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Income Tax Appellate Tribunal, “SMC” BENCH, MUMBAI
Before: SHRI ABY T. VARKEY, JM
IN THE INCOME TAX APPELLATE TRIBUNAL “SMC” BENCH, MUMBAI BEFORE SHRI ABY T. VARKEY, JM आयकरअपीलसं/ (निर्धारणवर्ा / Assessment Year: 2010-11) M/s Seth Industries Pvt. Ltd. बिधम/ ACIT Circle- 2(3)(2) 16, Ashoka Shopping Centre, Room No. 552, Vs. Lokmanya Tilak Marg, Aayakar Bhavan Crawford Market Mumbai-400020. Mumbai-400001. स्थधयीलेखधसं./जीआइआरसं./PAN/GIR No. : AAECS9189D (अपीलार्थी /Appellant) .. (प्रत्यर्थी / Respondent) Assessee by: Shri Salil Kapoor & Shri Sunil Lalchandani Revenue by: Shri. Mahender Ahuja सुनवाईकीतारीख / Date of Hearing: 21/11/2022 घोषणाकीतारीख /Date of Pronouncement; 16/12/2022 आदेश / O R D E R PER ABY T. VARKEY, JM:
This is an appeal preferred by the assessee company against the order of the Ld.CIT(A)-6 Mumbai dated 18-02-2019 for AY 2010-11. The assessee have raised inter-alia twelve (12) grounds. However, since the assessee has raised legal issue challenging the validity of the re-opening of assessment carried out by the AO u/s 147 of the Act of the Income Tax Act 1961 (herein after “the Act”), I am inclined to adjudicate the same first. The legal issue raised by the assessee are as under:-
M/s Seth Industries That the notice dated 27.03.2017 issued under section 148 of IT 1. Act and the reassessment order dated 24.11.2017 are illegal, bad in law and without jurisdiction. That the reopening under s.147/148 is made on the basis of change 2. of opinion and the same is illegal, bad in law and without jurisdiction. Hence, the proceedings under section 147 are bad in law and without jurisdiction.
That the reasons recorded by the AO for the initiating action under section 147/148 are illegal, bad in law and contrary to various judicial pronouncements.
The proceedings under section 147 are bad in law and without jurisdiction as these proceedings are initiated beyond 4 years and the original assessment order was passed under section 143(3). Also there is no failure on part of the assessee to disclose truly and fully all material facts.
5. That the approval taken by the AO, if any, for initiating proceedings under section 147/148 is illegal and bad in law and without application of mind and hence the proceedings u/s147 are without jurisdiction.
The facts necessary for adjudication of the legal issue (i.e.validity of reopening the assessment u/s147 of the Act) it is noted that the assessee had filled return of income (ROI) on 25.09.2010 declaring total income at Rs. Nil. Thereafter the AO notes that he has reopened the assessment u/s 147 of the Act by issuing notice u/s 148 of the Act dated 27/03/2014 and the assessee had filed return of income reiterating the original ROI by letter at 14.04.2014. The AO notes that the assessee had sought “reason for re-opening” vide letter dated 11.05.2017; and the 2 M/s Seth Industries AO thereafter notes that the assessee has claimed capital loss of Rs. 70,13,897/- which was explained by the AR of the assessee by letter at 20.11.2017 as under:-
The assessee has claimed a capital loss of Rs.70,13,897/-. Assessee AR submitted that; "In assessment year 2008-09, our client had agreed to sell the land of 5528 sq. mts. for Rs. and had accordingly offered this amount for taxation. Copy of acknowledgement, computation of income and audited balance sheet are enclosed from which it will be seen that our client had credited its profit and loss account with the capital gains and had offered the same for tax. Copy of assessment order u/s 143(3) for AY 2008-09 is also enclosed. Reference may be made to para 5 of the order. Subsequently, disputes arose regarding the available area for sale. This matter went to the H’ble Bombay High Court and an arbitrator was appointed. This matter was finally settled in AY 2010-11 and the amount receivable by our client was reduced from Rs.24519781/- to Rs. 17100000/- Since our client had already offered Rs.2,45,19,781/- for tax in AY 2008-09, it is submitted that Rs.1,71,00,000/- which was a part of Rs.24519781/- has already been offered for tax in AY 200S-09 and our client was not liable to offer it once again in AY 2010-11. It is therefore submitted that no income has escaped assessment”.
3. Thereafter the AO notes that the assessee did not file evidence of capital loss.Therefore he was pleased to disallow the loss claimed to the tune of Rs. 70,13,897/-. Aggrieved by the aforesaid action of the AO, assessee preferred an appeal before the Ld.CIT(A) challenging the action of the AO to have re-opened M/s Seth Industries the assessment, wherein Ld.CIT(A) has taken note of the reasons recorded by the AO for re-opening the assessment which reads as under:-
“The assessee filed e-return on 25.09.2010 declaring total income of NIL. The scrutiny assessment u/s.143(3) was completed on 12.02.2013 assessing total income of Rs.21,67.720/-.
During the year ended 31.03.2008 Assessee company agreed to give the possession of land admeasuring 5528 m² for Rs.2.45,19,781/-in full and final settlement in terms of development agreement dated 29.10.2004 and supplementary agreement dated 22.02.2006. The cheque was deposited on 05.05.2008 which however was dishonored for which assessee company lodged complaint against the purchaser on 31.03.2009. Due to settlement of disputes with M/s.Cowtown Land Development Ltd., the claim was finally settled at Rs.1,71,00,000/- and the loss of Rs.70,13,897/- has been claimed by the assessee company in A.Y.2010-11. From return of income, it is found that the assessee has not offered income of Rs.1,71,00,000/- but claimed balance amount of Rs.70,13,897/- as loss.
In assessment proceedings, the assessee has not disclosed true and full material facts about said sale transaction and not offered income which resulted into escapement of income of Rs.1.71,00,000/- Hence, I have reason to believe that Rs.1,71,00,000/- has escaped assessment for the assessment year 2010-11 within the meaning of section 147 of I.T. Act, 1961 and the same is required to be brought to tax as well as any other income chargeable to tax which may be found to have escaped assessment as per the explanation 3 to section 147 of the I.T. Act, 1961." 4 M/s Seth Industries 4. For adjudicating the legal issue the reason’s recorded by AO need to be examined on a standalone basis. It is noted from a perused of the ‘reasons recorded” (supra) that the issue involved for re-opening the assessment pertained to AY 2010-11 which is regarding the omission on the part of the assessee in not offering capital gain in respect of sale of immovable property [land] sold by assessee to M/s Cowtown development limited wherein sale consideration was settled at Rs.2,45,19,781/- as on 31.03.2008 (AY 2008-09). And due to settlement of dispute (regarding the measurement of immovable property) the sale consideration was finally settled at Rs. 1,71,00,000/-. However the AO on perused of Return of Income for AY 2010-11, found that assessee has not offered this capital gain on the final settled sale consideration of Rs. 1,71,00,000/- and instead has claimed loss of Rs. 70,13,897/- which shows that assessee has not disclosed true or full material facts about the finally settled sale consideration and thus did not offer any income (capital gain) on it and thus Rs. 1,71,00,000/- has escaped assessment. So it is discerned that issue/fact in issue, which the AO has resorted to re-open the assessment pertaining to AY 2010-11 is regarding capital gain pertaining to immovable property on which assessee had agreed for sale consideration as on 31.03.2008 at Rs. 2,45,19,781/- (AY 2008-09), and since there was dispute regarding the measurement of land, the sale consideration was settled at Rs. 1,71,00,000/- in this relevant AY i.e. AY 2010-11, which according to AO has escaped assessment i.e. Rs. 1,71,00,000/-. In this context, it is pertinent to have a look at the reply given by the assessee before the AO [which has been reproduced by AO] and also reproduced (supra). It is noted that the assessee has 5 M/s Seth Industries brought to the notice of the AO that in respect of this immovable property the sale consideration was settled at Rs. 2,45,19,781/- for AY 2008-09 and the assessee had offered the capital gain on it in AY 2008-09. However, thereafter dispute arose between the assessee and the purchaser of immovable property (i.e. M/s Cowtown development) regarding measurement of land in question and which was finally settled after the intervention of the Hon’ble High Court of Bombay by appointing an Arbitrator, who has reduced the sale consideration from Rs. 2,45,17,781/- to Rs. 1,71,00,000/- in this AY 2010-11. Therefore according to the assessee, since the assessee has already paid Tax on the sale consideration of Rs. 2,45,19,781/- in AY 2008-09, which fact has been accepted by the AO for AY 2008-09 u/s 143(3) of the Act at para 5 of AO wherein the AO records this fact as under:-
Total land to be conveyed was 44078 sq. meter. For want of title deed the land actually conveyed during A.Y. 2007-08 was 38550 Sq. meter. The balance land could not be conveyed as the developers refused to take possession of the land since, the assessee company could not produce the title documents. During the year under consideration after the deliberation between the parties and considering the fact the assessee company had been in peaceful possession of balance land measuring 5528 sq. meter for the last four decades, developers agreed to take possession of said 5528 sq. meter and pay the balance Rs. 2,45,19,781/- to the assessee company in full and final settlement. The assessee offered this amount for tax has long term capital gain in A.Y. 2008-09.
Thus it is taken note that AO in the assessment order for AY 2008-09 u/s 143(3) of the Act has acknowledged the fact that the assessee had already offered M/s Seth Industries tax on the long term capital gain in respect of sale consideration on the property at sale consideration of Rs. 2,45,19,781/-. In this back-drop regarding this immovable property, it is further noted that due to the dispute raised by the purchaser of the immovable property in question, the sale consideration of this immovable property was finally reduced to Rs. 1,71,00,000/- which development took place in in AY 2010-11. Therefore the assessee had claimed loss of the Rs. 70,13,871/- (Rs.2,45,19,781/- Rs. 1,71,00,000/-). Therefore in this relevant assessment year 2010-11, assessee in the return of income has claimed loss of the same amount which fact was shown in the computation of income and this fact was brought to my notice that since original scrutiny assessment order u/s 143(3) has been passed on 12-02-2013 for AY 2010-11 and since the notice u/s 148 of the Act was issued vide letter dated 27-03-2017 which is undisputedly after expiry of the four (4) years from the end of the relevant assessment year, the first proviso to section 147 of the Act comes to play. Therefore in order to validly re-open the assessment for AY 2010-11, the AO has to satisfiy the additional condition precedent wherein AO has to spell out in the reasons recorded, the material facts assessee did not disclose fully and truly regarding this AY 2010-11. Then only AO can successfully re-open the assessment. From a perusal of the reasons recorded it is noted that the AO has made a bald statement that assessee has not disclosed true and full material facts about the sale transaction and not offered income which resulted in escapement of income at Rs. 1,71,00,000/-. I note that in the reassessment recorded (supra) the AO has not given what details/facts the assessee has not disclosed about the sale transaction in question. I note that assessee had filed return of income claiming loss at Rs. 70,13,897/- and in the 7 M/s Seth Industries computation of income filed along with the return of income, the assessee had clearly shown how it his claimed the loss wherein assessee has clearly brought out the facts regarding the sale of immovable property as discussed (supra). It is further noted that there was no tangible material from which the AO had recorded his satisfaction about escapement of income that too after four years from the end of the relevant assessment year which was completed u/s 143(3) of the Act. It is note that the AO in his reasons recorded has himself acknowledged the fact in issue, he has noted from perusal of the return of income (refer para 2, last line of the reasons recorded) where in the AO notes “From return of income, it is found that assessee has not offered income of Rs. 1,71,00,000/- but claimed balance amount of Rs. 70,13,897/- as loss ………”. Therefore, in the light of the aforesaid facts discussed (supra) it noted that the there was no tangible material which was in the possession of the of the AO which would justify the reopening u/s 147 of the Act as held by the Hon’ble Supreme Court in the case of Ganga saran & sons Ptv Ltd (1981) 130 ITR 01 (SC) and in the case of Kelvinator India 321 ITR 61 (SC). Therefore since there was no tangible material in the possession of the AO to justify the reopening u/s 147 of the Act, in the facts and circumstances of the case discussed (supra), I am of the considered opinion that the AO was not having the requisite jurisdiction to reopen the assessment u/s 147 of the Act and therefore, the assessee succeed on the legal issue and therefore the re-opening is held to be bad in law and the consequent, reassessment order is null in eyes of law.
Since, the assessee succeeded on the legal issue, the other grounds raised regarding the merits of the disallowance of the loss has become academic.
M/s Seth Industries 7. In the result, appeal filed by the assessee is allowed. Order pronounced in the open court on this 16/12/2022.