SARLA RAJKUMAR VARMA vs. ASSTT.COMMISSIONER OF INCOME TAX

Rule. Learned counsel Shri Sudhir Mehta waived service of rule. The petition is heard finally.

The   petitioner   assessee   has   challenged     notice   dated 30.08.2011   issued   by   the   respondent   Assessing   Officer seeking to reopen the assessment for the assessment year 2009­2010. Originally the assessment was completed after scrutiny.

The  Assessing  Officer  supplied  the  reasons  recorded  for issuing the notice which read as under : “You,   have   filed   your   return   of   income   for   the   year   on under consideration 29.09.2009 declaring a total income of Rs.1,25,584/­.   Assessment   in   your   case   was   completed u/s.143(3) on 28.12.2011 determining the total income of the assessee Rs.19,08,530/­. On going through the records, it is seen that the plan for plotting and construction for one of the projects, M/s. Shiv Abhishek was passed on 05.02.1997 which was the first plan put up by you for approval. Subsequently modified plans of the same projects were also approved by the local authorities. You had claimed a deduction of Rs.21,59,675/­ on the said project   u/s.80IB(10)   of   the   Act.   While   completing   the assessment, the assessing officer had disallowed deduction of   Rs.17,82,842/­.   Thereby,   allowing   deduction   of Rs.3,76,733/­ only. As   per   the   provisions   of   section   80IB(10),   whenever approval of housing project is obtained more than once, such   housing   project   shall   be   deemed   to   have   been approved on the date on which such housing project was approved for the first time by the  local authority. As such, as per the provision of section 80IB(100) deduction would be allowable in this case  only if the project is completed on before 31.03.2008. In the instant case, the construction of the project was completed on 10.01.2010. Thus, the project was completed after the stipulated time limit, by virtue of which, you failed to satisfy the said condition laid down in the said section for availing deduction. As such, you are not eligible even for deduction of Rs.3,76,733/­ and this amount of Rs.3,76,733/­ requires to be taxed. Thus  on   the   facts  of  the   case,   the  undersigned  is  also reasonably satisfied and has the relevant reasons to believe that there has been escapement of income on account of original assessment whereby excessive allowance under the Act   has   been   computed,   which   requires   reconsideration and reassessment. Therefore, on the facts of the case, your case for A.Y. 2009­10 has been reopened for reassessment of such income to tax, which has escaped assessment.”

The petitioner raised her objections to the reopening of the assessment   under   a   communication   dated   18.10.2013. She contended that claim of deduction under section 80­ IB(10) was examined at the time of original assessment. She additionally contended that the ground on which the assessment  is sought  to be reopened lacks validity. She pointed out that the housing project was approved only on 5.2.1997. She   contended   that   an   application   for development   of   housing   project   was   made   only   on 11.6.2006 which was granted on 23.2.2007. Subsequently, also there was an application for permission to revise the construction  plan  which  was also granted  on 10.1.2010 and thus within the time specified in section 80­IB(10) of the   Act,   to   enable   her   to   claim   the   deduction.   The Assessing Officer however, rejected the objections by his order dated 4.12.2013. Hence this petition.

Learned counsel Shri Manish Shah for the petitioner drew our attention to the assessment order dated 28.12.2011 in which the Assessing Officer had examined the claim of the assessee for deduction under section 80­IB(10) of the Act. He   pointed   out   that   after   detailed   discussions,   the Assessing Officer disallowed substantial claim made by the petitioner.   The   petitioner   carried   the   matter   in   appeal. CIT(Appeals)   by   his   order   dated   7.10.2013,   allowed   the appeal   and   granted   full   deduction   claimed   by   the petitioner. The counsel also drew out attention to the sale deed   dated   19.1.2007   under   which   the   petitioner purchased the land in question from the seller who himself was not the original owner but had purchased the same from   the   erstwhile   owners.   On   the   basis   of   such documents, learned counsel Shri Shah raised the following contentions : 1) That the Assessing Officer having examined the claim of the petitioner for deduction under section 80­IB(10) of the Act in the original assessment, any action on his part to disallow such claim would be based on mere change of opinion. Reopening of assessment even within four years, therefore, would not be permissible. 2) That the reasons recorded by the Assessing Officer for   issuing   the   impugned   notice   itself   lacks   validity. Counsel would contend that the development permission was granted  only in February  2007 contrary  to what  is recorded by the Assessing Officer. In the year 1997, only permission granted by the local authority was to make the plots in the land. This cannot be equated with permission of development for housing project which is crucial for the purpose of deciding   claim under section 80­IB(10) of the Act.

On the other hand, learned counsel Shri Sudhir Mehta for the Revenue opposed the petition contending that in the original assessment, though the claim for deduction under section 80­IB(10) of the Act did come up for consideration, this crucial aspect of the housing project not having been completed  within  10 years as per the deed  for grant  of development permission by the local authority, was never examined.   He would therefore, contend that there is no change of opinion on part of the Assessing Officer since he in the original assessment had expressed no opinion at all on this aspect. Counsel further contended that without full material on record, it would not be appropriate to accept the   petitioner’s   contention   that   the   development permission was granted only in February 2007 and not in the year 1997 as contended by the Assessing Officer. This aspect  must  be left  to be judged  in regular  assessment proceedings. In support of his contentions, counsel relied on the following decisions : 1) Ess   Ess   Kay   Engineering   Co.   P.   Ltd.   v. Commissioner   of   Income­tax  reported   in   which   the Supreme Court observed that the mere fact that the case of the   assessee   was   accepted   as   correct   in   the   original assessment for an assessment year, does not preclude the Income tax officer from reopening that assessment on the basis of his findings of fact made on the basis of fresh materials obtained in the course of assessment for the next assessment year. 2) Phool Chand Bajrang Lal and another v. Income­tax Officer and another  reported in (1993) 203 ITR 456, the Supreme   Court   considered   as   situation   where,   in   the original assessment, a certain claim of the assessee was accepted.   On   subsequent   information   received   by   the Assessing   Officer   that   the   Managing   Director   of   the assessee  company  had confessed  that the company  had not advanced any loan to any person  during the period under consideration, on such basis, notice for reopening was   issued.   The   Supreme   Court   held   that   subsequent information being definite and reliable, notice for reopening will be valid. It was not a case of mere change of opinion. It was observed that acquiring fresh information, specific in nature and reliable in character, relating to a concluded assessment   which   went   to   expose   the   falsity   of   the statement made by the  assessee at the time of the original assessment was different from drawing a fresh inference from   the   same   facts   and   material   available   with   the Income­tax Officer at the time of the original assessment proceedings. The two situations were distinct and different. 3) Multiscreen   Media   Private   Limited   v.   Union   of India and another  reported in (2010) 324 ITR 54 (Bom), where   the   Bombay   High   Court   drawing   the   distinction between   the   expressions   ‘change   of   opinion’   and   ‘mere change of opinion’ observed that a mere change of opinion is not enough. A change of opinion is permissible provided it is grounded on additional or tangible material. 4) Devgon Rice and General Mills v. Commissioner of Income­tax and another reported in (2003) 263 ITR 391, where   the   learned   Judge   of   Punjab   and   Haryana   High Court   held   that   when   there   was   a   failure   to   disclose material   facts   necessary   for   assessment   or   the   facts disclosed  were found to be untrue,  notice  for reopening would be valid.

We may appreciate the reasons recorded in the background of well laid down parameters for reopening of assessment which   was   previously   framed   after   scrutiny.   We   are conscious that such notice has been issued within a period of four years from the end of relevant  assessment  year. Despite   which,   it   is   undisputable   that   reopening   of assessment cannot be resorted to by the Assessing Officer on   a  mere   change   of   opinion.   We   are   conscious   of   the distinction between the expressions ‘change of opinion’ and ‘mere  change   of  opinion’   as  highlighted   by  the  Bombay High Court in case of  Multiscreen Media Private Limited (supra). The reasons recorded by the Assessing Officer are brief. They pertain to the material on record. The second paragraph of the reasons reads as under : “On going through the records, it is seen that ….”

The entire material thus was taken by the Assessing Officer from  the   record   itself.   Contrary  to  what   was  canvassed before us by the counsel for the Revenue,   there was no additional, independent or extraneous material relied upon by the Assessing Officer in the reasons recorded for issuing notice for reopening the assessment. Any further affidavit or statement from any other source would not cure this position.   What   is   of   crucial   importance   for   judging   the validity of notice for reopening is the reason recorded by the Assessing Officer. In such reasons, he stated that on going through the record, he found certain facts, according to which, the claim of deduction under section 80­IB(10) of the Act was not sustainable.

The decision of the Supreme Court in case of Ess Ess Kay Engineering Co. P. Ltd.(supra) and Phool Chand Bajrang Lal   and   another  (supra)   are   therefore,   clearly   not applicable. Present is a case where the Assessing Officer relies on the material already on record to contend that the claim for deduction under section 80­IB(10) of the Act of the   petitioner   assessee   was   not   valid.   Being   a   case   of reopening   within   four   years   of   original   assessment,   if during  the  scrutiny  such  claim  was  not  examined,    for valid reasons, it may be  open for the Assessing Officer to examine the same even on the  basis of material on record. In case of  Gujarat Power Corporation Ltd. v. Assistant Commissioner of Income­tax  reported in (2013) 350 ITR 266   (Guj),   this   Court   had   an   occasion   to   examine   at considerable   length,   the   parameters   for   reopening   of assessment   within   four   years.   The   contention   of   the counsel  for the assessee,  that  even in such a case, the reason to reopen must be based on material extraneous to the record, was rejected. It was held that the Assessing Officer must have some tangible material to form a belief that income  chargeable  to tax had escaped  assessment. Such tangible material need not be alien to record. It was observed that reopening of assessment within a period of four years could be made as long as it is not based on mere change of opinion. Merely, because certain material which is otherwise tangible and enables the Assessing Officer to form a belief that income chargeable to tax has escaped assessment, formed part of the original assessment record, that   per   se   would   not   bar   the   Assessing   Officer   from reopening the assessment on the basis of such material. The expression ‘tangible material’ does not mean material alien to original record.

In the same judgement, however, it was held that if a certain claim is examined during the scrutiny assessment proceedings, queries are raised and thereafter, the claim is accepted,  with  or  without   reasons,  the  same  cannot  be subject matter for reopening on the basis of same material since it would amount to a mere change of opinion.

Similar view was expressed by three Judge Bench of Delhi High Court in case of Commissioner of Income­tax v. Usha International Ltd. reported in (2012) 348 ITR 485 (Delhi). It was held that in a case where the assessment order itself records that the issue was raised and decided in favour of the assessee, reassessment proceedings will be hit by the principle of   change of opinion. It was further observed that reassessment proceedings will be invalid in case   an   issue   or   query   is   raised   and   answered   by   the assessee in original assessment proceedings but thereafter the Assessing Officer does not make any addition in the assessment   order.   In   such   a   situation,   it   should   be accepted   that   issue   was   examined,   but   the   Assessing Officer did not find any ground or reason to make addition or reject the stand of the assessee.

In the present case, during the scrutiny assessment, the Assessing Officer raised a specific query regarding the petitioner’s claim for deduction under section 80­IB(10) of the Act under a show cause notice dated 21.12.2011. He stated thus : “During the relevant AY it has been found that building construction activity has been carried out by the assessee in the names of Shiv Abhishek Project and Pooja Abhishek under   the   banner   of   M/s   Satyam   builders.   The comparative   performance   and   financial   details   of   these projects are laid down in the Table below. Sr. No. Particulars Shiv Abhishek Project Pooja Abhishek Project Description 80IB(10) Non-80IB(10) 1 Project It’s purely Residential project Its residential cum commercial projects 2 Total sale 9696500 12,60,000 3 Gross Profit (in Rs) 2159675 49000 4 GP(In %) 22.30% 3.89% Thus apparently the profit rate has been shown at a higher rate   in   the   projects   in   which   deduction   u/s.   80IB   is available.   This   is   not   found   acceptable   since   the parameters   of   be   the   building   projects   under   hand   are similar and there is no reason as to why the profit rate emerging from the 80IB project should be higher than the other project located in the same area and having the same parameters.

Sub­section80IA of the IT Act, 1961, provides that : “10 Where it appears to the Assessing Officer that, owing to the close connection between the assessee carrying on the eligible business between to which this section applies and any other person, or for any other reason, the course of business between them is so arranged that the business transacted between them produces to the assessee more than the ordinary profits which might be expected to arise in such  eligible  business,  the  Assessing  Officer  shall  in computing the profits and gains of such eligible business for the purposes of the deduction under this section take the amount of profits as may be reasonably deemed to have been derived there from. As   per   subsection   80IB(13)   of   the   IT   Act,   1961,   the provision contained in Subsection 80IA (1) shall be, apply to the eligible business under sub section 80IB (10) of the IT Act, 1961. 5. Hence   in   light   of   the   facts   of   your   case,   that   the business of Shiv Abhishek Project which is enjoying the benefit of the 80IB deduction and Pooja Abhishek Project, which is not eligible for 80IB deduction, you are requested to show cause why the excess profit as shown in the 80IB project   should   not   be   disallowed   and   reasonably   profit should not be taken as eligible for the purpose of deduction u/s. 80IB of the IT Act, 1961, as per provisions of sub section of the 80IA(10) r.w.s.80(13) of the IT Act, 1961.”

In response to such query, the petitioner placed her objections and material in support of such objections. In the   assessment   order,   the   Assessing   Officer   carried   out detail  discussion  and devoted  several  pages  to conclude that the entire claim of deduction under section 80­IB(10) of the Act could not be granted. He reduced the claim to a reasonable   profit   of   3.89%   shown   for   another   housing project of the petitioner as against the profit at the rate of 22.3% claimed by her in the return. Eventually, out of a total claim of Rs.21,59,675/­ made by the petitioner, he disallowed a sum of Rs.17,82,942/­.

It can thus be seen that the claim of deduction under section 80­IB(10) of the Act came up for scrutiny minutely by   the   Assessing   Officer   in   the   original   assessment proceedings. He disallowed the claim to the extent he was convinced that the sames was exaggerated. He allowed only part of the claim.

It is true that this pointed element of the housing project not having been completed within 10 years of the date   of   development   permission   granted   by   the   local authority was not raised by the Assessing Officer. However, in the return filed, this was virtually the only claim of the petitioner. The petitioner  had declared gross total income of   Rs.22,85,259/­   and   claimed   deduction   under   section 80­IB(10) of the Act of Rs. Rs.21,59,675/­. If the Assessing officer had any doubt about the basis of claim itself, the same could have been examined. On the basis of the same material, it would now not be open for the Assessing Officer to   reexamine   the   claim   on   the   premise   that   a   certain element   of   the   claim   was   not   gone   into   at   the   time   of original assessment proceedings.

In case  of  Gujarat Power Corporation Ltd.(supra), this Court did leave some room for the Revenue to argue that if a certain element of claim was not gone into by the Assessing   Officer   in   the   original   assessment,   reopening may still be permissible. The Court observed as under :

In the said decision itself, the Court observed that each case must depend on facts individually and in a given case, it may be possible for the assessee to argue that all aspects of the claim were examined or that different facets of   the   claim   were   so   inextricably   interlinked   that   the assessing   officer   must   be   taken   to   have   examined   the entire claim.  This precisely is the situation in the present case. As noted claim under section 80­IB(10) of the Act was the  sole  claim  of the  petitioner  in the  return  filed.  The entire  claim  was  examined  at  length.  To the  extent  the Assessing Officer thought the same was not allowable, after hearing   the   petitioner   and   inviting   her   response,   he disallowed the substantial portion of the claim. It is now therefore, not possible for the Revenue to canvas that yet another  element  of  the  claim  was  not  gone  into  by the Assessing Officer and that therefore, fresh look would be permissible.

In   case   of  Cliantha   Research   Limited   v.   Deputy Commissioner   of   Income   Tax  reported   in   213   (35) Taxman.com   61(Guj),   Division   Bench   of   this   Court   in somewhat similar background observed as under :

We have now come to the second contention of the petitioner. Contrary to what is canvassed before us, we are not  in  a position  to hold  and  declare  that  development permission   was   granted   by   the   local   authority   only   in February 2007 and, therefore, the completion of housing project  in the year  2010  was well  within  the time  limit envisaged under the statute. There is insufficient material for us to hold so. Even the sale deed refer to several dates and events. Without reference to the original documents and   further   evidence,   it   would   be   hazardous   for   us   to accept the petitioner’s contention that for the first time, the development permission was granted by the local authority only in the year 2007. Even otherwise, we are not inclined to undertake such exercise in writ juri iction challenging the validity of notice for reopening. Such disputed question of   facts   need   not   be   examined   in   a   writ   petition.   The validity   of   the   reasons   must   be   judged  on  the   basis  of requirement of reason to believe and not necessarily that the   addition   must   invariably     made   ultimately.   In   that context, therefore, we are unable to accept the contention of the petitioner that even otherwise the notice was bad because the reason itself lacked validity.

Under   the   circumstances,   subject   to   observations above, impugned notice is quashed. The petition is allowed. Rule made absolute to above extent. (AKIL KURESHI, J.) (MS SONIA GOKANI, J.) raghu