Loading judgment…
No AI summary yet for this case.
Income Tax Appellate Tribunal, ‘A BENCH, CHENNAI
Before: SHRI MANU KUMAR GIRI & SHRI JAGADISH
The captioned appeal filed by the Revenue is directed against the order of the Ld. Ld. Commissioner of Income Tax (Appeals)(NFAC) Delhi [CIT(A)] dated 06.03.2024 for Assessment Year 2014-15. 2. The registry has noted delay of 11 days in filing the appeal. Considering the reasons stated in the affidavit by department, we condone the delay and treat the reasons as ‘sufficient cause’ and admit the appeal for adjudication. 3. The grounds raised by the Revenue read as under:-
1. The order of the learned CIT(A) is contrary to law, facts and circumstances of the case.
The Ld CIT(A) has erred in quashing the reopening when the issue for which the case was reopened was never dealt in the regular assessment proceedings.
The Ld CIT(A) has failed to appreciate that the Assessing Officer during the assessment proceeding for the A.Y.2014- 15 did not examine this issue or formed any opinion.
4. The Ld CIT(A)'s quashing of the Assessment on the basis of change of opinion is incorrect when there is no opinion formed by any authority in the first place, any change of opinion cannot be said to exist or arise. 5. The Ld. CIT(A) has failed to appreciate that the provisions of section 45(2) are not attracted in this case and Capital Gains are to be taxed by invoking section 53A of transfer of Property Act. 6. The Ld CIT(A) has erred in recognising that the assessee has relinquished his right over the 60% share and therefore liability to pay tax arises. 7. For these and other grounds that may be adduced at the time of hearing, it is prayed that the order of the learned CIT(A) may be set aside and that of the Assessing Officer restored.”
Brief facts are as follows:- The assessee is a private limited company engaged in the business of infrastructure development. The assessee has filed its return of income for A.Y. 2014-15 on 20.09.2014 declaring total loss of Rs.1,90,94,365/-. Subsequently, the AO has reopened the assessment by issue of notice u/s.148 of the Act on 30.03.2021 and completed the assessment u/s.147 r.w.s 144B of the Act by making addition of Rs.12,54,289,672/- on account of undisclosed capital gain by the assessee.
Aggrieved, the assessee challenged order of assessment before the CIT(A). Before the CIT(A), the assessee took following objections in regard to assumption of jurisdiction by the AO.
In the present case, the reopening is made beyond 4 years from the completion of the assessment year and hence as per the provisions of 147 of the Act, the power to reopen is available only where there is a finding that the respondent have failed to disclose fully and truly all the material facts necessary for the assessment for the relevant assessment year. In the present case, there is no alleged failure on the respondent's part to disclose all the material fact relevant for the assessment.
On the jurisdictional issue challenging reopening of assessment u/s.148 of the Act, the CIT(A) accepted the prayer of the assessee and quashed the assessment proceedings observing as under:- “5.5. Ground No. 2 to 4 of the appeal are relating to merit of reopening. Notice u/s. 148 of the Act was issued on 30.03.2021. The assessment year is 2014-15 and the case had been originally completed u/s. 143(3) of the Act on 20.12.2016. There is no dispute as to dates. It is seen therefore that notice u/s. 148 was issued beyond 4 years from the end of the Assessment Year. While approval of the competent authority has been taken, what is important to note is that whether any new information came to the knowledge of the Assessing Officer or was brought to his knowledge by any other agency such as GST, ED or even other branch of Income Tax Department, namely Investigation Wing. However, it is seen that the reasons for reopening are regarding on observation about Note Number 24 to annual accounts, Assessee has converted land held by it as fixed assets to project in progress and has not recognised the notional profit on conversion in books of accounts. This has been objected to by AO and is basis of reopening. I observe that this information is there in the annual accounts. There is nothing new in it that that has come to notice of AO after conclusion of scrutiny proceedings. Therefore, it was in the knowledge of the AO during the original scrutiny proceedings. I am therefore in agreement with view of assessee that all material facts necessary was available for original assessment and the same were truly and fully disclosed.
Assessee was also of opinion that there is no alleged failure on the part of appellant to disclose all the material facts relevant for the assessment and that between date of original order of assessment sought to be reopened and the date of forming of opinion by the AO, there is no change of law, no material has come on record and no Information has been received. Assessee has stated that this is change of opinion by the AO. In support of view, assessee has given various case studies in its favour. These include judgement of jurisdictional Hon'ble High Court (Madras) in the following cases: (i) CIT vs. Abdul Rahman Sait (ii) CIT vs K. K. Palaniswamy (iii) CIT vs RPG Transmission Ltd (iv) CIT vs Ashley Services Ltd. (v) CIT vs M/s. Chennai Garments Respectfully following these jurisdictional High Court decisions, I decide No.2 to 4 in favour of the appellant.”
Now, the Revenue has challenged the impugned order passed by the CIT(A) before us.
The ld. DR has taken a plea that issue for which the case has been reopened was never dealt with in regular assessment proceedings. He further submitted that the AO during the assessment proceedings for the year under consideration did not examine this issue or formed any opinion. Therefore, he pleaded that quashing of assessment in this case on the basis of change of opinion is bad in law.
9. Per contra, the ld. counsel for the assessee again reiterated the submissions made before the CIT(A). The ld. Counsel for the assessee submitted that the reopening is made beyond 4 years from the completion of the assessment year and hence as per the provisions of section 147 of the Act, the power to reopen is available only where there is a finding that the respondent have failed to disclose fully and truly all the material facts necessary for the assessment for the relevant assessment year. The ld. Counsel further argued that there is nothing on record to show that after completing the original scrutiny assessment, new information or material has surfaced, to conclude that there is escapement of income from the assessment and therefore, no reason for forming a belief that the income has escaped assessment. The ld. counsel referred the judgment of the Hon’ble Supreme court in the case of Kelvinator of India Ltd 320 ITR 561 SC and submitted that an assessment cannot be reopened on the basis of mere change of opinion. In the present case, there is no alleged failure on the assessee’s part to disclose all the material fact relevant for the assessment. In the present case, he also pleaded that the assessee has converted the land held as a Capital Asset into Stock-in-Trade vide resolution of the company’s Board of Directors, in the meeting held on 8th June 2013. The said land was sold in parts only from April 2015. In terms of section 45(2) of the Act, the liability to pay the taxes arises in the year of sale from the financial year 2015-16 (AY 2016-117). The assessee has offered the said income (Capital Gains) in the year 2016-17 and paid the relevant taxes.
We have heard rival submissions and perused records, case laws cited by at bar. The reasons for reopening of assessment in this case are as under:- 4. The assessment for the assessment year 2014-15 has been reopened u/s 147 of the Act vide notice dated 30th March 2021 for the following reasons (as provided in the notice under section 143(2) read with section 147 of the Act vide reference no ITBA/AST/F/143(2) 4/2021-22/103273 7796(1) dated 30th April 2021): a. It is noticed that as per Note 24 to annual accounts 2013-14, the assessee on 8.6.2013 converted the land held by it as fixed assets to project in progress. The value of the land as on the date of conversion as Rs.3401,556,840/-. The notional/profit on conversion of fixed asset to project in progress of 1254,289,672/- has not been recognised in the books of accounts of the Company. It has also been stated that taxability u/s 45(2) would arise only in the year of sale and from Note 5 under Current inabilities, the assessee has received advance from Customer segregating to Rs.3684, 686,467 and Rs. 1300,000,000/- from the JDA Partners. b. As per the definition u/s 2(47), transfer in relation to a capital asset includes. sale, exchange or relinquishment of the assets or the extinguishment of any right therein. Transfer also includes any transaction involving the allowing of the possession of any immovable property to be taken or retained in part performance of a contract of the nature referred to in section 53A of the transfer of property act 882: or Transfer of Immovable property under agreement to sell. Transfer deemed to be take place on the date on which possession a immovable property is given in pursuance of agreement to sell, Hence capital gains arise in the year in which possession in given buyer, not the date on which property is registered in the name of buyer. c. The Joint development agreement entered into by the assesee with the developer is a legal transfer agreement in respect of sale of land proportionate to 60% of the total built up area. As the assessee has relinquished his right over the 60% share, liability to pay tax arises irrespective of incidence of handing Over of the built up area by the developer Tax on Capital gain escaping assessment being the notional profit on conversion of Rs.1254,289,672/- would work out to Rs.42,63,33,059/-.”
11. As we see from the above reasons recorded by the AO for reopening assessment that there is no allegation that failure of the assessee to disclose fully and truly all material facts necessary for the assessment. We also find that after the original scrutiny assessment, no new information or material came in the hand of AO which gave jurisdiction to AO to reopen the present case. We are of the considered view that in this the case, existence of ‘jurisdictional fact’ is missing which is sine qua non for the exercise of power by the AO u/s 147 of the Act.
12. Recently, the Hon’ble jurisdictional High Court in the case of ACIT Vs Seshasayee Paper and Board Ltd [2023] taxmann.com 432 (Madras): 455 ITR 291 (Madras) held as under: 8. We find that there is no illegality or infirmity in the order of the learned Single Judge warranting interference for the following reasons: (a) That the impugned proceeding is admittedly initiated invoking the extended period under section 147 of the Act. The relevant portion of the said section is extracted below: "Provided that where an assessment under sub-section(3) of section 143 or this section has been made for the relevant assessment year, no action shall be taken under this section after the expiry of four years from the end of the relevant assessment year, unless any income chargeable to tax has escaped assessment for such assessment year by reason of the failure on the part of the assessee to make a return under section 139 or in response to a notice issued under sub-section (1) of section 142 or section 148 or to disclose fully and truly all material facts necessary for his assessment, for the assessment year.'' A reading of the above provision would show that while it is open to the Assessing Officer to invoke section 147 of the Act within a period of four years, if the Assessing Officer has reason to believe that any income chargeable to tax has escaped assessment, subject to the provisions of sections 148 to 153 of the Act. The proviso to section 147 of the Act, enables the Assessing Officer to make reassessment even after the expiry of four years from the end of the relevant assessment year, but, within six years from the relevant assessment year, if the income chargeable to tax has escaped assessment under the following circumstances, viz., a. Failure of the assessee to make a return under section 139 of the Act. b. Does not make a return in response to a notice issued under sub- section (1) to section 142 or section 148 of the Act. c. Failure of the assessee to disclose fully and truly all material facts necessary for assessment.
In the present case, admittedly the extended period of six years is being invoked not under (a) or (b) set out above but only in view of (c) i.e., failure to disclose fully and truly all material facts necessary for assessment. It is submitted by the learned counsel for the respondent/assessee that while furnishing the reasons for reassessment vide its communication dated 6-1-2014, there is no finding that there was failure on the part of the appellant to fully and truly disclose all material facts necessary for assessment. It is submitted that in the absence of any finding on the above jurisdictional fact, the entire proceeding would be void and a nullity. We find there is merit in the above submission inasmuch as the normal period of limitation for exercising the power of reassessment under section 147 of the Act is four years. The extended period of six years could be invoked only under three circumstances set-out/mentioned above. Admittedly, the only circumstance which could have enabled the respondents to invoke the extended period of 6 years in the present case is to bring the proceedings under clause (c). To invoke the extended period of six years for reassessment, the reasons furnished for reassessment ought to contain a finding that the appellant herein had failed to disclose fully and truly all material facts necessary for assessment. We say this, since it appears to us that the whole idea of furnishing reasons before embarking on a full fledged exercise of reassessment was to ensure that the powers of reassessment are exercised only in circumstances which the statute permit. The above limitation/restriction on the power of reassessment was intended to ensure transparency in the proceeding and to avoid abuse of power. It is trite law that power of reassessment must be exercised with a degree of caution and an element of circumspection and must be strictly in compliance with the procedure and only in circumstances which warrants exercise of that power. In the present case, though admittedly the power to reassess has been exercised by invoking the extended period of limitation in terms of the proviso to Section 147 of the Act, there is no recording of the existence of the circumstances, viz., failure to disclose fully and truly all material particulars which would confer jurisdiction to proceed/initiate reassessment proceeding beyond four years and within six years. In this regard, it may be relevant to refer to the following judgments to appreciate the relevance and importance of existence of jurisdictional facts and an application of mind as to its existence by the authority concerned before assuming jurisdiction. It is relevant to extract the judgment of the Hon'ble Supreme Court in the case of Arun Kumar v. Union of India [2006] 155 Taxman 659/286 ITR 89/1 SCC 732, which reads as under: ''74. A "jurisdictional fact" is a fact which must exist before a court, tribunal or an authority assumes jurisdiction over a particular matter. A jurisdictional fact is one on existence or non-existence of which depends jurisdiction of a court, a tribunal or an authority. It is the fact upon which an administrative agency's power to act depends. If the jurisdictional fact does not exist, the court, authority or officer cannot act. If a court or authority wrongly assumes the existence of such fact, the order can be questioned by a writ of certiorari. The underlying principle is that by erroneously assuming existence of such jurisdictional fact, no authority can confer upon itself jurisdiction which it otherwise does not possess.'' 75. In Halsbury's Laws of England, it has been stated: "Where the jurisdiction of a tribunal is dependent on the existence of a particular state of affairs, that state of affairs may be described as preliminary to, or collateral to the merits of, the issue. If, at the inception of an inquiry by an inferior tribunal, a challenge is made to its jurisdiction, the tribunal has to make up its mind whether to act or not and can give a ruling on the preliminary or collateral issue; but that ruling is not conclusive."
The existence of jurisdictional fact is thus sine qua non or condition precedent for the exercise of power by a court of limited jurisdiction." (Emphasis Supplied)
10. The Hon'ble Supreme Court in the case of Arun Kumar (supra), thereafter proceeded to rely upon the decision in the case of White & Collins v. Minister of Health [1939] 2 BK 838 and observed as under:
"80. The Court relied upon a decision in White & Collins v.Minister of Health [(1939) 2 KB 838 : 108 LJ KB 768 : (1939) 3 All ER 548 (CA) sub nom Ripon (Highfield) Housing Order, 1938, Re] wherein a question debated was whether the court had jurisdiction to review the finding of administrative authority on a question of fact. The relevant Act enabled the local authority to acquire land compulsorily for housing of working classes. But it was expressly provided that no land could be acquired which at the date of compulsory purchase formed part of park, garden or pleasure ground. An order of compulsory purchase was made which was challenged by the owner contending that the land was a part of park. The Minister directed public inquiry and on the basis of the report submitted, confirmed the order.
Interfering with the finding of the Minister and setting aside the order, the Court of Appeal stated; "The first and the most important matter to bear in mind is that the jurisdiction to make the order is dependent on a finding of fact; for, unless the land can be held not to be part of a park or not to be required for amenity or convenience, there is no jurisdiction in the borough council to make, or in the Minister to confirm, the order. (Emphasis Supplied)
While on the question of existence or otherwise of jurisdictional fact which would enable the authority to invoke the extended period of limitation of six years for reassessment, it may also be relevant to note that the question of limitation has been understood to be one involving jurisdiction even under the Excise Law and in the absence of finding of the existence of the circumstances enabling the invoking of the extended period, it has been held by the Hon'ble Supreme Court that the issuance of Show Cause Notice itself is impermissible. In this regard, it may be relevant to refer the judgment in the case of ITW Signode India Ltd. v. Collector of Central Excise 2003 taxmann.com 382 (SC)/[2004] 3 SCC 48, wherein, after extracting the judgment of the Hpn'ble Supreme Court in the case of Easland Combines v. Collector of Central Excise 2003 taxmann.com 2076, the Court proceeded to conclude as under:
'68. Even in Easland Combines [(2003) 3 SCC 410 : (2003) 152 ELT 39] this Court held: (SCC pp. 424-25, para 31)
31. It is settled law that for invoking the extended period of limitation duty should not have been paid, short-levied or short-paid or erroneously refunded because of either fraud, collusion, wilful misstatement, suppression of facts or contravention of any provision or rules. This Court has held that these ingredients postulate a positive act and, therefore, mere failure to pay duty and/or take out a licence which is not due to any fraud, collusion or wilful misstatement or suppression of fact or contravention of any provision is not sufficient to attract the extended period of limitation.
The question of limitation involves a question of jurisdiction. The finding of fact on the question of jurisdiction would be a jurisdictional fact. Such a jurisdictional question is to be determined having regard to both fact and law involved therein. The Tribunal, in our opinion, committed a manifest error in not determining the said question, particularly, when in the absence of any finding of fact that such short-levy of excise duty related to any positive act on the part of the appellant by way of fraud, collusion, wilful misstatement or suppression of facts, the extended period of limitation could not have been invoked and in that view of the matter no show-cause notice in terms of Rule 10 could have been issued." (Emphasis Supplied)
From the above decisions, it is clear that existence of ''jurisdictional fact'' is sine qua non for the exercise of power. If the jurisdictional fact exists, only then the authority can proceed with the case and take an appropriate decision in accordance with law. It leaves no room for any doubt that to invoke the extended period, the Assessing Officer ought to show/demonstrate the existence of any of the three circumstances set out in the proviso to section 147 of the Act. In this case, failure on the part of the assessee to fully and truly disclose all material particulars in our view would constitute the "jurisdictional fact" for invoking extended period of limitation and failure to record the existence of the above jurisditional fact while invoking the extended period under the proviso to section 147 of the Act, would vitiate the entire proceedings. In this regard, it may be relevant to refer the following judgments, wherein it was held that failure to render a finding as to the existence of the above circumstance warranting invocation of the extended period in terms of the proviso to section 147 of the Act would vitiate the entire proceedings. In this regard, it may be relevant to refer to the following judgments:
(a) Duli Chand Singhania v. Asstt. CIT [2004] 136 Taxman 725/269 ITR 192 (Punj. & Har.): ''that the reasons recorded for issue of notice showed that the satisfaction recorded therein wes merely about the escapement of income. There was not even a whisper of an allegation that such escapement had occurred by reason of failure on the part of the assessee to disclose fully and truly all the material facts necessary for his assessment. Absence of this finding which is a "sine qua non" for assuming jurisdiction under section 147 of the Act in a case falling under the proviso thereto, made the action taken by the Assessing Officer wholly without jurisdiction. The notice was not valid and was liable to be quashed. " (emphasis Supplied)
(b) CIT v. Elgi Ultra Industries Ltd. [2008] 296 ITR 573 (Mad.) the reopening of the assessment under s. 148 beyond the period of four years at the end of the relevant assessment year can be sustained only if it is established that there is a failure on the part of the assessee to disclose fully and truly all material facts. in this case there is no finding that there is failure on the part of the assessee to disclose fully and truly all material facts . (emphasis Supplied)
(c) CIT v. Premier Mills Ltd. [2009] 179 Taxman 13/[2008] 296 ITR 157 (Mad.)
6. In case where the assessment is completed under section 143(3) of the Income-tax Act, the reopening of the assessment under section 148 beyond the period of four years at the end of the relevant assessment year can be sustained only if it is established that there is a failure on the part of the assessee to disclose fully and truly all material facts. In this case there is no finding that there is failure on the part of the assessee to disclose fully and truly all material facts. Further, all the material facts are available at the time of making original assessment. The Tribunal has correctly followed the principles enunciated in the Supreme Court judgment reported in CIT v. Foramer France, [2003] 264 ITR 566, as well as this court judgment reported in the case of CIT v. Elgi Finance Ltd., [2006] 286 ITR 674 and came to the correct conclusion.
(d) CIT v. A.V. Thomas Exports Ltd. [2007] 163 Taxman 718/[2008] 296 ITR 603 (Mad.)
"6. The Tribunal has applied the correct principle of law and held as follows:
But whether recourse to section 147 could be made beyond four years is the real question in the present appeal. Circumstances for extending limitation beyond four years do not exist in the facts of the present case. As such on the ground of limitation assumption of jurisdiction under section 147 is bad. In the case of CIT v. Foramer France, [2003] 264 ITR 566 (SC), it was held that if there is no failure to file return or to disclose fully and truly all material facts, issuance of notice beyond the period of four years is barred by limitation. In the case of CIT v. Annamalai Finance Ltd., [2005] 275 ITR 451 (Mad) it was held that section 147 of the Act does not postulate conferment of power upon the Assessing Officer to initiate reassessment proceedings upon a mere change of opinion. It is incumbent on the Assessing Officer to prove that there was a failure to disclose material facts necessary for the assessment for the issuance of notice beyond the period of four years.
(e) Caprihans India Ltd. v. Tarun Seem, Dy. CIT [2003] 132 Taxman 123/[2004] 266 ITR 566 (Bom.)
"8. The Assessing Officer seeks to reopen the assessment after a period of four years from the end of the assessment year and in view of the judgment of this court in the case of IPCA Laboratories Ltd. v. Gajanand Meena, Deputy CIT (No. 2)[2001] 251 ITR 416, the Assessing Officer cannot act in the matter of reopening of assessment beyond four years, unless he has reason to believe that income has escaped assessment by reason of the failure on the part of the assessee to disclose fully and truly all material facts necessary for assessment. He submitted that a bare reading of the reasons shows that reopening is sought to be effected only on the basis of the case records. He submitted that on two out of three points mentioned in the reasons, the Assessing Officer merely states "that the issue needs to be looked into". That, on those two issues regarding subsidy and provident fund being disallowed, the Assessing Officer does not even say that there is escapement of income from assessment. He therefore submits that the proviso to section 147 is not attracted. That, on the said two points, there is nothing to indicate escapement of income. That, on the said two points, there is nothing to indicate failure on the part of the assessee to disclose fully and truly all material facts. That, on these two points, there is nothing to show as to on what basis the Assessing Officer has formed his belief regarding escapement of income from assessment. It is submitted that on the face of the given reasons, there is a total non-application of mind on the part of the Assessing Officer. (Emphasis Supplied)
12.1 …………………………………………………………………………. …………………………………………………………………………………… In the circumstance, we agree with the finding of the learned Single Judge that the condition precedent to invoke extended period of limitation under section 147 of the Act viz., failure on the part of the respondent/assessee to disclose fully and truly all material particular is absent in the facts of the case.
Respectfully following the judgment of the Hon’ble jurisdictional High Court in the case of ACIT Vs Seshasayee Paper and Board Ltd [2023] taxmann.com 432 (Madras): 455 ITR 291 (Madras) referred supra and other judgments relied above, we held that there was no recording of existence of circumstances, viz; failure on the part of assessee to disclose fully and truly all material particulars which would confer jurisdiction to proceed/initiate reassessment proceedings beyond four years and within six years. Therefore, in the light of the facts and circumstances of the case, reopening of assessment was rightly set aside by the ld. CIT(A). Hence, we affirm the order of the ld. CIT(A) on jurisdictional issue. Other issues raised become academic.
In result, appeal filed by the revenue is dismissed.
Order pronounced in the open court on 16th May , 2025