESCO, WHICH WAS EXECUTED DURING THE PREVIOUS YEAR. THE OTHER INCOME RELATED TO INTEREST RECEIPTS AND MISCELLANEOUS SERVICE INCOME FROM RUNN ING ITS CONVENTION CENTRE. THEREFORE NO PORTION OF THE PAYMENT OF RS. 37.50 CRORES WAS ATTRIBUTABLE TO EARNING THE INCOME FROM THESE SOURC ES. THE AO THEREFORE CONCLUDED THAT THE EXPENDITURE INCURRED WAS RIGHTLY ATTRIBUTABLE TO THE COST OF SHANTINIKETAN PROJECT. IT IS TO BE ADDED ON TO I NCREASE THE VALUE OF THE WORK-IN-PROGRESS OF SHANTINIKETAN PROJECT. THE AO HELD THAT THE ASSESSEE WAS ENTITLED TO SET OFF THE EXPENDITURE IN THE YEAR IN WHICH REVENUE IS REALIZED FROM THE WORK-IN-PROGRESS. THE EXPENDITURE OF RS. 14,27,65,043 WAS THUS DISALLOWED U/S 37(1) AS NOT LAID OUT OR EX PENDED WHOLLY AND EXCLUSIVELY TO EARN THE BUSINESS INCOME FOR THE PRE VIOUS YEAR. 9. AGAINST THE AFORESAID ORDER OF THE ASSESSING OFF ICER, THE ASSESSEE PREFERRED APPEAL BEFORE THE CIT(APPEALS). ON THE C LAIM OF THE ASSESSEE BEFORE THE CIT(A), THE AO FILED A REMAND REPORT IN WHICH HE SUBMITTED AS FOLLOWS:- CLAIM OF ALLOWANCE OF RS.14.27 CRORES AS REVENUE E XPENDITURE FOR AY 05-06. THE ASSESSEE OWNS LAND WHICH HAS BEEN NEGOTIATED FO R JOINT DEVELOPMENT. DURING THE RELEVANT PREVIOUS YEAR, IT TERMINATED ITS AGREEMENT WITH UNITECH AND RENEGOTIATED A JOINT VEN TURE WITH M/S PRESTIGE ESTATE PROJECTS. THE ASSESSEE INCURRED A L OSS OF RS. 14.27 ITA NO.557/BANG/2014 PAGE 7 OF 32 CRORES IN TERMINATING ITS AGREEMENT WITH UNITECH. T HE POINT OF DISPUTE IS WHETHER THE AMOUNT IS ALLOWABLE IN THE C URRENT YEAR. THE ASSESSEE HAS ARGUED THAT THE AMOUNT IS REVENUE EXPENDITURE REQUIRED TO BE AL1OWED U/S 37(1). THE PROPERTY WAS STOCK-IN-TRADE OF THE COMPANY, AND THE LOSS WAS INCURRED IN PERFECTING THE TITLE OF THE LAND. IT IS THEREFORE ADMISSIBLE UNDER S. 37(1). HOWEVER THE CONTENTION I S THE YEAR IN WHICH THE AMOUNT IS TO HE A1LOWED AS REVENUE EXPEND ITURE. THE ASSESSEE HAS CATEGORICALLY STATED THAT IT IS FO LLOWING PROJECT COMPLETION METHOD FOR RECOGNITION OF THE PROFITS FR OM THE JOINT VENTURE DEVELOPMENT OF THE SHANTINIKETAN PROJECT. THE AMOUNT OF RS. 14.27 CRORES IS DIRECT EXPENDITURE INCURRED ON THE LAND. THEREFORE THE EXPENDITURE IS ALLOWABLE ONLY IN THE YEAR IN WHICH INCOME ARISES FROM THE PROJECT. THIS IS THE FUNDAME NTAL PRINCIPLE OF ACCOUNTING UNDER THE PROJECT COMPLETION METHOD. IT MAY ALSO BE NOTED THAT DURING THE YEAR THE ASSESSEE EARNED R EVENUE FROM WORKS CONTRACT. THE TRUE PROFITS OF THE WORKS CONTR ACT WILL NOT BE REFLECTED IF EXPENDITURE OF ANOTHER PROJECT FROM WH ICH NO REVENUE IS RECOGNIZED, IS CHARGED OFF AGAINST THE WORKS CON TRACT REVENUE. IN THE ABOVE CIRCUMSTANCES EXPENDITURE IN THE SHAN TINIKETAN PROJECT HAS BEEN DEFERRED FOR CURRENT YEAR. THE ASS ESSEE IS PERMITTED TO CLAIM EXPENDITURE IN THE YEAR IN WHICH REVENUE FROM SHANTINIKETAN PROJECT IS RECOGNIZED. 10. THE LD. CIT(APPEALS) HOWEVER ALLOWED THE CLAIM OF THE ASSESSEE. ON FURTHER APPEAL BY THE REVENUE, THE BANGALORE ITA T IN ITA NO.1183/BANG/2008 BY ITS ORDER DATED 31.3.2010 RESTORED THE ORDER OF THE ASSESSING OFFICER. THUS, CLAIM OF THE ASSESSEE FOR DEDUCTION OF RS.14.27 CRORES STOOD DISALLOWED. 11. THE AO ISSUED A NOTICE U/S. 148 OF THE ACT DATE D 6.3.2012. REASONS RECORDED BY THE AO BEFORE ISSUING NOTICE U/ S. 148 READS THUS:- ITA NO.557/BANG/2014 PAGE 8 OF 32 THE ASSESSEE HAD FILED THE RETURN OF INCOME DECLAR ING A LOSS OF RS. 2,22,77,004/-. THE SAID RETURN HAD BEEN TAKEN U P FOR SCRUTINY AND AN ASST. ORDER HAD BEEN PASSED ON 31-12-2007 AR RIVING AT A TOTAL INCOME OF RS. 25,19,94,728/-. THE ADDITIONS M ADE TO THE RETURN OF INCOME HAVE BEEN SUBSTANTIALLY UPHELD BY THE HONBLE ITAT. 2. THE ASSESSEE COMPANY M/S. CHAITANYA PROPERTY PV T. LTD. (CPPL) HAD OWNED A LANDED PROPERTY MEASURING 100 AC RES 02 GUNTAS OF LAND IDENTIFIED AT SURVEY NO. 70 MEASURIN G 18 ACRES 36 GUNTAS, SURVEY NO. 71, SEVEN ACRES 09 GUNTAS, SURVE Y NO. 72 MEASURING 6 ACRES 39 GUNTAS, SURVEY NO. 73 MEASURIN G 10 ACRES 30 GUNTAS. SURVEY NO. 71/1 MEASURING FOURTEEN ACRES 12 GUNTAS, SURVEY NO 74/2 MEASURING SEVEN ACRES, SURVEY NO. 78 MEASURING THREE ACRES, SURVEY NO. 129/2 MEASURING ONE ACRE 20 GUNTAS, AND SURVEY NO. 130 MEASURING FOUR ACRES. 3. THE SAID LAND OWNED BY THE COMPANY AS INVESTMEN T HAD BEEN CONVERTED AS STOCK IN TRADE DURING THE FINANCI AL YEAR: 2004- 05 RELEVANT TO ASST. YEAR : 2005-06. IT IS NOTED TH AT THE SAID LAND HAD BEEN HELD AS INVESTMENT AS ON 31-03-2004 AND WA S SHOWN AS STOCK IN TRADE AS ON 31-03-2005. 4. THE SAID LAND OF 100.02 ACRES HELD AS STOCK IN TRADE WAS OFFERED TO M/S. PRESTIGE ASSETS AND PROJECTS LTD (P EPL) BY MEANS OF JOINT DEVELOPMENT AGREEMENT DATED 5-02-2005 FOR DEVELOPING THE SAME INTO AN INTEGRATED TOWNSHIP WITH RESIDENTI AL COMPLEX, COMMERCIAL COMPLEX, OFFICE COMPLEX, HOTEL, MALL ETC . THE SAID TOWNSHIP HAS COME TO BE KNOWN AS SHANTI NIKETAN SIT UATED AT WHITEFIELD, BANGALORE. 5. LEVY OF CAPITAL GAINS ON STOCK TRANSFERRED : AS PER CLAUSE (K) OF THE JDA, THE ASS ESSEE COMPANY HAS PASSED ALL THE NECESSARY RESOLUTIONS FO R THE DEVELOPMENT AND SALE OF THE SCHEDULED PROPERTY AND THE PERSON EXECUTING THE AGREEMENT HAS BEEN DULY AUTHORIZED TO EXECUTE THE AGREEMENT AND ALL OTHER CONSEQUENTIAL DOCUMENTS/DEE DS/INCLUDING THE POWER OF ATTORNEY FOR TRANSFER/SURRENDER/RELINQ UISHMENT OF RIGHT ETC., VESTED IN THE STOCK. 6. FROM THE JOINT DEVELOPMENT AGREEMENT, CLAUSE (X VIII) IT IS CLEAR THAT THE SHAREHOLDERS OF THE ASSESSEE COMPANY IN THEIR GENERAL BODY MEETING HELD ON 28-01-2005 HAD RESOLVE D AND ITA NO.557/BANG/2014 PAGE 9 OF 32 APPROVED THE JOINT DEVELOPMENT OF THE SAID PROPERTY WITH M/S. PEPL AND PURSUANT TO WHICH THE BOARD OF DIRECTORS H AVE ALSO RESOLVED AND APPROVED THE JOINT DEVELOPMENT OF PROP ERTY WITH M/S. PEPL AND TO SIGN AND EXECUTE ALL MEMORANDUM OF UNDERSTANDING, DEVELOPMENT AGREEMENTS, POWER OF ATT ORNEY, VARIOUS OTHER AGREEMENTS AND CONVEYANCES WITH AND I N FAVOUR OF M/S. PEPL TO SUCCESSFULLY COMPLETE THE DEVELOPMENT OF THE PROJECT. 7. AS PER THE JDA AT PAGE 11, THE ASSESSEE COMPANY HAS ALLOWED M/S. PEPL FOR CONSTRUCTION OF VARIOUS BUILD INGS AS AGREED UPON. IT WAS ALSO AGREED THAT THE ASSESSEE C OMPANY WILL NOT REVOKE THE AGREEMENT GIVEN TO M/S. PEPL TILL TH E COMPLETION OF THE ENTIRE PROJECT. ACCORDINGLY, THE ASSESSEE CO MPANY HAS HANDED OVER THE POSSESSION OF THE STOCK TO M/S. PEP L FOR DEVELOPMENT AND CONSTRUCTION. 8. ACCORDING TO THE JDA PAGE NO. 19 ENTERED INTO B ETWEEN THE PARTIES THE ASSESSEE COMPANY HAS AGREED TO TRANSFER/RELINQUISH/SELL THE 68.23 % OF THE UNDIVID ED PORTION OF THE STOCK(LAND) TO THE DEVELOPER. THE RELEVANT PORT ION OF THE SAME IS REPRODUCED BELOW FOR CLARITY. 6) SHARING OF BUILT AREA 6.1) IN CONSIDERATION OF THE FIRST PARTY AGREEING TO TRANSFER BY WAY OF SALE OR OTHERWISE 68.23% OF UNDIVIDED SHARE IN THE SCHEDULE D PROPERTY, FALLING TO THE SHARE OF THE SECOND PARTY, THE SECON D PARTY SHALL DEVELOP THE SCHEDULE D PROPERTY AND CONSTRUCT BUILDINGS/TOWERS THEREON AS PER DEVELOPMENT PLAN DATED 09/09/1999 AND/OR AS PER ANY MODIFIED/SUBSTITUTED /ALTERED DEVELOPMENT PLAN AND DELIVER TO THE FIRST PARTY AND/OR THEIR NOMINEE/S AND/OR THEIR ASSIGNEE/S FREE FROM ALL ENCUMBRANCES AND CLAIMS (I) 31.77 % OF THE SUPER BUILT UP AREAS IN THE DEVELOPMENT, (II) 31.77% OF T HE CAR PARKING AREAS IN THE DEVELOPMENT (III) 31.77 % OF PRIVATE GARDEN TERRACE RIGHTS, IF ANY, IN THE DEVELOPMENT (IV) 31.77% OF PRIVATE GARDEN AREAS, IF ANY IN THE DEVELOPMENT AND (V) 31.77 % OF ALL THE BENEFITS AND ADVANTAGES THAT SHALL ACCRUE FROM THE SAID JOINT DEVELOPMENT BUILT AS PER THE SPECIFICATI ONS DETAILED IN ANNEXUREII HERETO (HEREINAFTER REFERRE D TO AS THE OWNERS CONSTRUCTED AREA) FOR THE ITA NO.557/BANG/2014 PAGE 10 OF 32 ABSOLUTE USE AND/OR BENEFIT AND OWNERSHIP OF THE FIRST PARTY. 9. THE ASSESSEE COMPANY HAS FURTHER EXECUTED A POW ER OF ATTORNEY ON 05/02/2005 AND 01/03/2005 IN FAVOUR OF M/S. PEPL FOR TRANSFER OF STOCK FOR DEVELOPMENT. FROM THIS AC T OF THE ASSESSEE COMPANY IT IS CLEAR THAT THE STOCK HELD BY IT HAS BEEN TRANSFERRED/RELINQUISHED/SOLD TO THE DEVELOPER FOR RECEIPT OF CONSIDERATION IN THE FORM OF KIND. THAT IS TO SAY I N THE FORM OF CONSTRUCTED AREA. 10. APPLICABIUTY OF SECTION 45(2) FOR LEVY OF CAPITAL. GAINS: IT IS NECESSARY TO REPRODUCE THE PROVISIONS SECTION 45(2) OF THE INCOME TAX FOR CLARITY SECTION 45(1) (2) [NOTWITHSTANDING ANYTHING CONTAINED IN SUB- SECTION (1), THE PROFITS OR GAINS ARISING FROM THE TRANSFER BY WAY OF CONVERSION BY THE OWNER OF A CAPITAL ASSET INTO, OR ITS TREATMENT BY HIM AS STOC K- IN-TRADE OF A BUSINESS CARRIED ON BY HIM SHALL BE CHARGEABLE TO INCOME-TAX AS HIS INCOME OF THE PREVIOUS YEAR IN WHICH SUCH STOCK-IN-TRADE IS SOLD OR OTHERWISE TRANSFERRED BY HIM (EMPHASIS PROVIDED) AND, FOR THE PURPOSE OF SECTION 48, THE FAIR MARKET VALUE OF THE ASSET ON THE DATE OF SUCH CONVERSION O R TREATMENT SHALL BE DEEMED TO BE THE FULL VALUE OF T HE CONSIDERATION RECEIVED OR ACCRUING AS A RESULT OF T HE TRANSFER OF THE CAPITAL ASSET.] 11. THE ABOVE PROVISION VERY CLEARLY INDICATES THA T ON SALE OF STOCK OR OTHER WISE TRANSFERRED THE INCOME SO EARNE D IS THE INCOME WHICH IS REQUIRED TO BE CHARGED TO TAX. IN T HE INSTANT CASE THE ASSESSEE COMPANY HAS EXECUTED JDA AND FURTHER E XECUTED A POWER OF ATTORNEY ON 05/02/2005 AND 01/03/2005 IN F AVOUR OF M/S. PEPL FOR TRANSFER OF STOCK FOR DEVELOPMENT. BY SUCH ACT OF TRANSFER/RELINQUISHMENT /SALE OF STOCK TO THE DEVEL OPER AND RECEIPT OF CONSIDERATION IS NOTHING BUT TRANSFER BY OTHERWI SE. THAT IS, SUCH KIND OF OTHERWISE TRANSFER MADE FOR GAIN THROU GH WHICH THE RIGHT/BENEFIT/VESTED IN THE PROPERTY IS GIVEN AWAY, ALL SUCH TRANSACTIONS FALLS WITH IN THE AMBIT OF THE CHARGEA BILITY TO TAX. THEREFORE FROM THIS ACT OF THE ASSESSEE COMPANY, IT IS CLEARLY ITA NO.557/BANG/2014 PAGE 11 OF 32 EVIDENT THAT THE STOCK HELD BY IT HAS BEEN TRANSFER RED/RELINQUISHED/ SOLD TO THE DEVELOPER FOR RECEIPT OF CONSIDERATION IN THE FORM OF KIND. THAT IS TO SAY TO GET THE CONSIDERATION IN TH E FORM OF CONSTRUCTED AREA. THUS THE CONSIDERATION SO RECEIVE D HAS TO BE BROUGHT TO TAX AS CAPITAL GAINS AS PER THE PROVISIO NS OF THE INCOME TAX ACT. 12. NATURE OF CONSIDERATION : IT HAS ALSO BEEN AGREED UPON BY THE ASSESSEE COMPANY THAT THE SAID C ONSIDERATION WAS TO BE RECEIVED IN THE FORM OF SHARE IN THE BUIL T UP AREA, IN THE FORM OF NON REFUNDABLE AND REFUNDABLE DEPOSITS, ETC ,. THE EXTRACT OF THE SAME IS REPRODUCED BELOW: AS PER THE ORIGINAL SHARING AGREEMENT PARTICULARS RESIDENTIAL COMMERCIAL TOTAL AREA (SQ.FTS) NO. OF UNITS AREA (SQ FTS) AREA (SQ.FTS) TOTAL LAND AREA (SQ FTS) 61,46,468 3098 32,93,784 9 4,49,252 LESS: LAND OWNERS SHARE 19,52,098 966 10,46,259 29,98,357 BUILDERS (PEPL) SHARE 41,94,370 2,132 22,47,525 64,50,895 FROM THE ABOVE, IT IS VERY CLEAR THAT THE ASSESSEE COMPANY HAS TRANSFERRED ITS STOCK TO M/S. PEPL TO RECEIVE THE C ONSIDERATION IN THE FORM OF CONSTRUCTED AREA/REFUNDABLE/NON REFUNDA BLE DEPOSIT. 13. APART FROM RECEIVING THE CONSTRUCTED AREA AS P ART OF SALE CONSIDERATION OF STOCK, THE COMPANY HAS ALSO RECEIV ED THE REFUNDABLE/NON REFUNDABLE DEPOSIT FROM THE DEVELOPE R. THE RELEVANT PORTION OF THE UNDERSTANDING IS REPRODUCED BELOW: FOLLOWING ARE THE DETAILS OF NON REFUNDABLE AND REF UNDABLE DEPOSITS GIVEN TO M/S. CHAITANYA PROPERTIES PVT. LT D., YEAR AMOUNT (RS.) NATURE 2004-05 43,00,00,000 REFUNDABLE DEPOSIT GIVEN 2005-06 4,00,00,000 REFUNDABLE DEPOSIT GIVEN 2005-06 27,00,00,000 NON REFUNDABLE DEPOSIT GIVEN 2006-07 (9,00,00,000) REFUNDABLE DEPOSIT RECOVERED 2007-08 (27,00,00,000) REFUNDABLE DEPOSIT RECOVERED 2008-09 (11,00,00,000) REFUNDABLE DEPOSIT RECOVERED ITA NO.557/BANG/2014 PAGE 12 OF 32 14. THE ABOVE CHART ESTABLISHES THAT THE ASSESSEE COMPANY HAS RECEIVED NON REFUNDABLE/REFUNDABLE DEPOSIT FROM THE DEVELOPER COMPANY. IN THIS CONNECTION IT MUST BE MENTIONED HE RE THAT FOR THE SAKE OF ARGUMENT IF THE REFUNDABLE DEPOSITS ARE CONSIDERED AS LIABILITY TO THE ASSESSEE, A QUESTION ARISES AS TO WHAT WOULD BE THE NATURE AND TREATMENT OF THE NON REFUNDABLE DEPOSIT. IT MUST ALSO BE NOTED THAT WHY SHOULD THERE BE A NON REFUNDABLE DEPOSIT AND WHY SHOULD THE DEVELOPER GIVE NON REFUNDABLE DEPOSI T, WHAT IS THE CONSIDERATION GIVEN TOWARDS THE NON REFUNDABLE DEPOSIT BY THE ASSESSEE AND WHY NOT SUCH NON REFUNDABLE DEPOSIT IS THE INCOME OF THE ASSESSEE COMPANY DURING THE YEAR OF RECEIPT. FROM THE ABOVE ANALYSIS, IT MUST BE CONCLUDED THAT THE NATUR E OF THE NON REFUNDABLE DEPOSIT IS NOTHING BUT THE PART OF THE S ALE CONSIDERATION ON TRANSFER OF STOCK. 15. IT IS ALSO NOTED THAT THE ASSESSEE COMPANY M/S . CPPL HAS RECEIVED YEARLY AMOUNTS OF CONSIDERATION OUT OF DEV ELOPED LAND AND BUILDING SOLD THROUGH THE AGENCY OF M/S. PEPL. THE SAID AMOUNTS ARE REFLECTED AS AMOUNT RECEIVED FROM M/S. PEPL AS PER THE BALANCE SHEET FILED BY ASSESSEE COMPANY. THE SA ME ARE REFLECTED AS BELOW: SL. NO. AMOUNT SHOWN AS RECEIVED FROM M/S. PEPL ARE FROM SHANTHI NIKETAN PROJECT AS PER BALANCE SHEET FILED BY THE ASSESSEE COMPANY SURETY DEPOSIT RECEIVED ADVANCE RECEIVED FOR FLATS FROM PRESTIGE PROJECT AS ON 31.3.2005 43,00,02,271 NIL 1 AS ON 31.3.2006 74,00,12,271 11,59,29,429 2 AS ON 31.3.2007 65,00,12,271 58,02,85,167 3 AS ON 31.3.2008 138,00,12,271 90,67,85,167 4 AS ON 31.3.2009 138,00,12,271 90,67,85,167 16. THE VARIOUS HIGH COURTS HAVE HELD THAT CAPITAL GAINS IS LIABLE O TAX ON ACCOUNT OF JOINT DEVELOPMENT AGREEM ENT ENTERED BY THE LAND OWNER WITH THE BUILDER AND ON ACCOUNT O F HANDING OVER OF THE POSSESSION OF THE PROPERTY. IN THIS CAS E REFERENCE IS MADE TO THE DECISION OF HONBLE BOMBAY COURT IN THE CASE OF M/S. CHATURBHUJ DWARAKADAS KAPADIA (260 ITR 491) WH EREIN THE HONBLE HIGH COURT HAD HELD THAT THE CAPITAL GAINS WOULD ARISE ON THE TRANSFER OF LAND IN THE CASE OF JOINT VENTURE D EVELOPMENTS AS AND WHEN THE SAID POSSESSION OF THE LAND IS HANDED OVER BY THE ITA NO.557/BANG/2014 PAGE 13 OF 32 LANDLORD TO THE DEVELOPER. THE SAID DECISION OF THE BOMBAY HIGH COURT HAS FURTHER BEEN CONFIRMED BY THE HONBLE HIG H COURT OF KARNATAKA IN THE CASE OF DR. T.K. DAYALU (TAX SUTRA 454-HC- 2011- KAR). 17. FROM THE ABOVE, IT IS CLEAR THAT THE ASSESSEE COMPANY HAD HELD 100.02 ACRES OF LAND AS INVESTMENTS AS ON 31-0 3-2004 AND HAD CONVERTED THE SAME INTO STOCK IN TRADE DURING T HE COURSE OF FINANCIAL YEAR : 2004-05. THE SAID LAND HELD AS STO CK IN TRADE HAS BEEN OFFERED FOR JOINT DEVELOPMENT AGREEMENT AS PER AGREEMENT DATED 5-02-2005. THE POSSESSION OF THE LAND HAS ALS O BEEN HANDED OVER. THE ASSESSEE COMPANY HAS ALSO RECEIVED NON-RE FUNDABLE AS WELL AS REFUNDABLE DEPOSITS AS PER THE JDA ENTERED INTO. SUBSEQUENT TO THE JDA AND IN ACCORDANCE WITH THE JD A, THE ASSESSEE COMPANY HAS RECEIVED YEARLY AMOUNTS FOR HA NDING OVER POSSESSION OF THE LAND. CONSIDERING THE SAME THE PR OVISIONS OF SECTION 45(1) OF THE INCOME TAX ACT ARE ATTRACTED I N THE CASE OF THE ASSESSEE. THE CAPITAL GAIN ARISING ON ACCOUNT O F CONVERSION OF LAND HELD AS INVESTMENT INTO STOCK IN TRADE IS LIAB LE FOR TAXATION ON ACCOUNT OF TRANSFER AS PER JDA DATED 5-02-2005. THE SAID JDA HAS FRUCTIFIED THE BUILT UP LAND RECEIVABLE BY THE ASSESSEE AND NON-REFUNDABLE DEPOSIT RECEIVED. THE SAID SALE OF B UILT UP LAND HAS ALSO BEEN ACCOUNTED BY THE ASSESSEE BY RECEIVIN G SALE AMOUNT FROM M/S. PEPL. IN VIEW OF THE SAME, THE CAPITAL GA INS LIABLE FOR TAXATION ON ACCOUNT OF CONVERSION OF LAND HELD AS I NVESTMENT INTO STOCK IN TRADE DURING THE COURSE OF ASST. YEAR: 05- 06 IS LIABLE TO BE TAXED. 18. THE CAPITAL GAINS IS WORKED OUT AS BELOW: TOTAL VALUE OF 100.02 ACRES OF LAND AS PER GUIDANCE VALUE OF GOVT. OF KARNATAKA RS.180 LAKHS X 100.02 ACRES = RS.180,09,00,000 68.23% OF THE SAME RS.122,87,54,070 LESS: COST OF ACQUISITION AS SHOWN IN THE BALANCE SHEET RS.31,02,37,593 TAXABLE CAPITAL GAIN FOR ASST. YEAR : 05-06 RS.91,8 5,16,477 19. THE CAPITAL GAINS LIABLE FOR TAXATION HAS NOT BEEN DECLARED BY THE ASSESSEE AS PER RETURN OF INCOME FILED. THE ASSESSEE HAS ALSO NOT FILED ANY INFORMATION TO THIS EFFECT AS PE R THE RETURN OF INCOME FILED. IN VIEW OF THE SAME, I HAVE REASONS TO BELIEVE THAT ITA NO.557/BANG/2014 PAGE 14 OF 32 TAXABLE INCOME OF THE ASSESSEE HAS ESCAPED TO THE E XTENT OF RS.91,85,16,477/-. 20. ISSUE NOTICE U/S. 148 TO INITIATE REASSESSMENT PROCEEDINGS. 12. IT COULD BE SEEN FROM THE FACTS NARRATED AS ABO VE THAT THE PROCEEDING U/S. 147 OF THE ACT WERE SOUGHT TO BE IN ITIATED AFTER A PERIOD OF FOUR YEARS FROM THE END OF THE RELEVANT ASSESSMENT YEAR. IT IS ALSO CLEAR FROM THE FACTS NARRATED AS ABOVE THAT IN THE CASE O F ASSESSEE FOR THE A.Y. 2005-06, AN ORDER OF ASSESSMENT U/S. 143(3) OF THE ACT HAD ALREADY BEEN MADE. THEREFORE, PROVISO TO SECTION 147 OF THE ACT WILL APPLY. 13. IT CAN ALSO BE SEEN FROM THE REASONS RECORDED B Y THE AO FOR INITIATING PROCEEDINGS U/S.147 OF THE ACT, THAT THE NARRATION IN PARA 1 TO 9 OF THE REASONS RECORDED ARE FACTS WHICH WERE WELL WITH IN THE KNOWLEDGE OF THE AO WHILE COMPLETING THE ORIGINAL ASSESSMENT PROCEED INGS U/S.143(3) OF THE ACT. THE JOINT DEVELOPMENT AGREEMENT BETWEEN THE A SSESSEE AND PEPL WAS TAKEN NOTE BY THE AO IN THE ORDER PASSED U/S.14 3(3) OF THE ACT. THE NARRATION IN PARA-10 IN THE REASONS RECORDED BY THE AO RELATE TO APPLICATION OF THE PROVISIONS OF SEC.45(2) OF THE ACT. AS WE H AVE ALREADY SEEN THE ASSESSEE HELD THE WHITEFIELD PROPERTY AS INVESTMENT AND CONVERTED THE SAME AS STOCK-IN-TRADE OF BUSINESS. THIS FACT HAS ALSO BEEN RECORDED BY THE AO IN THE ORDER OF ASSESSMENT PASSED U/S.143(3) OF THE ACT. SEC.45(2) OF THE ACT PROVIDES THAT THE PROFITS OR GAINS ARIS ING FROM THE TRANSFER BY WAY OF CONVERSION BY THE OWNER OF A CAPITAL ASSET INTO, OR ITS TREATMENT BY HIM AS ITA NO.557/BANG/2014 PAGE 15 OF 32 STOCK-IN-TRADE OF A BUSINESS CARRIED ON BY HIM SHAL L BE CHARGEABLE TO INCOME-TAX AS HIS INCOME OF THE PREVIOUS YEAR IN WH ICH SUCH STOCK-IN-TRADE IS SOLD OR OTHERWISE TRANSFERRED BY HIM. THE TAXAB LE EVENT FOR APPLICATION OF SEC.45(2) IS CONVERSION OF CAPITAL ASSET INTO STOCK -IN-TRADE OF BUSINESS. THE POINT OF TIME AT WHICH TAX IS LEVIED IS THE YEA R IN WHICH THE STOCK-IN- TRADE IS SOLD. WHEN THE ORIGINAL ASSESSMENT WAS CO MPLETED U/S.143(3) OF THE ACT, THE AO DID NOT THINK IT FIT TO INVOKE PROV ISIONS OF SEC.45(2) OF THE ACT EITHER BECAUSE HE OVERLOOKED THE APPLICABILITY OF THOSE PROVISIONS OR BECAUSE HE THOUGHT THAT THE POINT OF TIME AT WHICH TAX IS TO BE LEVIED U/S.45(2) OF THE ACT, VIZ., SALE OF THE STOCK-IN-TR ADE HAD NOT OCCURRED DURING THE PREVIOUS YEAR. IN THE REASONS RECORDED BY THE AO, THE AO MAKES A REFERENCE TO THE PROVISIONS OF SEC.45(2) OF THE ACT AND CLAIMS THAT THE SAID PROVISIONS ARE APPLICABLE BECAUSE THE ASSESSEE HAD ENTERED INTO AGREEMENT FOR DEVELOPMENT OF THE WHITEFIELD PROPERT Y ON 5.2.2005 WITH M/S.PEPL AND FURTHER EXECUTED A POWER OF ATTORNEY O N 01/03/2005 IN FAVOUR OF M/S. PEPL FOR TRANSFER OF STOCK FOR DEVEL OPMENT. ACCORDING TO THE AO, THE ABOVE ACT BY THE ASSESSEE AMOUNTS TO TRANSF ER/RELINQUISHMENT /SALE OF STOCK BY THE ASSESSEE TO M/S.PEPL. ACCORDI NG TO THE AO, THE CONSIDERATION SO RECEIVED HAS TO BE BROUGHT TO TAX AS CAPITAL GAINS AS PER THE PROVISIONS OF THE INCOME TAX ACT. IN PARA 12 T O 15 OF THE REASONS RECORDED THE AO HAS NARRATED AS TO HOW CAPITAL GAIN HAD TO BE COMPUTED. IN PARA-16 OF THE REASONS RECORDED THE AO HAS REFER RED TO JUDICIAL PRONOUNCEMENTS WHEREIN A VIEW HAS BEEN EXPRESSED TH AT WHENEVER ITA NO.557/BANG/2014 PAGE 16 OF 32 PROPERTY IS GIVEN ON JOINT DEVELOPMENT, THE DATE OF TRANSFER WOULD BE THE DATE OF THE JOINT DEVELOPMENT AGREEMENT FOR THE PUR POSE OF LEVY OF CAPITAL GAINS TAX. IN THE REMAINING PARAGRAPHS, THE AO HAS COMPUTED CAPITAL GAIN THAT HAS TO BE BROUGHT TO TAX WHICH IN HIS OPINION HAS ESCAPED ASSESSMENT. 14. ON THE FACTS AS NARRATED ABOVE AND ON THE BASIS OF PROVISIONS OF SECTION 147 AS WELL AS PROVISO TO SECTION 147 OF TH E ACT, THE LD. COUNSEL FOR THE ASSESSEE CONTENDED AS FOLLOWS:- A) INITIATION OF REASSESSMENT PROCEEDINGS IS BAD IN LAW BECAUSE PROVISO TO SEC.147 WILL APPLY IN THE PRESENT CASE A ND THEREFORE THE INITIATION OF REASSESSMENT PROCEEDINGS CAN BE O NLY IF THERE WAS FAILURE ON THE PART OF THE ASSESSEE TO FULLY AN D TRULY DISCLOSE MATERIAL FACTS NECESSARY FOR ASSESSMENT OF INCOME FOR AY 05-06. B) INITIATION OF REASSESSMENT PROCEEDINGS ARE MEREL Y ON A CHANGE OF OPINION AND THEREFORE BAD IN LAW. 14.1 ON POINT (A) AS ABOVE, THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE FACT THAT ASSESSEE OWNED 100.02 ACRES OF LAND IN WHITEFIELD AND THE FACT THAT THE AFORESAID PROPERTY WAS TREATED AS INVESTMENT AS ON 31.3.2004 AND SHOWN AS STOCK-IN-TR ADE AS ON 31.3.2005 ARE ALL FACTS WITHIN THE KNOWLEDGE OF THE AO, WHILE COMPLETING THE ORIGINAL ASSESSMENT U/S. 143(3) OF T HE ACT. THE FACT ITA NO.557/BANG/2014 PAGE 17 OF 32 THAT THE PROPERTY WAS SUBJECT MATTER OF THE JOINT D EVELOPMENT AGREEMENT ( JDA ) BETWEEN THE ASSESSEE AND PEPL UNDER AN AGREEMENT DATED 5.2.2005 TO DEVELOP THE SAME AS A R ESIDENTIAL COMPLEX BY NAME SHANTINIKETAN IS ALSO WITHIN THE KNOWLEDGE OF THE AO. ALL THE RELEVANT BOOKS OF ACCOUNT AS WELL AS A GREEMENTS HAD BEEN FILED BEFORE THE AO. THE FACT THAT THE LAND W HICH WAS HELD AS INVESTMENT IN A.Y. 2004-05 WAS CONVERTED INTO STOCK -IN-TRADE DURING THE PREVIOUS YEAR RELEVANT TO A.Y. 2005-06 WAS ALSO WELL WITHIN THE KNOWLEDGE OF THE AO. THESE FACTS HAVE BEEN DULY RE CORDED BY THE AO IN THE ORDER OF ASSESSMENT PASSED U/S. 143(3) DA TED 31.12.2007. 14.2 OUR ATTENTION WAS DRAWN TO THE PROVISIONS OF S ECTION 147 OF THE ACT AND PROVISO TO SECTION 147 WHICH READS AS UNDER:- 147: INCOME ESCAPING ASSESSMENT. IF THE ASSESSING OFFICER, HAS REASON TO BELIEVE THA T ANY INCOME CHARGEABLE TO TAX HAS ESCAPED ASSESSMENT FOR ANY ASSESSMENT YEAR, HE MAY, SUBJECT TO THE PROVISIONS OF SECTIONS 148 TO 153, ASSESS OR REASSE SS SUCH INCOME AND ALSO ANY OTHER INCOME CHARGEABLE TO TAX WHICH HAS ESCAPED ASSESSMENT AND WHICH COMES TO HIS NOTICE SUBSEQUENTLY IN THE COURSE OF THE PROCEEDINGS UNDER THIS SECTION, OR RECOMPUTE THE LO SS OR THE DEPRECIATION ALLOWANCE OR ANY OTHER ALLOWANC E, AS THE CASE MAY BE, FOR THE ASSESSMENT YEAR CONCERNED (HEREAFTER IN THIS SECTION AND IN SECTION S 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 FO R THE RELEVANT ASSESSMENT YEAR, NO ACTION SHALL BE TA KEN ITA NO.557/BANG/2014 PAGE 18 OF 32 UNDER THIS SECTION AFTER THE EXPIRY OF FOUR YEARS F ROM THE END OF THE RELEVANT ASSESSMENT YEAR, UNLESS ANY INCOME CHARGEABLE TO TAX HAS ESCAPED ASSESSMENT FOR SUCH ASSESSMENT YEAR BY REASON OF THE FAILURE ON TH E PART OF THE ASSESSEE TO MAKE A RETURN UNDER SECTION 139 OR IN RESPONSE TO A NOTICE ISSUED UNDER SUB- SECTION (1) OF SECTION 142 OR SECTION 148 OR TO DISCLOSE FULLY AND TRULY ALL MATERIAL FACTS NECESSA RY FOR HIS ASSESSMENT FOR THAT ASSESSMENT YEAR: 14.3 AS PER THE PROVISO TO SECTION 147 OF THE ACT, WHERE AN ASSESSMENT U/S. 143(3) OF THE ACT HAS BEEN MADE IN ANY ASSESSM ENT YEAR AND IF AFTER EXPIRY OF FOUR YEARS FROM THE END OF THE RELE VANT ASSESSMENT YEAR, ACTION IS SOUGHT TO BE TAKEN U/S. 147 OF THE ACT, SUCH ACTION CAN BE ONLY IN CASES WHERE INCOME CHARGEABLE TO TAX HAS ESCAPED ASSESSMENT FOR SUCH ASSESSMENT YEAR, BY REASON OF F AILURE ON THE PART OF THE ASSESSEE TO DISCLOSE TRULY AND FULLY AL L MATERIAL FACTS NECESSARY FOR HIS ASSESSMENT FOR THAT ASSESSMENT YE AR. HE DREW OUR ATTENTION TO THE REASONS RECORDED BY THE AO U/S . 147 OF THE ACT BEFORE ISSUE OF NOTICE U/S. 148 OF THE ACT AND SUBM ITTED THAT IN THE REASONS SO RECORDED BY THE AO, THERE HAS BEEN NO AL LEGATION THAT THERE WAS ESCAPEMENT OF INCOME DUE TO FAILURE ON TH E PART OF THE ASSESSEE TO DISCLOSE FULLY AND TRULY ALL MATERIAL F ACTS NECESSARY FOR ASSESSMENT OF INCOME OF THE ASSESSEE FOR A.Y. 2002- 03. 14.4 OUR ATTENTION WAS ALSO DRAWN TO THE DECISION O F THE HONBLE KARNATAKA HIGH COURT IN THE CASE OF CIT AND ACIT V. HEWELETT ITA NO.557/BANG/2014 PAGE 19 OF 32 PACKARD DIGITAL GLOBAL SOLUTIONS LTD. , ITA NO.406 OF 2007, JUDGMENT DATED 19.09.2011 , WHEREIN THE HONBLE KARNATAKA HIGH COURT AFTER MAKING A REFERENCE TO THE DECISION OF T HE HONBLE BOMBAY HIGH COURT IN THE CASE OF HINDUSTAN LEVER LTD. V. R.B. WADKAR (2004) 137 TAXMANN 479 (BOM ) OBSERVED AS FOLLOWS:- 7. IT IS OBSERVED IN THE SAID JUDGMENT THAT TH E REASON RECORDED BY THE ASSESSING OFFICER NO WHERE STATE THAT THERE WAS FAILURE ON THE PART OF THE ASS ESSEE TO DISCLOSE FULLY AND TRULY ALL MATERIAL FACTS NECE SSARY FOR THE ASSESSMENT OF THAT ASSESSMENT YEAR. IT IS F OR THE ASSESSING OFFICER TO DISCLOSE AND OPEN HIS MIND THROUGH REASONS. HE HAS TO SPEAK THROUGH HIS REASONS. IT IS FOR THE ASSESSING OFFICER TO REACH T HE CONCLUSION AS TO WHETHER THERE WAS FAILURE ON THE P ART OF THE ASSESSEE TO DISCLOSE FULLY AND TRULY ALL MAT ERIAL FACTS NECESSARY FOR HIS ASSESSMENT FOR THE-CONCERNE D ASSESSMENT YEAR. IT IS FOR THE ASSESSING OFFICER TO FORM HIS OPINION. IT IS FOR HIM TO PUT HIS OPINION ON RECORD IN BLACK AND WHITE. THE REASONS RECORDED SHOULD BE CLEAR AND UNAMBIGUOUS AND SHOULD NOT SUFFER FROM ANY VAGUENESS. THE REASONS RECORDED MUST DISCLOSE, HIS MIND. THE REASONS ARE THE MANIFESTATION OF THE MIND OF THE ASSESSING OFFICER. THE REASONS RECORDED SHOULD BE SELF-EXPLANATORY AND SHOULD NOT KEEP THE ASSESSEE GUESSING FOR THE REASONS. REASONS PROVIDE THE LINK BETWEEN CONCLUSION AND EVIDENCE. THE ORDER PASSED BY THE ASSESSING AUTHORITY DID NOT STATE ANYWHERE THAT THE RE WAS A FAILURE ON THE PART OF THE ASSESSEE TO DISCLO SE FULLY AND TRULY ALL MATERIAL FACTS NECESSARY FOR TH E ASSESSMENT OF THAT YEAR. ALL THAT HAS BEEN STATED I N THE ORDER IS THAT THE ASSESSEE HAS APPENDED THE NOT E AND AT NO POINT OF TIME, THE ASSESSEE HAS DISCLOSED AS TO THE NEXUS BETWEEN THE AMOUNT OF RS. 10,06,617/- AND THE 10A UNIT. THE DISCLOSURE HAS TO BE FULL AND ITA NO.557/BANG/2014 PAGE 20 OF 32 TRUE. BOTH THE CRITERIA HAVE TO BE MET. IN THE ASSESSEES CASE, BY FAILING TO BRING OUT THE NEXUS BETWEEN THE 10A UNIT AND THE INTEREST INCOME, THE ASSESSEE HAS NOT DISCHARGED ITS RESPONSIBILITY OF FURNISHING FULL DISCLOSURE OF FACTS. AS SET OUT ABO VE, THE NOTE CLEARLY SETS OUT THE INTEREST INCOME EARNE D BY THE STP UNIT AND THE CLAIM OF THE ASSESSEE FOR EXEMPTION UNDER SECTION 10A. IT IS NOT THE REQUIREMENT OF LAW THAT FURTHER THE ASSESSEE SHOULD SHOW THE NEXUS BETWEEN THE AMOUNT CLAIMED AND 10A UNIT. WHEN HE HAS CATEGORICALLY STATED THAT THE INTEREST, WHICH IS EARNED FROM STP UNIT, IS ELIGIBL E FOR EXEMPTION UNDER SECTION 10A, EVEN THAT NEXUS IS MANIFEST. THE ASSESSING AUTHORITY HAS NOT PROPERLY APPLIED HIS MIND TOWARDS THE STATUTORY PROVISIONS A ND HAS NOT TAKEN INTO CONSIDERATION THAT THE ORIGINAL ASSESSMENT PASSED UNDER SECTION 143(3) WHICH WAS ALSO REOPENED ONCE AND ADJUSTMENT WAS MADE. IT IS FOR THE SECOND TIME, HE WAS RAISING ALL THESE OBJECTIONS. WHEN ADMITTEDLY THE SECOND REOPENING OF THE ASSESSMENT IS BEYOND FOUR YEARS, UNDER LAW, IT IS BARRED BY TIME AND THE FINDINGS RECORDED BY THE TRIBUNAL IS LEGAL AND VALID AND DOES NOT SUFFER FRO M ANY LEGAL INFIRMITY. IN THAT VIEW OF THE MATTER, NO SUBSTANTIAL QUESTION OF LAW ARISES FOR CONSIDERATIO N IN THESE APPEALS. ACCORDINGLY, THE APPEALS ARE DISMISSED. 14.5 OUR ATTENTION WAS DRAWN TO THE DECISION OF THE HON BLE GUJARAT HIGH COURT IN THE CASE OF GENERAL MOTORS INDIA PVT. LTD. VS. DCIT, 360 ITR 527 (GUJ) WHEREIN THE HONBLE GUJARAT HIGH COURT HELD: IT IS REQUIRED TO BE NOTED THAT IN THE PRESENT CAS E NOTICE U/S 148 OF THE ACT HAD BEEN ISSUED ON 27/4/2011 IN RELATION TO THE ASSESSMENT YEAR 2005- 06. HENCE, ADMITTEDLY THE SAME HAD BEEN ISSUED AFTE R ITA NO.557/BANG/2014 PAGE 21 OF 32 EXPIRY OF A PERIOD OF FOUR YEARS FROM THE END OF TH E RELEVANT ASSESSMENT YEAR. UNDER THE CIRCUMSTANCES, IN LIGHT OF THE PROVISO TO SECTION 147 OF THE ACT, IN CASE, WHERE ASSESSMENT HAS BEEN FRAMED UNDER SECTION 143(3) OF THE ACT, NO ACTION CAN BE TAKEN UNDER SECTION 147, UNLESS INCOME CHARGEABLE TO TAX HAS ESCAPED ASSESSMENT BY REASON OF THE FAILURE ON THE PART OF THE ASSESSEE TO DISCLOSE FULLY AND TRUL Y ALL MATERIAL FACTS NECESSARY FOR HIS ASSESSMENT, FOR TH E ASSESSMENT YEAR. THERE WAS NOT EVEN A WHISPER TO TH E EFFECT THAT INCOME HAS ESCAPED ASSESSMENT ON ACCOUNT OF ANY FAILURE ON THE PART OF THE ASSESSEE TO DISCLOSE FULLY AND TRULY ALL MATERIAL FACTS NECESSA RY FOR ITS ASSESSMENT. EVEN WHILE CONSIDERING THE OBJECTIONS RAISED BY THE ASSESSEE AND REPLYING TO T HE ASSESSEE, THERE WAS NO SUCH CASE PLEADED ON BEHALF OF THE REVENUE EVEN IN THE AFFIDAVIT-IN-REPLY FILED, T HERE WAS NO ALLEGATION OF ANY SUCH FAILURE ON THE PART O F THE ASSESSEE. THE AO WAS NOT IN A POSITION TO SATIS FY THE COURT WITH RESPECT TO COMPLIANCE / SATISFACTION OF THE REQUIREMENT OF THE PROVISO TO SECTION 147 OF TH E ACT. UNDER THE CIRCUMSTANCES, IT WAS APPARENT THAT THE REQUIREMENT OF THE PROVISO TO SECTION 147 WAS N OT SATISFIED. SECONDLY, IN ABSENCE OF ANY SATISFACTION HAVING BEEN RECORDED BY THE ASSESSING OFFICER THAT THE INCOME HAS ESCAPED BY REASON OF THE FAILURE ON THE PART OF THE ASSESSEE TO DISCLOSE FUL LY AND TRULY ALL MATERIAL FACTS NECESSARY FOR ITS ASSESSMENT FOR THE ASSESSMENT YEAR UNDER CONSIDERATION, ASSUMPTION OF JURISDICTION U/S 147 OF THE ACT WAS FAILURE AND THEREFORE, THE IMPUGNED NOTICE U/S 147 OF THE ACT, CANNOT BE SUSTAINED. IDENTICAL QUESTION CAME TO BE CONSIDERED BY THE DIVISION BENCH OF THIS COURT IN THE CASE OF KANAK FABRICS VS. INCOME TAX OFFICER IN SPECIAL CIVIL APPLICATION NO. 335 OF 2001 AND IN ABSENCE OF ANY SUCH SATISFACTION BY THE ASSESSING OFFICER, THE DIVISION BENCH OF THIS COURT HAS QUASHED AND SET ASIDE THE NOTICE OF REASSESSMENT U/S 148. IN VIEW O F THE ABOVE AND FOR THE REASONS STATED ABOVE NOTICE O F REASSESSMENT U/S 148 QUASHED AND SET ASIDE. (EMPHASIS SUPPLIED) ITA NO.557/BANG/2014 PAGE 22 OF 32 14.6 IT WAS THUS SUBMITTED BY THE LD. COUNSEL FOR THE ASSESSEE THAT REOPENING OF THE ASSESSMENT SHOULD BE HELD TO BE BA D IN LAW, AS THE AO IN THE PRESENT CASE HAS NOT RECORDED SPECIFICALLY THAT ESCAPEMENT OF INCOME WAS DUE TO THE FAILURE ON THE PART OF THE ASSESSEE TO DISCLOSE FULLY AND TRULY ALL MATERIAL FACTS NECESSARY FOR HIS ASSESSMENT FOR THE A.Y. 2005-06. IT WAS ALSO SUBMITTED THAT FACTUALLY THERE WAS NO FAILURE ON THE PART OF THE ASSESSEE TO DISCLOSE FULLY AND TRULY ALL MATERIAL F ACTS NECESSARY OF HIS ASSESSMENT FOR AY 05-06. IN THIS REGARD OUR ATTEN TION WAS DRAWN TO THE FACT THAT ALL FACTS RELATING TO THE JOINT DEVELOPME NT AGREEMENT BETWEEN THE ASSESSEE AND PEPL HAD BE DULY DISCLOSED AND EVEN CO NSIDERED BY THE AO WHILE CONCLUDING THE ORIGINAL ASSESSMENT PROCEEDING S. IT WAS EMPHASIZED THAT NO NEW MATERIAL WHATSOEVER HAS BEEN REFERRED T O IN THE REASONS RECORDED. 15. THE LD. DR, ON THE OTHER HAND SUBMITTED THAT TH ERE WAS A FAILURE ON THE PART OF THE ASSESSEE TO FULLY AND TRULY DISCLOS E MATERIAL FACTS AND IN THIS REGARD DREW OUR ATTENTION TO PARA-19 OF THE REASONS RECORDED WHEREIN THE AO HAS RECORDED THE FACT THAT THE ASSESSEE HAS NOT FILED ANY INFORMATION TO THE EFFECT THAT THERE WAS INCIDENCE OF CAPITAL GAIN U/S. 45(2) OF THE ACT, AS PER THE RETURN OF INCOME. FURTHER REFERENCE WAS AL SO MADE TO EXPLN.1 TO SEC.147 OF THE ACT WHICH LAYS DOWN THAT MERELY FILI NG OF DOCUMENTS BEFORE AO FROM WHICH FACTS REGARDING ESCAPEMENT OF INCOME COULD BE GATHERED, WILL NOT NECESSARILY AMOUNT TO DISCLOSURE OF ALL FA CTS BY AN ASSESSEE. ITA NO.557/BANG/2014 PAGE 23 OF 32 FURTHER REFERENCE WAS MADE TO THE FACT THAT WHILE C OMPLETING THE ORIGINAL ASSESSMENT U/S.143(3) OF THE ACT THERE WAS NO DISCU SSION REGARDING APPLICABILITY OF SEC.45(2) OF THE ACT. RELIANCE WA S PLACED ON PAGE-10 AND 11 OF THE CIT(A)S ORDER WHEREIN THE CIT(A) HAS UP HELD THE ACTION OF THE AO IN INITIATING PROCEEDINGS U/S.147 OF THE ACT. 16. THE LD. COUNSEL FOR THE ASSESSEE, IN REJOINDER, POINTED OUT TO EXPLANATION 1 TO SECTION 147 OF THE ACT, WHICH READ S AS UNDER:- EXPLANATION 1. PRODUCTION BEFORE THE ASSESSING O FFICER OF ACCOUNT BOOKS OR OTHER EVIDENCE FROM WHICH MATERIAL EVIDENCE COULD WITH DUE DILIGENCE HAVE BEEN DISCOVERED BY THE ASSE SSING OFFICER WILL NOT NECESSARILY AMOUNT TO DISCLOSURE WITHIN TH E MEANING OF THE FOREGOING PROVISO. 17. ACCORDING TO HIM, EXPLANATION 1 TO SECTION 147 WILL NOT BE APPLICABLE IN THE PRESENT CASE BECAUSE EXPLANATION ONLY LAYS D OWN THAT PRODUCTION BEFORE THE AO OF ACCOUNT BOOKS OR OTHER EVIDENCE FR OM WHICH MATERIAL EVIDENCE COULD WITH DUE DILIGENCE HAVE BEEN DISCOVE RED BY THE AO WILL NOT NECESSARILY AMOUNT TO DISCLOSURE WITHIN THE MEANIN G OF THE FOREGOING PROVISO. THE EXPRESSION WILL NOT NECESSARILY MEAN FOUND IN EXPLN.-1 AS ABOVE, WILL ONLY MEAN THAT ONE HAS TO LOOK INTO THE FACTS AND CIRCUMSTANCES OF THE GIVEN CASE TO COME TO A CONCLU SION, WHETHER THERE WAS FAILURE ON THE PART OF THE ASSESSEE TO FULLY AN D TRULY DISCLOSE ALL NECESSARY FACTS FOR HIS ASSESSMENT FOR THAT ASSESSM ENT YEAR. THE FACT THAT THE ASSESSEE FILED ALL DOCUMENTS AND ACCOUNTS AND O THER EVIDENCE FROM ITA NO.557/BANG/2014 PAGE 24 OF 32 WHICH MATERIAL EVIDENCE COULD WITH DILIGENCE HAVE B EEN DISCOVERED BY THE AO, WILL NOT BE CONCLUSIVE IN THE MATTER. ACCORDIN G TO HIM, ELABORATE DISCUSSION IN THE ORDER OF AO WHILE COMPLETING THE ORIGINAL ASSESSMENT WILL CLEARLY SHOW THAT THERE WAS A COMPLETE DISCLOSURE B Y THE ASSESSEE OF ALL MATERIAL FACTS. ACCORDING TO HIM, THERE IS NOTHING BROUGHT ON RECORD TO SHOW THAT THERE WAS FAILURE ON THE PART OF ASSESSEE AS CONTEMPLATED BY THE PROVISO TO SECTION 147. PRIMARY FACTS HAVE BEEN DI SCLOSED BY THE ASSESSEE AND THE LEGAL INFERENCES TO BE DRAWN FROM SUCH PRIM ARY FACTS LIES IN THE DOMAIN OF THE AO. THE ASSESSEE CANNOT THEREFORE BE SAID TO HAVE FAILED TO DISCLOSE FULLY AND TRULY MATERIAL FACTS. IN THIS R EGARD, IT WAS SUBMITTED BY HIM THAT REASONS RECORDED ONLY MENTION THE FACT THA T ASSESSEE HAS NOT FILED ANY INFORMATION REGARDING CAPITAL GAINS U/S. 45(2) OF THE ACT IN THE RETURN OF INCOME FILED. ACCORDING TO HIM, THIS ALLEGATION CA NNOT TANTAMOUNT TO AN ALLEGATION BY THE AO THAT ASSESSEE HAS FAILED TO FU LLY AND TRULY DISCLOSE ALL MATERIAL FACTS. 18. ON THE REOPENING OF ASSESSMENT BEING MERELY ON A CHANGE OF OPINION, THE LEARNED COUNSEL FOR THE ASSESSEE SUBMI TTED THAT WHILE COMPLETING THE ORIGINAL ASSESSMENT THE AO WAS FULLY AWARE OF THE FACT THAT THE LAND AT WHITEFIELD WAS CONVERTED INTO STOCK IN TRADE DURING THE PREVIOUS YEAR RELEVANT TO AY 05-05 AND THE FACT THAT THE SAI D PROPERTY WAS SUBJECT MATTER OF A JOINT DEVELOPMENT AGREEMENT WITH PRESTI GE ESTATES AND PROPERTIES LTD. IT WAS HIS CONTENTION THAT THE AO WHILE COMPLETING THE ASSESSMENT DID NOT DEEM IT PROPER TO CONSIDER THE A CT OF THE ASSESSEE ITA NO.557/BANG/2014 PAGE 25 OF 32 ENTERING INTO A DEVELOPMENT AGREEMENT IN RESPECT OF THE PROPERTY AS RESULTING TO A TRANSFER GIVING RAISE TO CHARGE OF C APITAL GAIN U/S.45(2) OF THE ACT. IT WAS POINTED OUT BY HIM THAT IN THE REASONS RECORDED THE AO HAS NOT REFERRED TO ANY MATERIAL WHICH HAD COME INTO HIS PO SSESSION SUBSEQUENT TO THE PASSING OF THE ORDER U/S.143(3) OF THE ACT BASE D ON WHICH HE ENTERTAINED BELIEF THAT DEVELOPMENT AGREEMENT RESUL TED IN A TRANSFER AND THEREBY PROVISIONS OF SEC.45(2) OF THE ACT BECAME A PPLICABLE. THERE BEING NO MATERIAL WHICH HAS COME TO THE POSSESSION OF THE AO SINCE THE CONCLUSION OF THE ORIGINAL ASSESSMENT PROCEEDINGS, IT WAS NOT POSSIBLE FOR THE AO TO CHANGE OR FORM A DIFFERENT OPINION ON THE SAME SET OF FACTS AND RESORT TO REOPENING OF A COMPLETED ASSESSMENT. ACC ORDING TO HIM, DOING SO WILL RESULT IN THE AO REVIEWING HIS OWN ORDER WH ICH IS NOT LEGALLY PERMISSIBLE. ACCORDING TO HIM EVEN ASSUMING THAT T HERE WAS A FAILURE ON THE PART OF THE AO IN THIS REGARD, THE APPROPRIATE ACTION CAN ONLY BE UNDER SECTION 263 OF THE ACT. IT WAS HIS SUBMISSION THAT THE LAW IS WELL SETTLED THAT TO ASSUME JURISDICTION U/S. 147 OF THE ACT, TH ERE SHOULD BE REASON TO BELIEVE THAT INCOME CHARGEABLE TO TAX HAS ESCAPED A SSESSMENT. SUCH REASON TO BELIEVE CANNOT BE ON A MERE CHANGE OF OPI NION. THIS POSITION IS WELL SETTLED BY THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF CIT V. KELVINATOR OF INDIA LTD., 320 ITR 561 (SC) . ATTENTION WAS ALSO DRAWN TO A DECISION OF THE HONBLE KARNATAKA H IGH COURT IN THE CASE OF CIT VS. HARDWARE TRADING CO., 248 ITR 673 (KARN) LAYING DOWN IDENTICAL PROPOSITION. ITA NO.557/BANG/2014 PAGE 26 OF 32 19. THE LD. DR SUBMITTED THAT IN THE ORIGINAL ORDER OF ASSESSMENT, THE AO HAD NOT MADE ANY DISCUSSION WITH REGARD TO APPLI CABILITY OF SECTION 45(2) OF THE ACT AND THEREFORE IT CANNOT BE SAID TH AT THERE WAS ANY EXPRESSION OF OPINION IN THE ORDER ORIGINALLY PASSE D U/S. 143(3). IT WAS HIS SUBMISSION THAT THERE CANNOT BE ANY CHANGE OF OPINI ON IN THE GIVEN CIRCUMSTANCES. 20. WITH REGARD TO THE CONTENTION OF THE LD. DR REG ARDING CHANGE OF OPINION, LD. COUNSEL FOR THE ASSESSEE BROUGHT TO OU R NOTICE THE FOLLOWING OBSERVATIONS OF THE HONBLE SUPREME COURT IN THE CA SE OF KELVINATOR OF INDIA LTD .:- ON GOING THROUGH THE CHANGES, QUOTED ABOVE, MADE T O S. 147 OF THE ACT, WE FIND THAT, PRIOR TO DIRECT TAX LAWS (AM ENDMENT) ACT, 1987, REOPENING COULD BE DONE UNDER ABOVE TWO CONDITIONS AND FULFILLMENT OF THE SAID CONDITIONS ALONE CONFER RED JURISDICTION ON THE AO TO MAKE A BACK ASSESSMENT, BUT IN S. 147 OF THE ACT (W.E.F. 1ST APRIL, 1989), THEY ARE GIVEN A GO BY AN D ONLY ONE CONDITION HAS REMAINED, VIZ., THAT WHERE THE AO HAS REASON TO BELIEVE THAT INCOME HAS ESCAPED ASSESSMENT, CONFERS JURISDICTION TO REOPEN THE ASSESSMENT. THEREFORE, POST 1ST APRIL , 1989, POWER TO REOPEN IS MUCH WIDER. HOWEVER, ONE NEEDS TO GIVE A SCHEMATIC INTERPRETATION TO THE WORDS 'REASON TO BELIEVE' FAI LING WHICH, WE ARE AFRAID, S. 147 WOULD GIVE ARBITRARY POWERS TO T HE AO TO REOPEN ASSESSMENTS ON THE BASIS OF 'MERE CHANGE OF OPINION', WHICH CANNOT BE PER SE REASON TO REOPEN. WE MUST AL SO KEEP IN MIND THE CONCEPTUAL DIFFERENCE BETWEEN POWER TO REV IEW AND POWER TO REASSESS. THE AO HAS NO POWER TO REVIEW; H E HAS THE POWER TO REASSESS. BUT REASSESSMENT HAS TO BE BASED ON FULFILLMENT OF CERTAIN PRE-CONDITION AND IF THE CON CEPT OF 'CHANGE OF OPINION' IS REMOVED, AS CONTENDED ON BEHALF OF T HE DEPARTMENT, THEN, IN THE GARB OF REOPENING THE ASSE SSMENT, REVIEW WOULD TAKE PLACE. ONE MUST TREAT THE CONCEPT OF 'CHANGE OF OPINION' AS AN IN-BUILT TEST TO CHECK ABUSE OF P OWER BY THE AO. ITA NO.557/BANG/2014 PAGE 27 OF 32 HENCE, AFTER 1ST APRIL, 1989, AO HAS POWER TO REOPE N, PROVIDED THERE IS 'TANGIBLE MATERIAL' TO COME TO THE CONCLUS ION THAT THERE IS ESCAPEMENT OF INCOME FROM ASSESSMENT. REASONS MUST HAVE A LIVE LINK WITH THE FORMATION OF THE BELIEF. HE LAID EMPHASIS ON THE FACT THAT THERE WAS ABSENCE OF TANGIBLE MATERIAL IN POSSESSION OF THE AO TO COME TO CONCLUSION THAT THE RE WAS ESCAPEMENT OF INCOME FROM ASSESSMENT. ACCORDING TO HIM, THE PRES ENT ACTION OF THE AO IS CLEARLY A CASE OF RESORT TO REASSESSMENT PROCEEDING S MERELY ON CHANGE OF OPINION. 21. WE HAVE GIVEN A VERY CAREFUL CONSIDERATION TO T HE RIVAL SUBMISSIONS. AS WE HAVE ALREADY SEEN THE ASSESSEE HELD THE WHITE FIELD PROPERTY AS INVESTMENT AND CONVERTED THE SAME AS STOCK-IN-TRADE OF BUSINESS DURING THE PREVIOUS YEAR RELEVANT TO AY 05-06. THIS FACT HAS ALSO BEEN RECORDED BY THE AO IN THE ORDER OF ASSESSMENT PASSED U/S.143 (3) OF THE ACT. SEC.45(2) OF THE ACT PROVIDES THAT THE PROFITS OR G AINS ARISING FROM THE TRANSFER BY WAY OF CONVERSION BY THE OWNER OF A CAP ITAL ASSET INTO, OR ITS TREATMENT BY HIM AS STOCK-IN-TRADE OF A BUSINESS CA RRIED ON BY HIM SHALL BE CHARGEABLE TO INCOME-TAX AS HIS INCOME OF THE PREVI OUS YEAR IN WHICH SUCH STOCK-IN-TRADE IS SOLD OR OTHERWISE TRANSFERRED BY HIM. THE TAXABLE EVENT FOR APPLICATION OF SEC.45(2) OF THE ACT IS CONVERSI ON OF CAPITAL ASSET INTO STOCK-IN-TRADE OF BUSINESS. THE POINT OF TIME AT W HICH TAX IS LEVIED IS THE YEAR IN WHICH THE STOCK-IN-TRADE IS SOLD. WHEN THE ORIGINAL ASSESSMENT WAS COMPLETED U/S.143(3) OF THE ACT, THE AO DID NOT THI NK IT FIT TO INVOKE ITA NO.557/BANG/2014 PAGE 28 OF 32 PROVISIONS OF SEC.45(2) OF THE ACT EITHER BECAUSE H E OVERLOOKED THE APPLICABILITY OF THOSE PROVISIONS OR BECAUSE HE THO UGHT THAT THE POINT OF TIME AT WHICH TAX IS TO BE LEVIED U/S.45(2) OF THE ACT, VIZ., SALE OF THE STOCK-IN- TRADE HAD NOT OCCURRED DURING THE PREVIOUS YEAR. IT IS CLEAR FROM A PERUSAL OF THE ORDER U/S. 143(3) OF THE ACT DATED 31.12.2007 T HAT AO WAS FULLY AWARE OF THE FACT THAT PROPERTY AT WHITEFIELD WHICH WAS H ELD AS INVESTMENT GOT CONVERTED INTO STOCK-IN-TRADE DURING THE PREVIOUS Y EAR RELEVANT TO A.Y. 2005-06. IT IS ALSO CLEAR FROM THE ORDER U/S. 143( 3) OF THE ACT THAT AO WAS FULLY CONSCIOUS OF THE FACT THAT PROPERTY AT WHITEF IELD HAVING BEEN GIVEN UNDER JOINT DEVELOPMENT AGREEMENT TO PEPL ON 5.2.20 05. IN THE SAID ASSESSMENT ORDER, THE AO DESPITE KNOWING THE FACT T HAT PROPERTY AT WHITEFIELD WAS STOCK-IN-TRADE OF THE BUSINESS OF TH E ASSESSEE AND THAT IT WAS SUBJECT MATTER OF JOINT DEVELOPMENT AGREEMENT, BY WHICH PROPERTY WAS TO BE DEVELOPED AS A RESIDENTIAL COMPLEX, DID NOT C ONSIDER THE JDA DATED 5.2.2005 AS GIVING RISE TO A TRANSFER WITHIN THE ME ANING OF SECTION 45(2) OF THE ACT. IN THE REASONS RECORDED BY THE AO BEFORE ISSUE OF NOTICE U/S. 148 OF THE ACT, THE AO HAS COME TO THE CONCLUSION THAT BY VIRTUE OF JDA DATED 5.2.2005, THERE WAS A TRANSFER OF THE CAPITAL ASSET GIVING RISE TO CAPITAL GAINS U/S. 45(2) OF THE ACT. IN THIS REGARD, THE A O HAS RELIED ON TWO IMPORTANT FACTORS VIZ., (I) ASSESSEE HAS EXECUTED P OA IN FAVOUR OF DEVELOPER AND THE FACT THAT ASSESSEE RECEIVED REFUN DABLE AND NON- REFUNDABLE DEPOSITS UNDER THE JDA, AND (II) THE FAC T THAT SEVERAL COURTS HAVE HELD THAT CAPITAL GAINS IS LIABLE TO TAX ON AC COUNT OF JDA ENTERED INTO ITA NO.557/BANG/2014 PAGE 29 OF 32 BY THE LAND OWNERS WITH THE BUILDER ON HANDING OVER OF THE POSSESSION OF THE PROPERTY FOR JOINT DEVELOPMENT. IN COMING TO T HE AFORESAID CONCLUSION, THE AO HAS PLACED RELIANCE ON THE DECISION OF THE H ONBLE BOMBAY HIGH COURT IN THE CASE OF CHATURBHUJ DWARKADAS KAPADIA V. CIT, 260 ITR 491 (BOM) RENDERED ON 13.2.2007, WHICH WAS MUCH BEFORE WHEN THE AO CONCLUDED THE ORIGINAL ASSESSMENT PROCEEDINGS U/ S. 143(3) OF THE ACT ON 31.12.2007. THE OTHER DECISION REFERRED TO BY T HE AO IN THE REASONS RECORDED IS CIT V. T.K. DAYALU, 202 TAXMAN 531 . THIS DECISION WAS RENDERED ON 20.6.2011, AFTER THE CONCLUSION OF THE ORIGINAL ASSESSMENT PROCEEDINGS. THE DECISION RENDERED SUBSEQUENT TO T HE ORIGINAL ASSESSMENT PROCEEDINGS WILL NOT MEAN THAT ASSESSEE DID NOT FULLY AND TRULY DISCLOSE MATERIAL FACTS. IF REASSESSMENT PROCEEDIN GS ARE INITIATED ON THE BASIS OF A SUBSEQUENT JUDICIAL DECISION, THEN THAT WOULD ALSO BE A CASE OF CHANGE OF OPINION, AS WAS HELD BY THE HONBLE BOMBA Y HIGH COURT IN THE CASE OF SESA GOA LTD. V. JCIT, 294 ITR 101 (BOM) ON WHICH RELIANCE WAS PLACED BY LD. COUNSEL FOR THE ASSESSEE . 22. IN THE PRESENT CASE, THE FACTS ON RECORD AND RE ASONS RECORDED CLEARLY SHOW THAT ALL FACTS WERE AVAILABLE BEFORE T HE AO WHEN HE COMPLETED THE ORIGINAL ASSESSMENT PROCEEDINGS U/S. 143(3) OF THE ACT. THERE IS NO TANGIBLE MATERIAL WHICH HAS COME TO THE POSSESSION OF THE AO JUSTIFYING INITIATION OF REASSESSMENT PROCEEDINGS. ON THE FAC TS AND CIRCUMSTANCES OF THE PRESENT CASE, WE ARE OF THE VIEW THAT INITIATIO N OF REASSESSMENT ITA NO.557/BANG/2014 PAGE 30 OF 32 PROCEEDINGS HAS BEEN MERELY ON THE BASIS OF CHANGE OF OPINION AND IN VIEW OF THE LAW LAID DOWN BY THE HONBLE SUPREME COURT I N THE CASE OF KELVINATOR OF INDIA LTD. (SUPRA) , INITIATION OF REASSESSMENT PROCEEDINGS HAS TO BE HELD AS NOT PROPER. 23. WE ARE ALSO OF THE VIEW THAT INITIATION OF REAS SESSMENT PROCEEDINGS WILL HAVE TO BE HELD AS INVALID FOR THE REASON THAT REASONS RECORDED BY THE AO DO NOT SPELL OUT THAT ESCAPEMENT OF INCOME WAS D UE TO THE ASSESSEE NOT FULLY AND TRULY DISCLOSING ALL MATERIAL FACTS N ECESSARY FOR COMPLETION OF ASSESSMENT FOR THE RELEVANT ASSESSMENT YEAR. IN TH IS REGARD, WE ARE ALSO OF THE VIEW THAT ALLEGATIONS IN PARA 19 OF THE REAS ONS RECORDED DO NOT SPELL OUT THE BELIEF THAT THERE WAS A FAILURE ON THE PART OF THE ASSESSEE TO FULLY AND TRULY DISCLOSE ALL MATERIAL FACTS. IN FACT, TH E ASSESSEE HAD DISCLOSED ALL FACTS IN THE ORIGINAL ASSESSMENT PROCEEDINGS U/S. 1 43(3) OF THE ACT. 24. WITH REGARD TO RELIANCE PLACED BY THE LD. DR ON EXPLANATION TO SECTION 147, WE ARE OF THE VIEW THAT EXPLANATION 1 ONLY LAYS DOWN THAT FACTS AND CIRCUMSTANCES OF EACH CASE WILL HAVE TO BE LOOK ED INTO TO ASCERTAIN AS TO WHETHER THERE WAS FAILURE ON THE PART OF THE ASS ESSEE TO FULLY AND TRULY DISCLOSE MATERIAL FACTS. AS RIGHTLY CONTENDED BY T HE LD. COUNSEL FOR THE ASSESSEE, THE EXPRESSION WILL NOT NECESSARILY IN EXPLANATION 1 WILL ONLY MEAN THAT FACTS AND CIRCUMSTANCES OF EACH CASE WILL HAVE TO BE SEEN AS TO WHETHER PRODUCTION OF BOOKS OF ACCOUNT AND OTHER EV IDENCE BEFORE THE AO WILL AMOUNT TO FULL AND TRUE DISCLOSURE OF MATERIAL FACTS. IN THE PRESENT CASE, ITA NO.557/BANG/2014 PAGE 31 OF 32 AS WE HAVE ALREADY SEEN, EVIDENCE WAS PRODUCED BEFO RE THE AO IN THE COURSE OF THE ORIGINAL ASSESSMENT PROCEEDINGS U/S.1 43(3) OF THE ACT AND THE SAME WAS PERUSED BY THE AO AND HE HAD NOT CHOSE N TO DRAW ANY CONCLUSION THAT THERE WAS A TRANSFER BY THE ASSESSE E TO PEPL. THE FACT THAT ASSESSEE WAS FOLLOWING COMPLETION METHOD OF ACCOUNT ING FOR INCOME FROM THE JDA, HAS ALSO BEEN ACKNOWLEDGED BY THE AO. IN THE GIVEN CIRCUMSTANCES, WE ARE OF THE VIEW THAT EXPLANATION 1 CANNOT BE RESORTED TO BY THE REVENUE. EXPLANATION-1 TO SEC.147 CANNOT BE READ IN A MANNER SO AS TO OVERRIDE PROVISO TO SEC.147 OF THE ACT. 25. BEFORE US, THE LD. DR HAD PLACED RELIANCE ON TH E ORDER OF THE CIT(APPEALS) ON THE ISSUE OF VALIDITY OF INITIATION OF REASSESSMENT PROCEEDINGS. IN OUR VIEW, THE LD. CIT(APPEALS) HAS MERELY PROCEEDED ON THE BASIS THAT INCOME ARISES ON EXECUTING JOINT DEV ELOPMENT AGREEMENT TO THE ASSESSEE. HE HAS NOT ADDRESSED THE ISSUE WITH REGARD TO APPLICABILITY OF PROVISO TO SECTION 147 OF THE ACT OR THE QUESTIO N WHETHER REASSESSMENT PROCEEDINGS WERE INITIATED MERELY ON CHANGE OF OPIN ION. 26. WE ARE, THEREFORE, OF THE VIEW THAT IN THE GIVE N FACTS AND CIRCUMSTANCES OF THE CASE, INITIATION OF REASSESSME NT PROCEEDINGS U/S 147 OF THE ACT IS HELD TO BE ILLEGAL AND CONSEQUENTLY, ORDER PASSED U/S. 147 OF THE ACT IS CANCELLED ON THIS GROUND. 27. IN VIEW OF THE ABOVE CONCLUSION, THE OTHER ISSU ES ON MERITS ARE NOT TAKEN UP FOR CONSIDERATION. ITA NO.557/BANG/2014 PAGE 32 OF 32 28. IN THE RESULT, APPEAL BY THE ASSESSEE IS ALLOWED . PRONOUNCED IN THE OPEN COURT ON THIS 21 ST DAY OF NOVEMBER , 2014 . SD/- SD/- ( JASON P. BOAZ ) ( N.V. VASUDEVA N ) ACCOUNTANT MEMBER JUDICIAL MEMBE R BANGALORE, DATED, THE 21 ST NOVEMBER , 2014 . /D S/ COPY TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR, ITAT, BANGALORE. 6. GUARD FILE BY ORDER ASSISTANT REGISTRAR / SENIOR PRIVATE SECRETARY ITAT, BANGALORE.