THE ITO 5(1)(2), MUMBAI V. M/S. BIDBHANJAN INVESTMENT & TRADING & CO. P. LTD, MUMBAI

ITA 6449/MUM/2007

• Counselvise Citation: [2011] 134 COUNSELVISE.COM (IT) 7994 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 5 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-03-2011
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 03-01-2011
• Assessment Year: 2000-2001
• Appeal Filed On: 23-10-2007
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: CO P LTD MUMBAI PAN AAACBC; TRADING
• Assessee Lawyers: R S SRIVASTAV DR SH
• Keywords: Reopening of assessment; Capital asset; Business income; Retrospective amendment; Reason to believe
• Section: 147; 148

Judgement Text

FIT FOR PUBLICATION V.P. A.M. IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES B : MUMBAI BEFORE SHRI D. MANMOHAN, VICE PRESIDENT AND SHRI RAJENDRA SINGH, ACCOUNTANT MEMBER ITA. NO. 6449/MUM/2007 ASSESSMENT YEAR 2000-2001 I.T.O. 5 (1) (2) MUMBAI 400 020 VS. M/S. BIDBHANJAN INVESTMENT & TRADING & CO. P. LTD. MUMBAI 400 034 PAN AAACB5115C (APPELLANT) (RESPONDENT) FOR APPELLANT : SHRI R.S. SRIVASTAV (DR) FOR RESPONDENT ; SHRI VIJAY MEHTA ORDER PER RAJENDRA SINGH, A.M. 1. THIS IS AN APPEAL FILED AT THE INSTANCE OF THE REVENUE AND IT PERTAINS TO THE ASSESSMENT YEAR 2000-2001. RETUR N OF INCOME HAVING BEEN PROCESSED UNDER SECTION 143 (1) OF THE ACT, ASSESSING OFFICER SOUGHT TO REOPEN THE ASSESSMENT BY ISSUING A NOTICE UNDER SECTION 148 OF THE ACT ON CERTAIN ASSUMPTIONS. UPON REOPENING THE ASSESSMENT, IT WAS FOUND THAT THE ASSUMPTIONS ON WH ICH REOPENING WAS MADE WERE NOT TRUE BUT HE PROCEEDED TO COMPLETE THE ASSESSMENT UNDER SECTION 143 (3) READ WITH SECTION 147 OF THE ACT, BY TREATING THE AMOUNT RECEIVED BY THE ASSESSEE ON TRANSFER OF DEVE LOPMENT RIGHTS AS BUSINESS INCOME, AS AGAINST THE CLAIM OF THE ASSESS EE THAT THE PROFIT THEREON IS ASSESSABLE TO TAX UNDER THE HEAD CAPITA L GAINS. LEARNED CIT(A) HOWEVER CANCELLED THE ASSESSMENT BY HOLDING THAT THE REOPENING OF ASSESSMENT IS VOID ABINITIO SINCE THER E WAS NO VALID REASON FOR REOPENING THE ASSESSMENT. THEREFORE, REV ENUE IS IN APPEAL BEFORE US. 2. FACTS OF THE CASE ARE STATED IN BRIEF. ASSESSEE IS A COMPANY WHICH WAS NOT ACTIVELY ENGAGED IN THE BUSIN ESS SINCE PAST 2 SEVERAL YEARS. THE COMPANY PURCHASED A PROPERTY SI TUATED AT S.V. ROAD ADMEASURING 859.93 SQ. MTRS. IN ORDER TO MAIN TAIN THE PROPERTY IT HAD TO INCUR CERTAIN EXPENDITURE IN THE FORM OF SECURITY CHARGES, WATER CHARGES, MUNICIPAL TAXES ETC., AND THE COMPAN Y HAVING CONTINUED ITS EXISTENCE IT HAD TO MANDATORILY INCUR CERTAIN EXPENDITURE IN THE FORM OF AUDIT FEES ETC.. FROM YE AR TO YEAR IT HAD INCURRED EXPENDITURE IN THE FORM OF LEGAL FEES, SEC URITY CHARGES, BANK CHARGES, FILING FEES, AUDIT FEES, CONSULTANCY CHARG ES, PROFESSIONAL CHARGES, WATER CHARGES, MUNICIPAL TAXES AND MISCELL ANEOUS EXPENDITURE. SINCE THE COMPANY HAD NO BUSINESS ACTI VITY OTHER THAN HOLDING THE PROPERTY, WHATEVER EXPENDITURE WAS INCU RRED FOR MAINTAINING THE SAID PROPERTY WAS ADDED TO THE COST OF THE PROPERTY FROM YEAR TO YEAR SO AS TO DEPICT TRUE AND CORRECT PICTURE OF THE COMPANY. IT MAY BE NOTICED HERE THAT THE ASSESSEE-C OMPANY HAD PURCHASED A PLOT OF LAND, ALONG WITH STRUCTURE HAVI NG CONSTRUCTED AREA OF ABOUT 300 SQ. FEET, ON 13-2-1986. THE TOTAL AREA OF THE PLOT WAS 859.93 SQ. METRES AT THE TIME OF PURCHASE. IN T HE PROCESS OF WIDENING OF THE ROAD, THE BOMBAY MUNICIPAL CORPORAT ION HAD TAKEN OVER FRONT SIDE OF THE PROPERTY ADMEASURING 266.43 SQ. MTS. THUS THE ASSESSEE WAS LEFT WITH THE PLOT ADMEASURING 593.5 S Q. MTS. THE ASSESSEE-COMPANY SOLD THE DEVELOPMENT RIGHTS OF THE SAID PROPERTY ON 4-10-1999 BUT RETAINED THE RIGHT OF BALANCE FSI WIT H IT. THE RIGHT ON FSI, WHICH WAS RETAINED, WAS VALUED AT RS.2,51,504/ - WHICH WAS REFLECTED IN THE BALANCE SHEET. IT IS NOT IN DISPUT E THAT THE APPELLANT HAD NOT DONE ANY FRESH CONSTRUCTION OR ADDITION OR ALTERATION TO THE EXISTING STRUCTURE AND IN SUPPORT THEREOF ASSESSEE FURNISHED A CERTIFICATE ISSUED BY BOMBAY MUNICIPAL CORPORATION FOR THE RELEVANT PERIOD. 3. SINCE THE DEVELOPMENT RIGHTS WERE SOLD IN THE Y EAR UNDER CONSIDERATION THE ASSESSEE-COMPANY DECLARED A TOTAL INCOME OF RS.5,84,940/- AND THE RETURN WAS PROCESSED UNDER SE CTION 143 (1) OF THE ACT ON 21-2-2002. 3 4. HOWEVER, THE ASSESSING OFFICER SOUGHT TO REOPEN THE ASSESSMENT ON THE GROUND THAT THE CORRECT INCOME AS SESSABLE TO TAX HAD ESCAPED ASSESSMENT AND ACCORDINGLY ISSUED A NOT ICE UNDER SECTION 148 OF THE ACT ON 4-6-2004. REASONS RECORDE D FOR REOPENING OF THE ASSESSMENT ARE PLACED IN PAPER BOOK (PAGE 14 OF THE PAPER BOOK). THE CASE OF THE ASSESSING OFFICER IS THAT DURING TH E COURSE OF ASSESSMENT PROCEEDINGS FOR THE SUBSEQUENT YEAR I.E. , 2001-2002 CERTAIN FACTS WHICH WERE NOT DISCLOSED TO THE DEPAR TMENT EARLIER HAVE COME TO THE NOTICE. IN THE BALANCE SHEET, UNDER THE HEAD PROPERTY ACCOUNT, OPENING BALANCE FSI WAS SHOWN AT RS.2,51, 504.60PS. NO DETAILS WHATSOEVER OF THE FSI HAVE BEEN FURNISHED. DETAILS WITH REGARD TO THE PROPERTY WERE ALSO NOT FURNISHED FOR THE PAS T MANY YEARS. NO DOUBT, FOR SOME YEARS THE PROPERTY WAS MENTIONED AS JOGESWARI PROPERTY AND IN OTHER YEARS IT WAS SHOWN AS ANDHE RI PROPERTY, BUT THE ASSESSEE REFUSED TO FURNISH ANY DETAILS. IT WAS ALSO STATED THAT THE ASSESSEE HAD PAID MUNICIPAL TAXES WHICH APPEARS TO BE FOR THE CHANGE OF USAGE. PRESUMABLY, HE HAS MADE CERTAIN LOCAL ENQUIRIES WHEREBY HE UNDERSTOOD THAT THE PROPERTY IN QUESTION WAS A FACTORY BUILDING AND NOW IT STANDS DEVELOPED AS SHOPS AND M ARRIAGE HALL CONSISTING OF 110 UNITS, KNOWN AS OSHIWARA PLAZA AND ASSESSEE HAD DEVELOPED THE PROPERTY CONSISTING OF 110 UNITS AND SOLD THE SAME DURING THE PERIOD RELEVANT TO THE ASSESSMENT YEAR 2 000-2001. 5. IN RESPONSE TO THE SHOW CAUSE NOTICE, ASSESSEE FURNISHED A DETAILED REPLY AND UPON GOING THROUGH THE REPLY T HE ASSESSING OFFICER NOTICED THAT THE INITIAL ASSUMPTIONS WHICH WERE THE BASIS FOR REOPENING OF THE ASSESSMENT WERE WRONG BUT, HE, PRO CEEDED TO RECOMPUTE THE TOTAL INCOME ON THE GROUND THAT THE A SSESSEE IS NOT ENTITLED TO THE BENEFIT OF INDEXED COST OF ACQUISIT ION OF THE PROPERTY, BY TREATING THE SALE PROCEEDS AS CAPITAL GAINS. IN THE OPINION OF THE ASSESSING OFFICER, INCOME ON SALE OF PROPERTY WAS A SSESSABLE TO TAX UNDER THE HEAD PROFITS AND GAINS OF BUSINESS AND P ROFESSION. ACCORDINGLY, HE ARRIVED AT THE TAXABLE INCOME OF RS .35,63,340/-. SINCE 4 ASSESSEE CAPITALISED VARIOUS EXPENSES OVER THE YEAR S AND ENHANCED THE COST OF THE PROPERTY HE ASSUMED THAT THE ASSESS EES INTENTION WAS TO TREAT THIS PROPERTY AS A COMMERCIAL ASSET, TO BE DEVELOPED SUBSEQUENTLY, AND HENCE IT CANNOT BE TREATED AS AN INVESTMENT IN PROPERTY. 6. AGGRIEVED, ASSESSEE CHALLENGED THE JURISDICTION OF THE ASSESSING OFFICER IN REOPENING THE ASSESSMENT AND C ONTENDED BEFORE THE CIT(A) THAT THE VALUE OF THE PROPERTY WAS SHOWN IN THE BALANCE SHEET FROM YEAR TO YEAR AND NO ADDITION OR MODIFICA TION WAS MADE IN ANY OF THE EARLIER YEARS. THE SO-CALLED INFORMATION OBTAINED BY THE ASSESSING OFFICER HAD NO FACTUAL SUPPORT/BASIS AND THUS, REASONS FOR REOPENING OF THE ASSESSMENT WERE INVALID IN WHICH E VENT REOPENING OF ASSESSMENT WAS NOT IN ACCORDANCE WITH LAW. 7. LEARNED CIT(A) ACCEPTED THE PLEA OF THE ASSESSE E AND QUASHED THE RE-ASSESSMENT PROCEEDINGS BY OBSERVING AS UNDER : 2.3.1. FROM THE ABOVE, IT IS CLEAR THAT THERE IS NO DISPUT E THAT THE ASSESSMENT WAS RE-OPENED U/S. 147 OF THE I.T. ACT, 1961, AS THE LEARNED A.O. WAS HAVING REASON TO BELIEVE THAT INCOME CHARGEABLE TO TAX HAD ESCAPED ASSESSMENT BECAUSE HE WAS OF THE OPINION THAT THE APPELLANTS FACTORY BUILDINGS USAGE WAS CHANGED AND IT WAS UNDERSTOOD BY HIM THAT THE SAME BUILDING HAS BEEN CHANGED AFTER DEVELOPMENT INTO PROPERTY CONSISTING OF 110 UNITS OF SHOPS AND MARRIAGE HALL, KNOWN AS OSHIWARA PLAZA. IT WAS FURTHER UNDERSTOOD BY HIM ON THE BASIS OF LOCAL ENQUIRIES MADE THAT IT WAS THE ASSESSEE WHO DEVELOPED THE PROPERTY KNOWN AS OSHIWARA PLAZA. HOWEVER, I DO NOT FIND ANY SUCH FINDINGS IN THE IMPUGNED ASSESSMENT ORDER. THE IMPUGNED ASSESSMENT ORDER DOES NOT MENTION ANY OF THE ENQUIRIES, IF ANY, MADE AND OUTCOME THEREOF. EVEN THE SHOW CAUSE NOTICE ISSUED DURING THE RE- ASSESSMENT PROCEEDINGS VIDE LETTER DATED 8-3-2006, THE LEARNED A.O. SOUGHT EXPLANATION FROM THE APPELLANT AS TO WHY THE PROFIT ON SALE OF FIXED ASS ETS SHOULD NOT BE TAXED UNDER THE HEAD PROFITS AND GAINS OF BUSINESS AND PROFESSION. IT APPEARS THAT THE LEARNED A.O. HAS PROCEEDED ON PRESUMPTIONS AND ASSUMPTIONS THAT INCREASE IN VALUE OF THE PROPERTY BY CAPITALIZING VARIOUS EXPENSES 5 AUTOMATICALLY LEADS TOWARDS THE FACT THAT APPELLANT WAS IN THE RUNNING OF BUSINESS IN THE DEVELOPMENT AND SALE OF PROPERTY. NOWHERE IN THE IMPUGNED ASSESSMENT ORDER HE HAS FOUND ANY DEVELOPMENT EXPENSES OR SUBSTANTIAL EXPENSES THAT ARE REQUIRED TO CHANGE THE FACE OF THE PROPERTY AS ALLEGED BY HI M IN THE REASONS RECORDED FOR REOPENING THE ASSESSMENT. THUS, I FIND FORCE IN THE ARGUMENTS AND SUBMISSIONS OF THE LEARNED A.R. THAT THERE WAS NO VALID REASONS FOR WHICH THE ASSESSMENT COULD HAVE BEEN REOPENED U/S. 147 OF THE I.T. ACT 1961 OR IF T HE ASSESSMENT WAS REOPENED BY ISSUING NOTICE U/S. 148 OF THE I.T. ACT, 1961, WHY IT COULD NOT HAVE BE EN VACATED AFTER RECEIVING THE REPLY/EXPLANATION OF TH E APPELLANT IN THE ABSENCE OF SUBSTANTIAL ADVERSE MATERIAL IN HIS POSSESSION TO SUGGEST THAT THE APPELLANT HAS CHANGED THE USAGE OF THE PROPERTY AS UNDERSTOOD IN THE BEGINNING BY THE LEARNED A.O. THUS, I AM OF THE FIRM OPINION THAT THIS WAS NOT A FIT CASE FOR REOPENING THE ASSESSMENT U/S. 147 OF THE I.T. ACT, 1961. NEVERTHELESS, I DO NOT FIND ANY COG ENT REASON FOR WHICH THE RE-ASSESSMENT COULD BE SUSTAINED IN LAW, AS NONE OF THE FACT PERCEIVED BY THE LEARNED A.O. AT THE TIME OF RECORDING REASONS H AS BEEN SUSTAINED WITH ADEQUATE MATERIAL. IT IS NEEDLESS TO SAY THAT PETTY EXPENSES SUCH AS LEGAL FEES, SECURITY CHARGES, BANK CHARGES, FILING FEES, AUDIT FEES, CONSULTANCY CHARGES, PROFESSIONAL CHARGES, LEGAL CHARGES, WATER CHARGES, MISCELLANEOUS EXPENSES, MUNICIPAL TAXES ETC., ARE NOT SUBSTANTIAL EXPENSES, WHICH IF CAPITALISED, WOULD TANTAMOUNT TO CHANGE CAPITAL ASSET INTO DEVELOPED OSHIWARA PLAZA AS PRESUMED BY THE LEARNED A.O. 8. AGGRIEVED, REVENUE IS IN APPEAL BEFORE US. LEAR NED D.R. SUBMITTED THAT THE ASSESSING OFFICER HAD VALID REAS ONS FOR REOPENING THE ASSESSMENT PROCEEDINGS ; ONCE THERE IS A BASIS FOR REOPENING THE ASSESSMENT, NO FORUM CAN INVESTIGATE INTO THE ADEQU ACY OR SUFFICIENCY OF THE REASONS WHICH HAVE WEIGHED WITH THE INCOME T AX OFFICER IN COMING TO THE BELIEF. IN THE INSTANT CASE, THE ASS ESSEE DID NOT FURNISH DETAILS WITH RESPECT TO THE PROPERTY AND THE BALANC E SHEET INDICATED THAT THE BALANCE FSI WAS WORTH RS.2,51,504/- WHEREA S, THE DETAILS WITH REGARD TO FSI OR PROPERTY ACCOUNT WERE NOT FUR NISHED. SIMILARLY, THE CERTIFICATE ISSUED BY THE BRUHAN MUMBAI MAHANAG AR PALIKA INDICATES THAT IT IS A FACTORY BUILDING AND IT IS N OT IN DISPUTE THAT THE 6 PROPERTY AT PRESENT IS KNOWN AS OSHIWARA PLAZA, W HEREAS, IN THE EARLIER YEARS IT WAS SHOWN AS JOGESHWARI PROPERTY FOR SOME YEARS AND ANDHERI PROPERTY FOR SUBSEQUENT YEARS WHICH ARE S UFFICIENT TO FORM A BELIEF THAT THE INCOME ASSESSABLE TO TAX HAS ESCAPE D ASSESSMENT. HE THUS STRONGLY SUPPORTED THE ORDER PASSED BY THE ASS ESSING OFFICER. 9. ON THE OTHER HAND, LEARNED COUNSEL, APPEARING O N BEHALF OF THE ASSESSEE, ADVERTED OUR ATTENTION TO PAGE 12 OF THE PAPER BOOK I.E., LETTER DATED 27 TH JANUARY, 2004 ADDRESSED BY THE ASSESSEE TO THE COMMISSIONER OF INCOME TAX, TO SUBMIT THAT THE ASSE SSING OFFICER SOUGHT TO HARASS THE ASSESSEE DURING THE COURSE OF ASSESSMENT PROCEEDINGS FOR THE ASSESSMENT YEAR 2001-2002 AND H ENCE, ASSESSEE HAD TO REPORT THE MATTER TO THE COMMISSIONER OF INC OME TAX WITH A REQUEST TO TRANSFER THE CASE TO SOME OTHER OFFICER. IN THIS BACKGROUND IT HAS TO BE SEEN AS TO WHETHER THE NOTICE UNDER SE CTION 148 FOR THE ASSESSMENT YEAR 2000-2001 ISSUED ON 4-6-2004 IS BAS ED ON PROPER REASONS OR IT IS MERELY ISSUED ON ASSUMPTIONS WHICH CANNOT STAND THE TEST OF LAW. LEARNED COUNSEL SUBMITTED THAT THE ASSESSEE HAD NOT BEEN CARRYING ON BUSINESS FOR THE PAST SEVERAL YEAR S AND WAS MERELY MAINTAINING THE PROPERTY WITHOUT ANY FURTHER MODIFI CATIONS. IN THE PROCESS IT INCURRED CERTAIN EXPENDITURE IN THE FORM OF LEGAL FEES, MUNICIPAL TAX ETC., WHICH WAS CAPITALISED SINCE THE RE IS NO OTHER INCOME FOR THE ASSESSEE. IN THE YEAR UNDER CONSIDER ATION, INCOME ON THE SALE OF DEVELOPMENT RIGHTS WAS ALREADY DECLARED UNDER THE HEAD LONG TERM CAPITAL GAINS. AFTER SALE OF DEVELOPMEN T RIGHTS SINCE THE ASSESSEE-COMPANY RETAINED RIGHTS OVER FSI IT WAS VA LUED AND DECLARED IN THE BALANCE SHEET AND IT IS NOT KNOWN AS TO WHAT FURTHER DETAILS ARE REQUIRED WITH REGARD TO THE SAME. THE ASSESSING OFF ICER CLAIMS TO HAVE UNDERSTOOD THAT THE PROPERTY IN QUESTION WAS DEVE LOPED INTO SHOPS AND MARRIAGE HALL CONSISTING OF 110 UNITS AND THESE FACTS WERE FOUND TO BE WRONG WHILE MAKING THE RE-ASSESSMENT PROCEEDI NGS WHICH IN ITSELF SHOWS THAT THE ASSUMPTION OF JURISDICTION IS BASED ON INVALID GROUNDS. HE HAS ALSO TAKEN US THROUGH THE REPLY DAT ED 3 RD FEBRUARY, 7 2006 IN RESPONSE TO THE NOTICE ISSUED UNDER SECTION 148 OF THE ACT WHEREIN IT WAS CLEARLY STATED THAT IN ALL THE BALAN CE SHEETS THE PROPERTY WAS SHOWN IN THE FIXED ASSETS COLUMN AS J OGESHWARI PROPERTY AND IT WAS WRONG TO STATE THAT IT WAS SHO WN AS ANDHERI PROPERTY. IT WAS ALSO STATED THAT THE PROPERTY WAS SOLD IN AS IT IS CONDITION, WITHOUT ANY CHANGE, AND THE SO-CALLED A SSUMPTION THAT IT WAS DEVELOPED INTO 110 UNITS KNOWN AS OSHIWARA BUI LDING IS FALSE. A LETTER TO BMC, ANDHERI WAS ADDRESSED TO OBTAIN INFO RMATION ABOUT THE CONDITION OF THE PLOT AND AFTER OBTAINING THE SAME IT WAS FURNISHED BEFORE THE AUTHORITIES. 10. PAGE 22 OF THE PAPER BOOK IS A LETTER ADDRESSE D BY THE INCOME TAX OFFICER 5 (1) (2), MUMBAI WHEREIN HE APP EARS TO HAVE CONDUCTED ENQUIRIES WITH BMC TO FIND OUT IF THE FAC TORY BUILDING WAS CONVERTED AS SHOPS AND MARRIAGE HALL. BUT THE STATE MENT OF THE ASSESSING OFFICER IS FACTUALLY INCORRECT. IN THE IN STANT CASE NO ENQUIRIES WERE MADE AND THE SO-CALLED REASONABLE BE LIEF IS BASED ON WILD ASSUMPTIONS WHICH IS NOT IN ACCORDANCE WITH TH E LAW. 11. LEARNED COUNSEL ADVERTED OUR ATTENTION TO THE DECISION OF THE HONBLE BOMBAY HIGH COURT IN THE CASE OF HIDNUS TAN LEVER LIMITED 268 ITR 332 WHEREIN THE HONBLE COURT OBSER VED THAT IN ORDER TO REOPEN AN ASSESSMENT ASSESSING OFFICER SHOULD HA VE VALID REASONS TO DOUBT THE CORRECTNESS OF THE RETURN FILED BY ASS ESSEE. IN OTHERWORDS, REASONS ARE REQUIRED TO BE RECORDED BY THE ASSESSIN G OFFICER ON VALID MATERIAL AND ASSESSMENT CANNOT BE REOPENED ON MERE ASSUMPTIONS. 12. IN THE INSTANT CASE, THE ASSESSING OFFICER HAS ULTIMATELY NOT COMPLETED THE ASSESSMENT ON THE STRENGTH OF THE REASONS RECORDED FOR REOPENING THE ASSESSMENT BUT ON ALTOGETHER DIFF ERENT GROUNDS AND HENCE, REOPENING OF ASSESSMENT IS BAD IN LAW. SIMIL ARLY, IN THE CASE OF SMT. MANIBEN LALJI SHAH 283 ITR 453 THE HONBLE BOM BAY HIGH COURT HAD TAKEN INTO CONSIDERATION THE PRINCIPLE LAID DOW N BY THE APEX COURT IN THE CASE OF GANGA SARAN & SONS P. LTD. VS. ITO 130 ITR 1 TO 8 HOLD THAT AT THE TIME OF ISSUANCE OF NOTICE THE ASS ESSING OFFICER SHOULD HAVE PROPER BASIS TO ENTERTAIN A BELIEF THAT ANY PA RT OF THE INCOME OF THE ASSESSEE HAS ESCAPED ASSESSMENT AND REOPENING C ANNOT BE MADE MERELY TO COLLECT FURTHER DETAILS. THE APEX COURT, INTURN, OBSERVED THAT THE BELIEF ENTERTAINED BY AN ASSESSING OFFICER MUST NOT BE ARBITRARY OR IRRATIONAL AND IT MUST BE REASONABLE ; THOUGH THE C OURT CANNOT INVESTIGATE INTO THE ADEQUACY OR SUFFICIENCY OF THE REASONS WHICH HAVE WEIGHED WITH THE ASSESSING OFFICER IN COMING TO THE BELIEF, COURT CAN CERTAINLY EXAMINE WHETHER THE REASONS ARE RELEVANT AND HAVE A BEARING ON THE MATTERS IN REGARD TO WHICH HE IS REQ UIRED TO ENTERTAIN BELIEF, BEFORE ISSUING A NOTICE FOR REOPENING OF AS SESSMENT. THE APEX COURT FURTHER OBSERVED THAT IF THERE IS NO RATIONAL AND INTELLIGIBLE NEXUS BETWEEN THE REASONS AND THE BELIEF, THE CONCL USION WOULD BE INESCAPABLE THAT THE ASSESSING OFFICER COULD NOT HA VE REASON TO BELIEVE THAT ANY PART OF THE INCOME OF THE ASSESSEE HAS ESC APED ASSESSMENT, IN WHICH EVENT NOTICE ISSUED BY THE ASSESSING OFFIC ER WOULD BE LIABLE TO BE STRUCK-DOWN AS INVALID. 13. RECENTLY THE HONBLE BOMBAY HIGH COURT HAD AN OCCASION TO CONSIDER AN IDENTICAL ISSUE IN THE CASE OF CIT V S. JET AIRWAYS LIMITED 195 TAXMANN 117. IN THE AFOREMENTIONED CASE THE UNDISPUTED FACTS ARE THAT ASSESSMENT WAS REOPENED O N A PARTICULAR GROUND BUT NO ADDITION COULD BE MADE ON THE SAID GR OUND UPON REOPENING THE ASSESSMENT BUT THE ASSESSING OFFICER PROCEEDED TO MAKE CERTAIN ADDITIONS ON CERTAIN OTHER GROUNDS, BA SED UPON THE EXPRESSION AND ALSO IN SECTION 147 OF THE ACT. I T MAY BE RELEVANT TO NOTICE THAT SECTION 147 EMPOWERS THE ASSESSING OFFI CER TO ASSESS OR RE-ASSESS SUCH INCOME AND ALSO ANY OTHER INCOME CHA RGEABLE TO TAX WHICH HAS ESCAPED ASSESSMENT AND WHICH COMES TO HIS NOTICE SUBSEQUENTLY IN THE COURSE OF PROCEEDINGS UNDER THI S SECTION- - -. EXPLANATION 3 TO SECTION 147 WHICH WAS INSERTED WIT H RETROSPECTIVE EFFECT FROM 1-4-1989 READS AS UNDER : 9 EXPLANATION 3 FOR THE PURPOSE OF ASSESSMENT OR REASSESSMENT UNDER THIS SECTION, THE ASSESSING OFFI CER MAY ASSESS OR REASSESS THE INCOME IN RESPECT OF ANY ISSUE, WHICH HAS ESCAPED ASSESSMENT, AND SUCH ISSUE COMES TO HIS NOTICE SUBSEQUENTLY IN THE COURSE OF T HE PROCEEDINGS UNDER THIS SECTION, NOTWITHSTANDING THA T THE REASONS FOR SUCH ISSUE HAVE NOT BEEN INCLUDED I N THE REASONS RECORDED UNDER SUB-SECTION (2) OF SECTION 1 48. 13.1. UPON ANALYSING THE LANGUAGE USED IN SECTION 147 OF THE ACT, THE HONBLE BOMBAY HIGH COURT OBSERVED, IN PAR A 16 OF ITS ORDER, AS UNDER : EXPLANATION 3 LIFTS THE EMBARGO, WHICH WAS INSERTED BY JUDICIAL INTERPRETATION, ON THE MAKING OF AN ASSESS MENT OR REASSESSMENT ON GROUNDS OTHER THAN THOSE ON THE BASIS OF WHICH A NOTICE WAS ISSUED UNDER SECTION 14 8 SETTING OUT THE REASONS FOR THE BELIEF THAT INCOME HAD ESCAPED ASSESSMENT. THOSE JUDICIAL DECISIONS HAD HE LD THAT WHEN THE ASSESSMENT WAS SOUGHT TO BE REOPENED ON THE GROUND THAT INCOME HAD ESCAPED ASSESSMENT ON A CERTAIN ISSUE, THE ASSESSING OFFICER COULD NOT MA KE AN ASSESSMENT OR REASSESSMENT ON ANOTHER ISSUE WHICH CAME TO HIS NOTICE DURING THE PROCEEDINGS. THIS INTERPRETATION WILL NO LONGER HOLD THE FIELD AFTER THE INSERTION OF EXPLANATION 3 BY THE FINANCE ACT (NO.2 ) OF 2009. HOWEVER, EXPLANATION 3 DOES NOT AND CANNOT OVERRIDE THE NECESSITY OF FULFILLING THE CONDITIONS SET OUT IN THE SUBSTANTIVE PART OF SECTION 147. AN EXPLANAT ION TO A STATUTORY PROVISION IS INTENDED TO EXPLAIN ITS CO NTENTS AND CANNOT BE CONSTRUED TO OVERRIDE IT OR RENDER TH E SUBSTANCE AND CORE NUGATORY. SECTION 147 HAS THIS EFFECT THAT THE ASSESSING OFFICER HAS TO ASSESS OR REASSESS THE INCOME (SUCH INCOME) WHICH ESCAPED 10 ASSESSMENT AND WHICH WAS THE BASIS OF THE FORMATION OF BELIEF AND IF HE DOES SO, HE CAN ALSO ASSESS OR REASSESS ANY OTHER INCOME WHICH HAS ESCAPED ASSESSMENT AND WHICH, COMES TO HIS NOTICE DURING TH E COURSE OF THE PROCEEDINGS. HOWEVER, IF AFTER ISSUING A NOTICE UNDER SECTION 148, HE ACCEPTED THE CONTENTION OF THE ASSESSEE AND HOLDS THAT THE INCOME WHICH HE HAS INITIALLY FORMED A REASON TO BELIEVE HAD ESCAPED ASSESSMENT, HAS AS A MATTER OF FACT NOT ESCAPED ASSESSMENT, IT IS NOT OPEN TO HIM INDEPENDENTLY TO ASSESS SOME OTHER INCOME. IF HE INTENDS TO DO SO, A FRESH NOTICE UNDER SECTION 148 WOULD BE NECESSARY, THE LEGALITY OF WHICH WOULD BE TESTED IN THE EVENT OF A CHALLENGE BY THE ASSESSEE. (EMPHASIS SUPPLIED) 14. LEARNED COUNSEL, APPEARING ON BEHALF OF THE AS SESSEE, REITERATED THE SUBMISSIONS BY STATING THAT THE ULTI MATE ASSESSMENT WAS NOT BASED UPON REASONS RECORDED FOR REOPENING T HE ASSESSMENT AND HENCE, THE LEARNED CIT(A) WAS JUSTIFIED IN QUAS HING THE RE- ASSESSMENT PROCEEDINGS. HE RELIED UPON THE DECISION OF THE ITAT, JODHPUR BENCH IN THE CASE OF DR. DEVENDRA GUPTA 282 ITR 18 (AT) WHEREIN SIMILAR VIEW WAS TAKEN BY THE JODHPUR BENCH OF ITAT. IN THE CASE OF ACIT VS. O.P. CHAWLA 116 TTJ 755 (T.M.) THE ITAT, DELHI BENCH OBSERVED THAT NOTICE ISSUED FOR REOPENING AN ASSESSMENT SHOULD BE BASED ON SOME MATERIAL AND IN THE EVENT O F FINDING THAT THE RE-ASSESSMENT PROCEEDINGS WERE NOT BASED ON ANY INV ESTIGATION, RE- ASSESSMENT PROCEEDINGS CANNOT BE UPHELD. HE THUS ST RONGLY SUBMITTED THAT IN THE INSTANT CASE THE ASSESSING OF FICER MISERABLY FAILED TO JUSTIFY HIS ACTION AND ARBITRARILY SOUGHT TO INVOKE THE PROVISIONS OF SECTION 148 OF THE ACT TO REOPEN THE ASSESSMENT MERELY TO PROLONG THE LITIGATION. 11 15. JOINING THE ISSUE LEARNED DR SUBMITTED THAT IN THE COURSE OF ASSESSMENT PROCEEDINGS FOR THE ASSESSMENT YEAR 2 001-2002 ASSESSING OFFICER HAD GENUINELY FELT THAT SOME CONS TRUCTION HAD TAKEN PLACE AND IN THE ABSENCE OF PROPER DETAILS HE HAD T O TAKE RECOURSE TO THE PROVISIONS OF SECTION 148 OF THE ACT TO REOPEN THE ASSESSMENT FOR THE ASSESSMENT YEAR 2000-2001 AND MERELY BECAUSE TH E ULTIMATE ASSESSMENT IS NOT MADE ON THE SAID BASIS RE-ASSESSM ENT PROCEEDINGS CANNOT BE CONSIDERED AS INVALID. IN THE OPINION OF THE LEARNED D.R. IF THERE IS A REASONABLE BASIS FOR REOPENING THE ASSES SMENT COURT CANNOT INVESTIGATE INTO ADEQUACY OR SUFFICIENCY OF THE REA SONS WHICH HAVE WEIGHED WITH THE INCOME TAX OFFICER IN COMING TO TH E BELIEF. 16. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISS IONS AND PERUSED THE RECORD. AS COULD BE NOTICED FROM THE DE CISIONS RENDERED BY THE JURISDICTIONAL HIGH COURT (SUPRA) THOUGH COU RT CANNOT INVESTIGATE INTO THE ADEQUACY OR SUFFICIENCY OF THE REASONS, THE COURT CAN CERTAINLY EXAMINE WHETHER THE REASONS ARE RELEV ANT AND HAVE A BEARING ON THE MATTERS IN REGARD TO WHICH HE IS REQ UIRED TO ENTERTAIN SUCH A BELIEF, BEFORE A NOTICE IS SOUGHT TO BE ISSU ED UNDER SECTION 148 OF THE ACT. IN OTHERWORDS, IF THERE IS NO RATIONAL AND INTELLIGIBLE NEXUS BETWEEN THE REASONS AND THE BELIEF, AN APPELLATE AU THORITY IS COMPETENT TO HOLD THAT THE RE-ASSESSMENT PROCEEDING S ARE INVALID AND LIABLE TO BE QUASHED. AS COULD BE NOTICED FROM THE FACTS NARRATED BY THE ASSESSING OFFICER AND THE CIT(A), AS WELL AS TH E FACTS AVAILABLE ON RECORD, THE ASSESSING OFFICER APPEARS TO HAVE REOPE NED THE ASSESSMENT ON MERE ASSUMPTIONS AND SURMISES AND HE NEVER CARED TO VERIFY THE FACTUAL POSITION. LETTER ADDRESSED TO TH E COMMISSIONER OF INCOME TAX, REGARDING THE HARASSMENT METED-OUT TO T HE ASSESSEE BY THE CONCERNED ASSESSING OFFICER, INDICATES THAT THE ASSESSING OFFICER SOUGHT TO REOPEN THE ASSESSMENT ON THE GROUND THAT MUNICIPAL TAX WAS PAID BY THE ASSESSEE FOR CHANGE OF USE OF THE P ROPERTY AND THE ASSESSEES PROPERTY WAS CONVERTED INTO SHOPS AND MA RRIAGE HALLS CONSISTING OF 110 UNITS AND IN THIS REGARD HE USED THE EXPRESSION IT IS 12 UNDERSTOOD, WITHOUT MENTIONING AS TO WHAT WAS THE BASIS FOR HIS UNDERSTANDING. THE EXPRESSION USED BY THE ASSESSING OFFICER CLEARLY POSTULATES THE HEIGHT OF ARBITRARINESS IN THE PROCE SS OF REOPENING THE ASSESSMENT AND THE FACT THAT THE ASSESSMENT WAS NOT MADE ON THE STRENGTH OF THE REASONS MENTIONED IN THE NOTE CLEAR LY SUPPORTS THE STAND OF THE ASSESSEE THAT THE ASSESSMENT WAS SOUGH T TO REOPENED MERELY TO HARASS THE ASSESSEE. THE HONBLE BOMBAY H IGH COURT IN THE CASE OF JET AIRWAYS (SUPRA) HAD AN OCCASION TO CONS IDER THE MEANING OF THE EXPRESSION SUCH INCOME, AND ALSO, USED I N SECTION 147 OF THE ACT AND ALSO THE LANGUAGE USED IN EXPLANATION 3, TO HOLD THAT EXPLANATION 3 DOES NOT AND CANNOT OVERRIDE THE NECE SSITY OF FULFILLING THE CONDITIONS SET OUT IN SUBSTANTIAL PART OF SECTI ON 147 OF THE ACT AND THE EXPRESSION AND ALSO MERELY INDICATE THAT IF T HE REOPENING OF ASSESSMENT IS BASED ON VALID REASONS AND AN ADDITIO N IS MADE ON THE STRENGTH OF SUCH REASONS, THE ASSESSING OFFICER IS AUTHORISED TO MAKE ANY OTHER ADDITION AND IN THAT CONTEXT THE EXPRESSI ON SUCH INCOME AND ALSO WERE USED. 17. IN THE INSTANT CASE THE ASSESSING OFFICER HAD REOPENED THE ASSESSMENT ON ARBITRARY AND FLIMSY GROUNDS AND SINC E NO ADDITION WAS MADE ON THE STRENGTH OF SUCH REASONS, THE LEARN ED CIT(A) WAS JUSTIFIED IN QUASHING THE RE-ASSESSMENT PROCEEDINGS . WE, THEREFORE, UPHOLD THE ORDER OF THE LEARNED CIT(A) AND DISMISS THE APPEAL FILED BY THE REVENUE. ORDER PRONOUNCED IN THE OPEN COURT, ON THIS THE 23 RD DAY OF MARCH, 2011. SD/- (D.MANMOHAN) VICE PRESIDENT SD/- (RAJENDRA SINGH) ACCOUNTANT MEMBER DATED : 23 RD MARCH, 2011 VBP/- 13 COPY TO 1. ITO 5 (1) (2), ROOM NO. 570, AAYAKAR BHAVAN, M.K. R OAD, MUMBAI 400 020. 2. M/S. BIDBHANJAN INVESTMENT & TRADING & CO. P. LT D. 101, ARUN CHAMBERS, TARDEO, MUMBAI 400 034 PAN AAACB51 15C 3. COMMISSIONER OF INCOME TAX (APPEALS)-V, MUMBAI 4. C.I.T., M.C.-V, MUMBAI 5. DR B BENCH 6. GUARD FILE. BY ORDER TRUE COPY ASSTT. REGISTRAR, ITAT, MUMBAI