RAGHUVENDRA KUMAR VARSHNEY,ALIGARH vs. I.T.O., WARD-1, ALIGARH

Per Dr. M.L. Meena, A.M.:

This appeal by the assessee is directed against the order dated 28.02.2013 passed by the Commissioner of Income Tax (Appeals)-1, Ghaziabad, (hereinafter referred to as ‘the CIT(A)] in respect of A.Y. 2006-07 wherein the assessee has raised the following revised grounds of appeal: “1.1 Because in any view, the initiation of re-assessment of proceedings (IInd time) u/s 147/ reasons recorded/ issue of notice u/s 148 dt. 14.03.2011, confirmed by the ld. CIT(A) in the peculiar

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facts, circumstances and law of the case is wrong, illegal, bad in law, and liable to be quashed. 1.2 Because in any view, the impugned (IInd) Assessment Order made u/s 147/143(3) dt.26.12.2011 is wrong, illegal, bad in law and is liable to be annulled. 2.1 Because in any view, treating and computing as business income by the ld. CIT (A) against only Long Term Capital Gain shown by the appellant is arbitrary, wrong, illegal and against the facts and law of the case. 2.2 Because in any view, treating and computing the income during the relevant year by taking proceeds of all 15 Flats, against proceeds of 5 Flats belonging and shown by appellant (proceeds of 10 Flats belonging to the contractor) is grossly unjust, arbitrary, wrong and illegal. 3. Because in any view, charging of interest u/s 234B vide Notice of demand dt.26.12.2011 without any specific order in the Assessment Order dt.26.12.2011 is arbitrary, wrong and illegal. 4. Because in any view, and without prejudice to the above grounds, additions made/ confirmed by ld. CIT (A), interest charged u/s 234B, and the Assessment Order passed is wrong, illegal, without proper opportunity, bad in law and against the facts and law of the case.” 2. This is second reopening assessment proceedings where the assessee has challenged the assumption of jurisdiction u/s 147 vide apropos Ground no. 1.1 & 1.2 reasons recorded/ issue of notice u/s 148 dt. 14.03.2011 and the Assessment Order made u/s 147/143(3) dt.26.12.2011 being wrong, illegal, band in law and hence liable to be annulled. It is being legal issue which is goes to the root of the matter hence taken up on priority for adjudication.

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is duly supported by the document issued by Department of Health, Aligarh Nagar Nigam- Death Certificate Registration No. Death 2013-02635 dated 27.08.2013 filed on record with the revised ground of appeal. Accordingly, she is taken on record as a legal heir for this appellate proceeding before us.

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Rs.31,90,000/- has been shown as received against the flats under construction, the value of building situated at Samad Road consisting of 31 flats under construction on the asset side has only been shown at Rs.1,97,000/-. In view of the above facts, I have reasons to believe that the amount of Rs.8,00,000/-, received against the sale by the assessee plus the investment in building in the name of Shyam Complex has escaped assessment. Therefore, action u/s 147/18 is being taken. Issue notice u/s 148.” [APB Pg.73 to 74] The Ld. A.R. filed a copy of 1st Assessment Order that was passed u/s 6. 147/143(3) vide order dated 25.03.2008 [APB Pg.70 to 72] reads as under: “The assessee had filed return of income for the A.Y.2006-07 showing income of Rs.2,21,033/- on 25/07/2006 the income had been shown from business and other sources. No capital gains have been shown. In the capital account enclosed with the return, “advance for flat under process at Samad Road” has been shown at Rs.31,90,000/- However, no sale of any flat has been shown in the return of income. The return of Shri Satish Chand Govil S/o Shri Inder Deo Govil, having PAN ABSPG4824F for the A.Y. 2006-07 has been filed in this ward. The copy of a sale deed had been enclosed with this return, which showed that this person had purchased a flat No.401, situated at third floor of Shivam Complex, Samad Road, Aligarh on 31.03.2006 (A.Y.2006-07) for a consideration of Rs.8,00,000/-. However, neither the sale of this flat nor the working of capital gains had been shown by the assessee in his return of income. It is also worth mentioning that although advance of Rs. 31,90,000/- has been shown as received against the flats under construction, the value of building has only been shown at Rs.1,97,000/-. In view of the above facts, action u/s 147 was initiated by issue of notice u/s 148 of the IT Act, 1961 on 05.09.2007. In compliance to the notice, Shri L.D. Varshney, ITP attended and filed Vakalatnama, which is placed on records. Further notices/detailed questionnaires u/s 142(1) were issued, which were complied with written submissions, which are placed on records. The case has been discussed at length with the authorized representative of the assessee. 2. The assessee enjoys income from job work and income from other sources. Necessary evidences in the support of the heads of income have been produced during the course of assessment proceedings and the same have been examined. The statement of asset and liabilities, capital account and copies of various bank accounts were also produced during the course of assessment proceedings, which have been examined and the same do not require any specific observation/comments. 3. After discussion, the assessment is made on the returned income of Rs.2,21,033/- Issue notice of demand and challan.”

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6.1. He submitted that before completion of above assessment dated 25.03.2008 enquiry letter u/s 142(1) dated 07.03.2008 [APB Pg.85/1 to 85/2] was issued in which following queries were raised: - “(v) Supporting evidences for the amount of Rs.31,90,000/- shown as “advance for flats under process at Samad Road” (vi) Complete details of the asset shown as “building at Samad Road converted in hand and & construction of 35 flats under process”. The said building is valued at Rs.1,97,000/- only. Please intimate the total area of the property, covered area, number of floors, quality of construction, method adopted for valuation of the same etc. (vii) Complete details of the property shown as ”building at marris road, 2/3rd portion”. Please intimate the year of acquisition of the property, years of construction with source thereof, the total area of the property, covered area, number of floors, quality of construction etc. (viii) You have sold a flat for Rs.8,00,000/- to one Shri Satish Chand Govil S/o. Shri Inder Deo Govil, on 31/03/2006 i.e. during FY 2005-06, relevant to the year under consideration. However, no working of capital gains has been given in the return of income filed by you. In fact, no receipt against sale of any flat has been shown in the return. In these circumstances, please show cause as to why the amount of Rs.8,00,000/- may not be added to your income as income from undisclosed sources.” In compliance of Notice u/s 142(1) dated 07.03.2008 the appellant assessee submitted a written Submission dated 14.03.2008 [APB Pg.86] as follows: - “5. Details of Advance received during the year against Flats is enclosed. 6. The details as required is enclosed. Building at Marris Road 2/3rd portion is an more than 15 years old. 7. 8. The assessee has done registree of Flats in this year in which one Shri Satish Chand Govil S/o. Shri Inder Deo Govil is also to whom the registree has done whatever amount the assessee is receiving as advance against Flats he is showing in his balance sheet and investing in Capital Gain tax bonds and showing in Balance Sheet, hence the capital gain tax is nil therefore an addition

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of Rs.8 Lac does not arise. The all details of receipts against flats sold and investment in capital gain bonds is enclosed. [APB Pg.66 Details submitted]” In compliance of Notice u/s 142(1) dated 24.03.2008 the appellant submitted another Written Submission dated 24.03.2008 [APB Pg.87] as follows:- “That the assessee has sold the 5 flats in the year which registrees were completed on 31.03.2006 against which he has received a sum of Rs.36 Lacs which he has invested in Capital Tax bonds hence the Capital Gain tax is nil. The photocopies of Capital Gain tax bonds are already submitted in earlier hearing for your verification.” 7. He pointed out to us the reasons as per Notice u/s 142(1) dated 18.08.2011 [APB Pg.67 to 68] for 2nd initiation of proceedings u/s 148 that reads as under:- "The assessee has shown income from job works and interest income at Rs.2,21,033/-, The case was completed under scrutiny assessment u/s 143(3) on return income. On perusal of records filed reveals that the assessee has purchased land measuring 1470 sq. meters situated at samad road in the year 1987. The assessee entered into agreement with M/s Sansar Constuction (P) Ltd. On 02.04.2004 and as per agreement the contractor will construct 35 flat on the said land with his own cost i.e all construction cost bear by the contractor. Out of 35 flats the contractor will take 18 flats and owner i.e. assessee will take 17 flats in lieu of cost of land. It has been observed that the assessee has sold 5 flat valuing Rs.36,00,000/- in the F.Y.2005-06. The assessee has not shown this receipt from sale of flats in his return of income but had shown separately by purchasing of bond valuating Rs. 36,00,000/- and claimed exemption u/s 54EC. As the assessee has not transferred the title of the property and converted it as stock in trade and got build flat on the property. Further the assessee has sold flats without incurring any expenditure on the cost of construction. Perusal of balance sheet filed by the assessee reveals that the assessee has shown receipts against flats under the head advances for flats under process as samad road and building at samad road converted in hand & construction of 35 flats under process. After considering all the facts of the case the receipts in the hand of the

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assessee should be treated as business receipts and not as capital receipt as claimed by the assessee. Since the flats sold are stock in trade and not capital assets. Therefore the profit generated "is business income and not capital gains. Without prejudice to the stand taken above the flats were not held for 36 months [Section 2(42)A] by the assessee and therefore are not long term capital assets and consequently deduction u/s 54EC is not available to assessee. Total sale consideration from sale of 5 flats valuing at Rs. 36,00,000/- should be treated as business income and taxed accordingly. "Thus the receipt of Rs 36,00,000/- have escaped to be considered for assessment" 8. The Ld. Counsel stated before us that the issue of receipt of sale of 5 Flats valuing of rs.36,00,000/- has been assessed and now treating it as Business Receipts and not Capital Gain is a change of opinion. Further, the claim of deduction u/s 54EC of investment in Capital Gain Bond has been duly considered as “Total sale consideration from sale of 5 flats valuing at Rs. 36,00,000/- should not be treated as business income and taxed accordingly.” It gets support from the Original Assessment Order passed u/s 147/143(3) where it is mentioned that “Further notices/details questionnaires u/s 142(1) were issued, which were complied with written submissions, which are placed on records. The case has been discussed at length with the authorized representative of the assessee.” Thus, the Assessing Authority had applied its mind while passing the Original Assessment Order and there is no fresh material on record. The impugned Notice u/s 148 dt.14.03.2011 [APB Pg.69] amounts to change of opinion on the same set of facts, which were available at the time of passing of original assessment order.

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ld. CIT(A) erred in law in confirming without addressing the issue of conversion of land into Stock-in-trade u/s 45(2), only if the income is assessed as Business Income while in the Original Assessment Order it was assessed as Long Term Capital Gain; that the reasons recorded itself says sale of 5 Flats for Rs.36 Lacs and the issue of including 15 Flats would arise if the income was taken under the head of Business; that the exemption u/s 54EC has been allowed by the Assessing Officer in the Original Assessment Order after considering the facts and that the AO as mentioned in the Original Assessment Order has passed it after considering the written submissions and it is incorrect to say that it had not been at all under ‘conscious consideration of the AO during Original Assessment. In support, he placed reliance on the following case.

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“We find that the primary facts had been disclosed by the petitioner. We further find that the Assessing Officer had discussed the issue and passed a detailed order in its office note dated 16th March, 1998. The Court finds that the Assessing Officer had applied its mind and made necessary enquiry and, upon verification of facts, passed the assessment order.” (Emphasis Supplied PB Pg.84/6) 3. [2010] 187 Taxman 312 [PB Pg.88/1 to 88/3] CIT, Delhi Vs. Kelvinator of India Ltd. (Supreme Court)

Head Note: “Section 147 of the Income-tax Act, 1961-Income escaping assessment – General – Whether after substitution of section 147 by Direct Tax Laws (Amendment) Act, 1987, concept of ‘change of opinion’ must be treated as an in-built test to check abuse of power by Assessing Officer – Held, yes – Whether, therefore, after 1-4-1989, Assessing Officer has power to reopen, provided there is ‘tangible material’ to come to conclusion that there is escapement of income from assessment; reasons must have a live link with formation of belief – Held, yes.” (Emphasis Supplied PB Pg.88/1) 10. Per contra, the Ld. DR placed reliance on the impugned order. 11 In the present case, as evident from the 1st reasons recorded viz-a-viz the Assessment Order that the Assessing Authority had applied its mind while passing the Original Assessment Order; there was no fresh material on record while issuing the impugned Notice u/s 148 dt.14.03.2011 [APB Pg.69] and this amounts to change of opinion on the same set of facts, which were being available with the AO at the time of passing of the original assessment order. The Ld. DR has neither controverted this fact of no new material with the AO nor he has produced any judgement in rebuttal to the contention of the assessee that the AO can not reopen the case of the assessee merely on the

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basis of ‘change of opinion’ on the same material considered by him in the original assessment proceedings.

Order pronounced on 31/05/2019 under rule 34(4) of ITAT Rules 1963.

Sd/- Sd/- (C.M. Garg) (Dr. M. L. Meena) JUDICIAL MEMBER ACCOUNTANT MEMBER *AKV*/DOC Copy forwarded to: 1. Assessee

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