KIDDERPORE HOLDINGS LIMITED vs. THE INCOME TAX OFFICER WARD 1(2)(2) AND 2 OTHERS

ORAL JUDGMENT (PER K.R. SHRIRAM, J.) : 1 Petitioner is in the business of land development and construction of real estate properties. For Assessment Year 2012-2013 petitioner filed return of income on 29th September 2012 declaring a total income of Rs.1,52,974/-. The return was selected for scrutiny assessment Gauri Gaekwad 2024:BHC-OS:6268-DB CNR No : HCBM020131872022 Uploaded on - 17/04/2024 Downloaded on - 31/10/2026 00:44:12

2/13 908.WP-2395-2022.doc and notices were issued on 6th August 2013 under Section 143(2) of the Income Tax Act, 1961 (the Act) and on 17th July 2014, 29th October 2014 and 3rd March 2015 under Section 142(1) of the Act. Petitioner responded to the queries vide its letters dated 2nd February 2015, 16th February 2015, 16th February 2015, 9th February 2015 and 23rd February 2015. By a letter dated 13th March 2015 further details were submitted to the Assessing Officer. This was followed by a show cause notice dated 24th March 2015 to petitioner calling upon petitioner to show cause as to why (i) profit on the percentage completion method should not be brought to tax in hands of petitioner; (ii) transfer of proportionate undivided rights in the land in favour of the buyers should not be brought to tax as profit from the project constructed by petitioner; (iii) profits from the project should not be brought to tax as profit from the project constructed by petitioner; and (iv) the right on the property as per agreement dated October 2009 should not be treated as extinguished in favour of the buyers as per the agreements entered with them and gains from such extinguishment should not be brought to tax. 2 Petitioner replied to the show cause notice. In short, it was petitioner’s case that no income arose to petitioner from the project “Lodha Supremus” as petitioner had only constructed the project on behalf of its shareholders, i.e., SNCML, with shareholders’ funds. Gauri Gaekwad Uploaded on - 17/04/2024 Downloaded on - 31/10/2026 00:44:12

3/13 908.WP-2395-2022.doc 3 An assessment order dated 31st March 2015 came to be passed under Section 143(3) of the Act and the Assessing Officer made additions on account of income from sale of “Lodha Supremus”. The assessment order dated 31st March 2015 came to be challenged by petitioner by filing an appeal before the Commissioner of Income Tax (Appeals) [CIT(A)]. The CIT(A), by an order dated 28th April 2015, was pleased to allow the appeal filed by petitioner by holding that the Settlement Commission has already accepted the taxability of income from the project “Lodha Supremus” in the hands of another assessee who was a shareholder of petitioner and in view of the same, taxing the said income once again in the hands of petitioner will result in double taxation which was not permissible. The CIT(A) also held that the transactions between SNCML and petitioner are not sham transactions as alleged by the Assessing Officer. 4 Thereafter, respondent no.1 preferred an appeal before the Income Tax Appellate Tribunal (ITAT) where the order dated 31st March 2015 passed by the CIT(A) was impugned. The appeal came to be dismissed by an order dated 23rd August 2018. It is petitioner’s case, as alleged in paragraph 24 of the petition, that the department had filed an appeal impugning the order dated 23rd August 2018 passed by the ITAT which appeal came to be withdrawn in view of the monetary limits. In the affidavit in reply, this fact has not been denied. In paragraph 37 of the Gauri Gaekwad Uploaded on - 17/04/2024 Downloaded on - 31/10/2026 00:44:12

4/13 908.WP-2395-2022.doc affidavit in reply, it is only stated “With reference to paras 19 to 28, I offer no comments. However, I deny any averment contrary to the material on record. I say that the entire matter has been discussed in foregoing paragraphs”. This fact has not been discussed in anywhere else in the affidavit in reply. 5 This was followed by a notice dated 29th March 2019 issued under Section 148 of the Act proposing to reopen the assessment for Assessment Year 2012-2013 on the ground that there was reason to believe escapement of income chargeable to tax. Petitioner was provided reasons to believe escapement of income which stated that an income chargeable to tax amounting to Rs.18,12,64,756/- has escaped assessment. The reasons record that taxability under the following heads was not considered : (a) Rs.4,62,58,301/- (8% profit treating petitioner as a contractor; (b) Rs.66,75,055/- (proportionate income); and (c) Rs.12,83,31,400/- (capital gain). The only basis for reopening was that the appeals for Assessment Years 2011-2012, 2013-2014 and 2014-2015 were pending before the ITAT and as the assessment was getting time barred and to safeguard the interest of the Revenue, the assessment was reopened. Gauri Gaekwad Uploaded on - 17/04/2024 Downloaded on - 31/10/2026 00:44:12

5/13 908.WP-2395-2022.doc 6 By a letter dated 15th October 2019 petitioner filed its objections to the proposed reopening which came to be rejected by an order dated 20th November 2019. This order of rejection and the notice under Section 148 of the Act was challenged by filing a Writ Petition No.3585 of 2019. During the pendency of the said petition, the ITAT, by an order dated 2nd December 2020, was pleased to dismiss the appeals filed by respondent no.1 for Assessment Years 2011-2012, 2013-2014 and 2014-2015. By the said order, the ITAT decided the three issues raised for reason to believe escapement of income in favour of petitioner. Therefore, this Court, by an order dated 25th January 2022, disposed the writ petition by directing the Assessing Officer, who had proposed to reopen due to the pendency of the appeals before the ITAT, to pass a fresh order on objections after considering the objections already filed alongwith further objections to be filed by which he could consider the order passed by the ITAT on 2nd December 2020. The matter, which got remanded pursuant thereto, came to be reconsidered and a fresh order on objections dated 22nd March 2022 came to be passed. It is against this order, petitioner has once again approached this Court on various grounds including a ground that (a) the proviso to Section 147 of the Act shall apply in as much as reopening after four years of the expiry of the relevant assessment year is permissible only in case of failure on the part of assessee to truly and fully disclose material facts Gauri Gaekwad Uploaded on - 17/04/2024 Downloaded on - 31/10/2026 00:44:12

6/13 908.WP-2395-2022.doc required for assessment, and (b) the points raised in the reason to believe were already a subject matter of consideration during the original assessment proceedings and, therefore, this proposed reopening is purely on the basis of change of opinion, which is not permissible. 7 In the affidavit in reply, respondents have basically reiterated what has been stated in the reason to believe and in the order on objections. Mr. Chhotaray submitted that even if the reason to believe does not even make an allegation that there was failure to truly and fully disclose material facts, if the factum of failure to disclose can be culled down from the reasons in support of the notice seeking to reopen assessment, that will certainly be not fatal to the assumption of jurisdiction under Sections 147 and 148 of the Act. 8 The proviso to Section 147 of the Act provides that reopening of an assessment is not permissible after expiry of four years from the end of the relevant assessment year unless assessee has failed to truly and fully disclose necessary facts required for assessment. In the reasons recorded to believe escapement of income from assessment, there is not even an allegation that there was any failure on the part of petitioner to truly and fully disclose all material facts necessary for its assessment for the relevant assessment year as was the case in Crompton Greaves Ltd. v/s. Assistant Gauri Gaekwad Uploaded on - 17/04/2024 Downloaded on - 31/10/2026 00:44:12

7/13 908.WP-2395-2022.doc Commissioner of Income Tax, Circle 6(2) & Ors.1 Of course Crompton Greaves Ltd. (Supra) also held that if the factum of failure to disclose can be culled down from the reasons in support of the notice seeking to reopen assessment, that will certainly be not fatal to the assumption of jurisdiction under Sections 147 and 148 of the Act. 9

We have considered the reasons to believe which was made available to petitioner vide letter dated 30th September 2019. We are satisfied that not only does the reason not specifically state that there was any failure on the part of assessee to disclose fully and truly all material facts, reading the entire reasons there is no cogent and clear indication that infact there was failure on the part of assessee to disclose fully and truly all material facts necessary for its assessment. 10 The three notices dated 17th July 2014, 29th October 2014 and 3rd March 2015 under Section 142(1) of the Act were issued to petitioner calling upon petitioner to furnish various details. By its letters dated 2nd February 2015, 16th February 2015, 16th February 2015, 9th February 2015 and 23rd February 2015 and 13th March 2015 petitioner provided all the details. Petitioner was even served with a show cause notice dated 24th March 2015 to which also petitioner replied. The issues raised in the reasons to believe were certainly subject matter of consideration during the 1 2015 (55) taxmann.com 59 (Bombay) Gauri Gaekwad Uploaded on - 17/04/2024 Downloaded on - 31/10/2026 00:44:12

8/13 908.WP-2395-2022.doc assessment proceedings. Infact in the reasons it is admitted that these three issues were subject matter of assessment proceedings. 11 On the first item relating to 8% profit treating assessee as contractor, in the reasons it is stated “Considering the above and after perusal of the records of this year ………. The assessee’s case was scrutinised ……….”.

As regards the proportionate income, it says “For A.Y. 2011-12, 2013-14 and 2014-15, proportionate income was charged and the facts of the case are similar for this year also. During the year ……… and on the basis of details, estimated proportionate income is worked out as under : ………”. For capital gain, it says “………… The relevant portion of the assessment is reproduced as under : ………”. Therefore, all three issues were subject matter of consideration during the assessment proceedings. As held by the Division Bench of this Court in Aroni Commercials Ltd. v/s. Deputy Commissioner of Income Tax2(1)2 the settled law is once a query is raised during the assessment proceedings and the assessee has replied to it, it follows that the query raised was a subject of consideration of the Assessing Officer while completing the assessment. It is not necessary that an assessment order should contain reference and/or discussion to disclose its satisfaction in 2 (2014) 44 taxmann.com 304 (Bombay) Gauri Gaekwad Uploaded on - 17/04/2024 Downloaded on - 31/10/2026 00:44:12

9/13 908.WP-2395-2022.doc respect of the query raised. The only requirement is that the Assessing Officer ought to have considered the objection now raised in the grounds for issuing notice under Section 148 of the Act during the original assessment proceedings. In the case at hand, the Assessing Officer having raised a query and petitioner having replied to it, it follows that the query raised was subject of consideration of the Assessing Officer while passing the assessment order dated 31st March 2015. In our view, the reopening of assessment by the impugned notice is merely on the basis of change of opinion of the Assessing Officer from that held earlier during the course of assessment proceedings and this change of opinion does not constitute justification and/or reasons to believe that income chargeable to tax has escaped assessment. Paragraph 14 of Aroni Commercials Ltd. (Supra) reads as under :

10/13 908.WP-2395-2022.doc assessment for A.Y. 2008-09 is based on mere change of opinion. However, according to Mr. Chhotaray, learned Counsel for the revenue the aforesaid issue now raised has not been considered earlier as the same is not referred to in the assessment order dated 12 October 2010 passed for A.Y. 2008-09. We are of the view that once a query is raised during the assessment proceedings and the assessee has replied to it, it follows that the query raised was a subject of consideration of the Assessing Officer while completing the assessment. It is not necessary that an assessment order should contain reference and/or discussion to disclose its satisfaction in respect of the query raised. If an Assessing Officer has to record the consideration bestowed by him on all issues raised by him during the assessment proceeding even where he is satisfied then it would be impossible for the Assessing Officer to complete all the assessments which are required to be scrutinized by him under Section 143(3) of the Act. Moreover, one must not forget that the manner in which an assessment order is to be drafted is the sole domain of the Assessing Officer and it is not open to an assessee to insist that the assessment order must record all the questions raised and the satisfaction in respect thereof of the Assessing Officer. The only requirement is that the Assessing Officer ought to have considered the objection now raised in the grounds for issuing notice under Section 148

of the Act, during the

original assessment proceedings. There can be no doubt in the present facts as evidenced by a letter dated 8 September 2012 the very issue of taxability of sale of shares under the head capital gain or the head profits and gains from business was a subject matter of consideration by the Assessing Officer during the original assessment proceedings leading to an order dated 12 October 2010. It would therefore, following that the reopening of the assessment by impugned notice dated 28 March 2013 is merely on the basis of change of opinion of the Assessing Officer from that held earlier during the course of assessment proceeding leading to the order dated 12 October 2010. This change of opinion does not constitute justification and/or reasons to believe that income chargeable to tax has escaped assessment.” (emphasis supplied) On these grounds alone the impugned notice dated 29th March 2019 issued under Section 148 of the Act has to be quashed and set aside. Gauri Gaekwad Uploaded on - 17/04/2024 Downloaded on - 31/10/2026 00:44:12

11/13 908.WP-2395-2022.doc 12 Moreover, the entire basis for reopening the assessment was that assessment orders under Section 143(3) read with Section 147 of the Act were passed for Assessment Years 2011-2012 and 2013-2014 and the order under Section 143(3) of the Act for Assessment Year 2014-2015 was passed by making the following additions : (1) 8% profit treating contractor. (2) Addition as per A.Y. 2012-13. (3) Proportionate income. (4) Loss claimed. (5) Capital gain Assessee preferred an appeal before the CIT(A) and the CIT(A) deleted the following additions : (1) 8% profit treating contractor. (2) Addition as per A.Y. 2012-13. (3) Proportionate income. (4) Capital gain The Revenue preferred an appeal for Assessment Years 2011- 2012, 2013-2014 and 2014-2015 before the ITAT and the same were pending. Since the issues were involved in this year also, i.e., Assessment Year 2012-2013, and the case was getting barred by limitation for reopening under Section 147 of the Act, to safeguard the interest of Gauri Gaekwad Uploaded on - 17/04/2024 Downloaded on - 31/10/2026 00:44:12

12/13 908.WP-2395-2022.doc Revenue, this case is being proposed for reopening on the following issues : (1) 8% profit treating contractor. (2) Proportionate income. (3) Capital gain 13 Admittedly, the ITAT has now held against the Revenue. Therefore, the entire basis for reopening has collapsed. The Revenue’s case that an appeal has been filed in this Court challenging the orders passed by the ITAT for Assessment Years 2011-2012, 2013-2014 and 2014-2015 will not be of any help because admittedly there is no stay. As held by the Hon’ble Apex Court in Union of India v/s. Kamlakshi Finance Corporation Ltd.3, the principles of judicial discipline require that the orders of the higher appellate authorities should be followed unreservedly by the subordinate authorities and the order is the subject matter of an appeal can furnish no ground for not following it unless its operation has been suspended by a competent Court. Admittedly, the order of the ITAT, which is challenged in appeal in this Court, has not been suspended. Therefore, the order of the ITAT is certainly binding on the Revenue. 14 Mr. Chhotaray also submitted that assessment can be opened on the basis of order passed in another assessment year which is a settled position in law. Though we will not enter into a debate with Mr. Chhotaray 3 1992 Supp. (1) SCC 443 Gauri Gaekwad Uploaded on - 17/04/2024 Downloaded on - 31/10/2026 00:44:12

13/13 908.WP-2395-2022.doc on this aspect, still to issue notice itself the Revenue has to, in the facts of the case, cross the first hurdle of the proviso under Section 147 of the Act and if they do not, as we have observed above, the reopening will be bad in law. 15 In the circumstances, we hereby quash and set aside the impugned notice dated 29th March 2019. Consequently the order on objections dated 22nd March 2022 also is hereby quashed and set aside. 16 At the same time, should Revenue succeed in its appeal filed impugning the order of the ITAT for Assessment Years 2011-2012, 2013- 2014 and 2014-2015, Revenue may issue fresh notice under Section 148 of the Act and assessee may take such steps to oppose the fresh reopening. All rights and contentions are kept open. 17 Petition disposed. (DR. NEELA GOKHALE, J.) (K.R. SHRIRAM, J.) Gauri Gaekwad Uploaded on - 17/04/2024 Downloaded on - 31/10/2026 00:44:12 Powered by TCPDF (www.tcpdf.org)