ITO 3(2)(4), MUMBAI vs. OMEGA INVESTMENT & PROPERTIES LTD., MUMBAI

M/s Omega Investment and Properties The Assessee had claimed deduction under Section 80-1B(10) of the Income Tax Act. 1961 (for short, the Act") of Rs.20533831/-. The assessment for 2007-08 was completed on 15 May 2009, and the deduction under particular provisions was granted. After that, the case for the assessment year 2007 2008 was reopened under Section 148 of the Act vide notice dated 17 December 2012 and an order was passed by the Assessment Officer on 7 March 2014, against which the Assessee filed an Appeal before the Commissioner of Income Tax (Appeals). Mumbai, which was allowed by the Commissioner of Income Tax (Appeals) by order dated 30 November 2015. The Revenue filed an Appeal before the Income Tax Appellate Tribunal, which was allowed by the impugned order dated 9 April 2018. After the order was passed on 9 April 2018, the Assessee filed an application for Rectification on 17 April 2018 under Section 254 (2) of the Act. This Rectification Application was rejected by order dated 29 November 2019.

4. Assessee has filed the Income Tax Appeal No. 127 of 2021, and against the order rejecting the Rectification Application dated 29 November 2019, the Assessee has filed Writ Petition No. 1217 of 2020.

6. Having heard the learned Counsel, the Appeal is admitted on the following question of law: "Whether in facts and circumstances and in law whether, the Hon'ble Tribunal erred in disallowing the deduction to the assessee u/s.80IB (10) in respect of redevelopment project which M/s Omega Investment and Properties was eligible for deduction in view of the said provisions of the Income Tax Act. 1961."

M/s Omega Investment and Properties 10. In the Rectification Application, the Assessee sought to point out that in respect of the assessment year 2009-10, the decision of the Tribunal holding in favour of the Assessee, but the view of the Tribunal for the assessment year 2009-10 (ITA No 997 M/2013) was approved by this Court by dismissing the appeal filed by the Revenue of 2015 by the order dated 25 July 2017. The Assessee also sought to point out that the decision of the Tribunal in the case of Bhavya Constructions Vs. ACIT, this Court, by order dated 30 January 2020 in Income Tax Appeal No. 1009 of 2017. had set aside the same and remanded the matter to the Tribunal for a fresh hearing. However, the Tribunal did not consider the Rectification Application and dismissed the same.

M/s Omega Investment and Properties 12. The Tribunal has proceeded on the premise that there was an error in the orders passed by the Tribunal for the assessment years 2009-10 and 2010-11 in respect of the Assessee's case, which goes to the root of the matter and therefore, the Tribunal is entitled to take a different view. However, the fact that the orders passed by the Tribunal for the assessment years 2009-10 and 2010-11 were challenged by the Revenue by filing appeals in this Court, and they were dismissed, confirming the findings rendered therein was the material aspect which ought to have been considered by the Tribunal. If it was missed out when the Tribunal passed the order impugned dated 9 April 2018, when it was sought to be placed on record through Rectification Application, at that time, the Tribunal should have considered the implications of the order. The order passed by this Court in respect of the assessment year 2010 2011 has been rendered thereafter on 9 April 2018. Even the order setting aside the decision in the case of Bhavya Construction Co, and remanded the proceedings to the Tribunal was rendered on 30 January 2020.

14. The impugned order passed by the Tribunal dated 9 April 2018 is quashed and set aside, and the appeal being is restored to the file. The Tribunal will decide the Appeal afresh on its own merits in the light of observations made in this order and in the light of documents sought to be placed on record by the Assessee in his Miscellaneous Application dated 17 April 2018.

4. The grounds of appeal of Revenue in are as under:-

M/s Omega Investment and Properties 2. "On the facts and circumstances of the case the Ld.CIT (A) erred in ignoring the fact that there was no change of opinion as the matter was not examined in the proceedings u/s 143(3) of I.T. Act and the material on record proved that there was escapement of income as such the claim of assessee for the deduction u/s 80IB (10) was allowed without examination." 3. "Whether on the facts of the case and in law the Ld. CIT (A) was right in allowing the claim of the assessee of deduction u/s 80IB(10) of Rs.2,05,33,831/- in respect of Slum Rehabilitation Project (SRA) ignoring the fact that project was approved prior to 1.04.2004 and was not eligible for deduction u/s 80IB(10) as per the notification of CBDT no.67 dated 03.08.2010 read with corrigendum vide notification no.2 of 2011. 4. "The appellant prays that the order of CIT (A) on the above ground be set aside and that of the Assessing Officer be restored." 5. "The appellant craves leave to amend or alter any ground or add a new ground which may be necessary."

5. Ground No 1 of Revenue is against the impugned action of Ld.CIT(A) quashing the action of AO to have re-opened the assessment u/s 147 of the Act.

on merits.

11. Aggrieved by the impugned action of Ld.CIT(A), the Revenue is before us raising the grounds of appeal (supra) on both legal grounds as well as on merits.

12. Since the Revenue has assailed the action of Ld.CIT(A) to have held the AO’s action to re-open the assessment for AY. 2007-08 itself without jurisdiction, we need to adjudicate the legal issue pertaining to AO’s jurisdiction to have re- opened the assessment. For that we have to examine whether the AO had satisfied the essential condition precedent as required u/s 147 of the Act, to validily re-open the assessment for AY 2007-08.

13. We have heard both the parties and perused the records. Since the Revenue has challenged the Ld.CIT(A)’s impugned action of holding the re-opening of assessment itself bad in law, let us look into the settled position of law regarding re-opening u/s 147 of the Act.The concept of assessment is governed by the time- M/s Omega Investment and Properties barring rule; and an assessee acquires a right as to the finality of proceedings. Quietus of the completed assessments can be disturbed only when there is information or evidence regarding undisclosed income or AO had information in his possession showing escapement of income as stipulated u/s 147 of the Act. As per Section 147 of the Act, if the AO had to re-open the assessment, then AO has to record the reason to reopen the assessment, wherein he should record the “reason to believe, escapement of income”. It is settled principle of law that reason to believe postulates a foundation based an information and belief based on reason. After a foundation based on information is there, still, there must be some reason which should warrant the holding of a belief that income chargeable to tax has escaped assessment. In other words, before the AO issues notice u/s 148 of the Act, he must have recorded the reason to believe escapement of income. It is no doubt true that this Tribunal cannot go into the sufficiency or adequacy of the material and substitute its own opinion for that of the AO on the point as to whether action should be initiated for re-opening the assessment. At the same time, we have to bear in mind that it is not any and every material, howsoever vague and indefinite or distant or remote and far-fetched, which would warrant the formation of belief relating to escapement of income. It is well settled in law that reasons as recorded by AO for re-opening the assessment, are to be examined on a stand- alone basis. Neither anything can be added to the reasons so recorded, nor can anything be deleted from the reason so recorded. The Hon’ble Bombay High Court in the case of Hindustan Lever Ltd. (2004) 268 ITR 332 (Bom) has inter alia observed that “……it is needless to mention that the reasons are required to be read M/s Omega Investment and Properties as they were recorded by the AO. No substitution or deletion is permissible. No additions can be made to those reasons. No inference can be allowed to be drawn on the basis of reasons not recorded by him. He has to speak through the reasons”. Their Lordship added “The reasons recorded should be self-explanatory and should not keep the assessee guessing for reason. Reason provide link between conclusion and the evidence…”. Therefore, the Ld. DR’s contention before us that while examining the legal validity of the re-opening of assessment, we not only have to consider the reasons recorded by AO to re-open the assessment, but also consider the AO’s action of handing over the transaction data of hawala purchases [received from the DGIT(Inv.), Mumbai and copy of AIR (ITS) data], cannot be accepted as held by the jurisdictional High Court that while examining the jurisdiction of AO to have re-opened the assessment, we have to only consider the reasons recorded by the AO on a stand-alone basis and adjudicate as to whether AO has satisfied in the reasons recorded, the condition precedent i.e, reason to believe escapement of income) to validly reopen the assessment.

M/s Omega Investment and Properties As such, the AO held that the assessee company had not satisfied condition laid down in clause (a) to section 80 IB (10) of I.T. Act and disallowed the claim of deduction u/s 80 IB (10) amounting to Rs. 1,03,79,815/- The assessee company has claimed deduction u/s 80 IB (10) in respect of the same project at Parel for the A.Y.2007-08 also. Since it is held that the assessee had not satisfied conditions laid down in A.Y. 2009-10, the conditions are not satisfied for this year also as the project has not been completed before 31.03.2008. Hence, the claim of deduction u/s 80 IB(10) for A.Y.2007-08 amounting to Rs.2,05,33,831/- is incorrect and needs to be withdrawn. In view of the above, have reason to believe that income chargeable to tax has escaped assessment. Hence, the assessment for A.Y. 2007-08 is hereby reopened u/s. 147 of the IT. Act in the case of the assessee".

15. From a bare reading of the “reason recorded” by AO to reopen the assessment for AY. 2007-08, we note that AO has invoked his jurisdiction to re- open the original scrutinized assessment order u/s 143(3) of the Act of AO dated 15.05.2009 pursuant to AO’s action in assessee’s case for subsequent assessment for AY 2009-10, wherein the AO has disallowed the claim of assessee u/s 80IB(10) of the Act to the tune of Rs. 1,03,79,815/- taking note of the CBDT notification No.67 dated 03.08.2010 read with corrigendum vide notification No. 2 of 2011 wherein it was clarified the deduction u/s 80IB(10) of the Act regarding development of slum Rehabilitation project was eligible only to projects which are (i) approved after 1st day of April 2004 and that (ii) the project has not been 14 M/s Omega Investment and Properties completed before 31.03.2008. And since the AO for subsequent AY 2009-10 held that the assessee got the initial approval on 7th Oct 2002, for the assessee’s project at Parel (Kingston Tower) was not eligible for deduction u/s 80IB(10) of the Act because it got approval before 1st day of April 2004 and also because the project has not been completed before 31.03.2008, the AO was of the opinion that for the relevant assessment year i.e, AY 2007-08, the assessee’s project at Parel (Kingston Tower) was not eligible for deduction u/s 80IB(10) of the Act. So we find that the foundation on the basis of which the AO resorted to re-opening the assessment for the relevant AY 2007-08 was due to the subsequent action of AO for assessment year 2009-10 wherein he disallowed the deduction claimed by the assessee u/s 80IB (10) of the Act on two (2) counts that is (i) the assessee’s project at Parel (Kingston Tower) was approved before 1st day of April 2004 and that (ii) the project has not been completed before 31.03.2008 and therefore he had reason to believe escapement of income for AY 2007-08.

16. Before we proceed further to adjudicate the legal issue regarding jurisdiction of AO to re-open the assessment of the relevant AY 2007-08 on the basis of assessment framed for AY 2009-10, it is crucial to take note of an important fact i.e, subsequent development about the fate of Appeal by assessee for AY 2009-10. We note that the assessee being aggrieved with the action of AO disallowing the deduction u/s 80IB (10) of the Act for the project at ‘Kingston Tower’ at Parel for AY 2009-10 had preferred an appeal before the Ld.CIT(A), who was pleased to allow the appeal in favor of assessee and thus allowed the deduction u/s 80IB (10)

M/s Omega Investment and Properties of the Act wherein the Ld CIT(A) negated both the reason given by AO to disallow the deduction [which has been reproduced by the Tribunal (infra) while up-holding the action of Ld CIT(A)].

3. During the proceedings before us, at the outset, Shri Rakesh Joshi, Ld Counsel for the assessee brought our attention to the above mentioned grounds and mentioned that the only issue raised before the Tribunal relates to the allowability of deduction u/s 801B (10) when the project in question is cleared after approval of the Slum Rehabilitation Authority. It is the claim of the assessee that the due dates for completion of project provided under subsection-10 of section 801B are not applicable to the project like this in view of the immunity provided under proviso to clause (a) &(b) of the said sub-section 10. It was demonstrated before us that the CIT (A) examined the said provisions read with the notification issued by the CBDT in this regard and allowed the claim of the assessee.

5. We have heard both the parties and perused the orders of the Revenue Authorities as well as the relevant material placed before us. After hearing both the parties and on perusal of the (A)'s order, we find the CIT (A) has given the finding categorically by holding that the project in question is a Slump Rehabilitation Project and the time limit provided in the statute will not be applicable to the assessee in view of the proviso to section 80IB(10). The contents of para 6.1 of the impugned order are relevant and the same reads as under:- "6.1. Therefore, from the proviso below clause (b) of sub-section 80IB(10), it is clear that if any project is declared within the scheme framed by Central Government or Statement from Slum Rehabilitation/redevelopment, then rigors of clause (a) and clause M/s Omega Investment and Properties (b) will not apply to such projects. There is no denial of the fact that the project of the assessee has been approved as Slum Rehabilitation Project by Slum Rehabilitation) Authority of Maharahtra State and the approval has been given on 4.6.2004, therefore, it is clearly covered by the proviso below clause (b) of sub- section 80IB(10), whereas, any other restriction for date of start and completion put by any notification or instruction etc cannot override the Act of Parliament. Hence, considering any such notification and holding such project out of the applicability of the proviso below clause (b) of sub-section 80IB(10) by the AO is not correct. The assessee has correctly relied on the decision of the Hon'ble ITAT in the case of Asha Kashiprasad Ringshia (supra), which is directly on the same issue and relevant portion as reproduced by the assessee in its submissions is again reproduced below. "Thus, rigors of the conditions enumerated in clauses (a) and (b) of section 80IB, has been relaxed by the legislature to achieve certain socio-economic object and, therefore, proviso to section 80IB should be given a liberal interpretation so as to not to defeat a genuine claim for deduction by a developer who undertakes to develop a housing project in a slum area under the scheme approved by the Central or State Govt. The CBDT which had issued the notification after more than five years of the amendment, has put a time limit of those housing projects which has been approved by the local authority on / or after 1 April, 2004. Such a time limit can defeat the basic purpose of the proviso for which it was enacted as in the said proviso, the limit provided M/s Omega Investment and Properties in clause (a) of section 80IB(10) has not been specifically made applicable, therefore, such a time limit cannot be imposed by way of subordinate legislation. Such notification can only clarity the statutory provisions and not override them or restrict the operation of the main enactment. Therefore, in our considered opinion, the time limit of approval on/or after 1 April, 2004 will not be applicable in the case of the proviso to section 80IB(10)."

6. Considering the above, we are of the opinion that the CIT (A) has rightly adjudicated the issue under consideration and we find no infirmity in the order of the CIT (A). Therefore, the order of the CIT (A) is fair and reasonable and it does not call for any interference. Accordingly, grounds raised by the Revenue are dismissed.[Emphasis given by us]