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Income Tax Appellate Tribunal, ‘A’ BENCH, CHENNAI
Before: SHRI MAHAVIR SINGHAND SHRI MANOJ KUMAR AGGARWAL
PER BENCH:
This appeal by Revenue and cross objection by the assessee are arising out of the order of Commissioner of Income Tax (Appeals)-10, Chennai in ITA No.88/CIT(A)-10/17-18 dated 05.09.2019. The re-assessment were framed by the ACIT Non- Corporate Circle-22, Chennai for the assessment year 2012-13 u/s.143(3) r.w.s. 147 of the Income-tax Act, 1961 (hereinafter the ‘Act’) vide order dated 20.12.2017.
The first issue in this appeal of Revenue is against the order of CIT(A) quashing the reopening made by the AO u/s.147 of the Act on change of opinion. For this, Revenue has raised following grounds:- 1. The CIT(A)-10 has erred in deleting the addition made in the assessee’s case under the head capital gains u/s.2(47)(iv) of the I.T.Act by holding that reopening has been made merely on change of opinion. 2. The CIT-A(10 ought to have appreciated the fact that builder’s portion of land was brought to tax u/s.2(47)(iv) of the I.T. Act for arriving at the total income of the assessee.
Brief facts are that the assessee is an individual and engaged in the business of construction of flats. The assessee filed her
3 I.T.A. No.3286/Chny/2019 & C.O No.2/Chny/2020 return of income for the assessment year 2012-13 on 20.10.2012. The original assessment was completed by the DCIT, Non-Corporate Circle 22, Tambaram u/s.143(3) of the Act vide order dated 27.03.2015. Subsequently, the AO issued notice u/s.148 of the Act dated 24.01.2017 which was received by the assessee on 28.01.2017. The assessee filed a letter dated 16.02.2017 stating that return of income filed originally u/s.139(1) of the Act for the assessment year 2012-13 be treated s return filed in response to notice issued u/s.148 of the Act. The assessee also requested for supplying reasons for reopening of assessment. The AO supplied the reasons recorded which are placed in paper-book filed by assessee at page 24 and as per reasons reopening is for the reason that the builders portion of land was not brought to tax for computing the long term capital gain of the assessee. The reasons were supplied by the AO vide letter dated 20.04.2017. Consequently, the AO framed reassessment order u/s.143(3) r.w.s. 147 of the Act vide order dated 20.12.2017, the impugned order, making addition of builders portion of land for long term capital gain amounting to Rs.47,21,690/-. Aggrieved, assessee preferred appeal before CIT(A).
4 I.T.A. No.3286/Chny/2019 & C.O No.2/Chny/2020 4. The CIT(A) relying on the decision of Hon’ble Supreme Court in the case of CIT vs. Kelvinator of India Ltd., 320 ITR 561 quashed the reassessment order passed u/s.143(3) r.w.s. 147 of the Act, by stating that the reopening has been made merely on change of opinion. Aggrieved, Revenue came in appeal before the Tribunal.
We have heard rival contentions and gone through the facts and circumstances of the case. We noted that the reasons recorded for reopening of assessment supplied by Revenue vide letter dated 20.04.2017 reads as under:- “The builders portion of land was not brought u/s 2(47)(iv) for arriving total income of the assessee. Therefore, Rs.47,21,690/- (60,14,892 less cost price @129 for 10024 sq ft=Rs.12,93,201) has to be brought to tax as LTCG and be taxed accordingly. I therefore have reason to believe that income chargeable to tax has escaped assessment within the meaning of section 148. It is therefore a fit case to be reopened u/s 148 of the Income Tax Act, 1961.”
We also noted that the objections raised by assessee for reopening of assessment was rejected by the AO vide letter dated 30.10.2017 and the AO only mentioned that reopening is done as per Explanation 1 to section 147 of the Act. The relevant text of the letter reads as under:- Please refer to your letter cited raising objection towards the reopening of the assessment for the Assessment Year 2012-13. With reference to the objection raised by you, vide the letter cited, on the ground that 'the case
5 I.T.A. No.3286/Chny/2019 & C.O No.2/Chny/2020 was taken up for scrutiny u/s.143(3) wherein a the details called for was submitted and the assessment was completed', it is hereby stated that your objection is not sustainable as per explanation 1. to the proviso to section 147 of the Income-tax Act, 1961 which is reproduced hereunder: ‘production before the Assessing Officer of account books or other evidence from which material evidence could with due diligence have been discovered by the Assessing Officer will not necessarily amount to disclosure within the meaning of the foregoing proviso'.
Admittedly, the assessment year involved is 2012-13 and during the course of original assessment proceedings, the AO in his original assessment order passed u/s.143(3) dated 27.03.2015 noted the fact of taxability of builders portion of land and the AO has gone into the factum of builders portion of land while taxing long term capital gain of this transaction. The AO noted the fact in his assessment order and the relevant reads as under:- “During the financial year the assessee had entered Joint Venture agreement with Shri.S.Rajesh Kumar, Prop: Arul Velan Promoters. The assessee shown gross receipt for sale of flats at Rs.3,53,28,851/- and claimed the expenses for construction cost as Rs,82,36,092/- and shown long term capital gain for entire land including builders share as Rs.89,74,905.86/- and gross profit declared is Rs.2,70,92,759/-
The A/R has been asked that the builders portion of land should not be treated as LongTerm Capital Gain. it should be restricted to the owners share. The build up area of owner's share is 11,112 sq.foot as per the agreement. The assessee had sold 11,112 sq foot at the rate of Rs.3,600/- per sq.foot.
This is bifurcated at Rs.600/- per sq.foot as land cost and Rs.3,000/- as sale value.”
6 I.T.A. No.3286/Chny/2019 & C.O No.2/Chny/2020 5.1 We noted that the Revenue now could not controvert during the course of hearing that as to how the AO has formed his opinion not to tax the builders portion of land because the AO has gone into the details and reached to a conclusion that builders portion of land should not be treated as long term capital gain. The AO after applying his mind computed the long term capital gain and assessed the income accordingly. We have gone through the entire facts of the case, including the original assessment order and are of the view that the AO has formed an opinion and while reopening of assessment subsequently by the AO by issuing notice and recording reasons, as per reasons there is no whisper of any tangible material came to the notice of the AO during the course of recording of reasons. In such circumstances, we are convinced that the issue is covered by the decision of Hon’ble Supreme Court in the case of Kelvinator India Ltd., supra. On going through the changes, quoted above, made to Section 147 of the Act, we find that, prior to Direct Tax Laws (Amendment) Act, 1987, re- opening could be done under above two conditions and fulfillment of the said conditions alone conferred jurisdiction on the Assessing Officer to make a back assessment, but in section 147 of the Act [with effect from 1st April, 1989], they are given a go-by and only one condition has remained, viz., that where the Assessing Officer has reason to believe that income has escaped assessment, confers jurisdiction to reopen the assessment. Therefore, post-1st April, 1989, power to re-open is much wider. However, one needs to give a schematic interpretation to the words “reason to believe” failing which, we are afraid, Section 147 would give arbitrary
7 I.T.A. No.3286/Chny/2019 & C.O No.2/Chny/2020 powers to the Assessing Officer to re-open assessments on the basis of “mere change of opinion”, which cannot be per se reason to re-open. We must also keep in mind the conceptual difference between power to review and power to re-assess. The Assessing Officer has no power to review; he has the power to re-assess. But re-assessment has to be based on fulfillment of certain pre-condition and if the concept of “change of opinion” is removed, as contended on behalf of the Department, then, in the garb of re- opening the assessment, review would take place. One must treat the concept of “change of opinion” as an in-built test to check abuse of power by the Assessing Officer. Hence, after 1st April, 1989, Assessing Officer has power to re-open, provided there is “tangible material” to come to the conclusion that there is escapement of income from assessment. Reasons must have a live link with the formation of the belief. Our view gets support from the changes made to Section 147 of the Act, as quoted hereinabove. Under the Direct Tax Laws (Amendment) Act, 1987, Parliament not only deleted the words “reason to believe” but also inserted the word “opinion” in Section 147 of the Act. However, on receipt of representations from the Companies against omission of the words “reason to believe”, Parliament re-introduced the said expression and deleted the word “opinion” on the ground that it would vest arbitrary powers in the Assessing Officer. We quote hereinbelow the relevant portion of Circular No.549 dated 31st October, 1989, which reads as follows:
“7.2 Amendment made by the Amending Act, 1989, to reintroduce the expression `reason to believe' in Section 147.--A number of representations were received against the omission of the words `reason to believe' from Section 147 and their substitution by the `opinion' of the Assessing Officer. It was pointed out that the meaning of the expression, `reason to believe' had been explained in a number of court rulings in the past and was well settled and its omission from section 147 would give arbitrary powers to the Assessing Officer to reopen past assessments on mere change of opinion. To allay these fears, the Amending Act, 1989, has again amended section 147 to reintroduce the expression `has reason to believe' in place of the words `for reasons to be recorded by him in writing, is of the opinion'. Other provisions of the new section 147, however, remain the same.”
8 I.T.A. No.3286/Chny/2019 & C.O No.2/Chny/2020 5.2 Similar view is taken by Hon’ble Supreme Court in the case of ITO vs. Techspan India (P) Ltd., 404 ITR 10 and observed as under:- 12) Before interfering with the proposed re-opening of the assessment on the ground that the same is based only on a change in opinion, the court ought to verify whether the assessment earlier made has either expressly or by necessary implication expressed an opinion on a matter which is the basis of the alleged escapement of income that was taxable. If the assessment order is non-speaking, cryptic or perfunctory in nature, it may be difficult to attribute to the assessing officer any opinion on the questions that are raised in the proposed re-assessment proceedings. Every attempt to bring to tax, income that has escaped assessment, cannot be absorbed by judicial intervention on an assumed change of opinion even in cases where the order of assessment does not address itself to a given aspect sought to be examined in the re-assessment proceedings.
5.3 From the above, we noted that in the present case before us, the AO has gone into the details of builders portion of land and formed an opinion what is to be taxed whether the same is to be taxed in the hands of the assessee or not. The AO once has formed opinion, reopening made by the AO is bad in law. Hence, we confirm the order of CIT(A) quashing the assessment framed on the basis of reopening and dismiss the appeal of Revenue.
Since we have adjudicated the issue of reopening and dismissed the appeal, we need not to go into the merits of the case.
9 I.T.A. No.3286/Chny/2019 & C.O No.2/Chny/2020 7. As regards to the cross objection of the assessee, since we have adjudicated the issue of reopening and dismissed the Revenue’s appeal, we need not to go into the issue raised in cross objection of the assessee. The Cross Objection of the assessee is infructuous.
In the result, the appeal filed by the Revenue in ITA Nos.3286/Chny/2019 is dismissed and cross objection filed by the assessee in C.O. No.2/Chny/2020 is also dismissed as infructuous.
Order pronounced in the open court on 24th August, 2022 at Chennai.
Sd/- Sd/- (महावीर �सह ) (मनोज कुमार अ�वाल) (MAHAVIR SINGH) (MANOJ KUMAR AGGARWAL) उपा�य� /VICE PRESIDENT लेखा सद�य /ACCOUNTANT MEMBER चे�ई/Chennai, �दनांक/Dated, the 24th August, 2022
RSR आदेश क� �ितिलिप अ�ेिषत/Copy to: 1. िनधा�रती/Assessee 2. राज�व/Revenue 3. आयकर आयु� (अपील)/CIT(A) 4. आयकर आयु� /CIT 5. िवभागीय �ितिनिध/DR 6. गाड� फाईल/GF.