JAGDISH U. THACKERSAY,MUMBAI vs. DEPUTY COMMISSIONER OF INCOME TAX (CIRCLE) 2(1), MUMBAI

PER N.K. PRADHAN, A.M. This is an appeal filed by the assessee. The relevant assessment year is 2008-09. The appeal is directed against the order of the Commissioner of Income Tax (Appeals)-4, Mumbai [in short ‘CIT(A)’] and arises out of the assessment completed u/s 143(3) r.w.s. 147 the Income Tax Act 1961, (the ‘Act’).

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feet and not only 400 square feet as misconceived by the Assessing Officer. (v) That the Ld. CIT(A) erred in confirming the action of the Assessing Officer of disallowing the exemption on estimate basis. The appellant submits that disallowance on basis of estimates and presumptions is not warranted and ought to be deleted. (vi) The Ld. CIT(A) erred in confirming the action of the Assessing Officer in charging excess interest u/s.234B at Rs.86,48,016/-. The appellant submits as per the provisions of the Act, the interest u/s 234B works out to Rs.45,37,227/-.

“It is seen that the assessee has claimed exemption u/s 54F for Rs.5,70,45,771/- on purchase of agricultural land with one residential house of 400 sq. ft. Assessee has basically paid the consideration for acquiring agricultural land and exemption u/s 54F is extendable only for acquiring residential house property. In view of the fact that the residential house property comprises only 400 sq. ft. on the aforesaid land, even if 10% of the consideration is attributable to the house property, balance is admissible. Accordingly exemption u/s 54F allowed of Rs.5,13,41,193/- is irregular and hence, needs to be withdrawn.

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In view of the above, I have reason to believe that income chargeable to tax has escaped assessment for A.Y. 2008-09 by reason of the failure on the part of the assessee to disclose fully and truly all material facts necessary for assessment and also by the reason that the income has escaped assessment within the meaning of sec. 147 of the I.T. Act, 1961. Accordingly, the assessment for A.Y. 2008-09 is reopened by issue of notice u/s 148 of the I.T Act, 1961.”

3.1 During the course of re-assessment proceedings, the authorized representative of appellant submitted before the AO vide letter dated 25.03.2014 (i) that the re-opening is based on erroneous facts because the residential house property purchased comprises of 6700 sq. ft. and 400 sq. ft. and not only 400 sq. ft. as mentioned by the AO, (ii) that the assessee had sold long term shares in June 2006 and offered the long term capital gains to tax ; against the capital gains earned, he had claimed deduction u/s 54EC and 54F; the assessee had purchased a residential property at Alibaug amounting to Rs.5,75,00,000/- on 12.06.2009, within 2 years of the capital gains earned, (iii) that the working of the capital gains was submitted vide letter dated 29.11.2010 during the original assessment proceedings; the copy of the purchase agreement along with details of payment made for acquiring the said property was also submitted, (iv) that as per the documents filed, the assessee had purchased a residential property comprising of 6700 sq. ft. and 400 sq. ft. along with land appurtenant thereto and (v) that the deduction claimed by the assessee is correct and ought to be allowed as claimed.

However, the AO was not convinced with the above explanation of the assessee and withdrew claim of Rs.5,13,41,193/-, thereby restricting the disallowance u/s 54F to Rs.57,04,578/-.

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On merit also, the Ld. CIT(A) confirmed the disallowance of claim of deduction u/s 54F of the Act to the extent of Rs.5,13,41,193/- made by the AO.

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outhouse having house No. 1059 of 400 sq. ft. along with land appurtenant thereto vide agreement dated 12.06.2009. Accordingly the appellant claimed exemption u/s 54F and not a residential unit of only 400 sq. ft., as mentioned by the AO.

It is further stated by the Ld. counsel that during the course of original assessment proceedings, the AO had inquired about the capital gains and also asked for details of exemption claimed u/s 54EC and 54F; the transaction details, agreement for purchase of property, details of property owned, capital gains calculation and note on exemption claimed u/s 54F and 54EC were submitted by the appellant before the AO vide letter dated 29.11.2010.

It is explained by the Ld. counsel that the details of exemption claimed u/s 54F were called for and examined by the AO during the original assessment proceedings u/s 143(3), therefore, it is a clear change of opinion on the same set of facts by the AO and it not permissible for him to resort to proceedings u/s 147 of the Act. Elaborating further, it is argued by him that the expression ‘material facts’ refers only to primary facts and the duty of the assessee is to disclose such primary facts ; no duty is cast on the assessee to indicate or draw attention of the AO to what factual or legal, or other inferences can be drawn from the primary facts disclosed. It is thus stated by him that fresh application of mind by the AO on same facts would tantamount to review of own decision and amended section 147 does not authorize the AO to reopen the assessment under the garb of ‘reason to believe’ to review his own decision. Further explaining that there was no tangible material before

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the AO on the basis of which the case can be reopened, it is submitted that any different view taken by the AO amounts to change of opinion.

On the above, reliance is placed by the Ld. counsel on decision by the Hon’ble Bombay High Court in State Bank of India v. ACIT (2018) 96 taxmann.com 77 (Bom) and Marico Ltd. v. ACIT (2019) 111 taxmann.com 253 (Bom) – SLP by Revenue dismissed by the Hon’ble Supreme Court reported in (2020) 117 taxmann.com 244 (SC).

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We find that the assessee had filed before the AO a written submission dated 29.11.2010 containing inter alia a detailed note on exemption claimed u/s 54F and 54EC along with supporting documents. The said written submission was filed in the office of the AO on 29.11.2010 as evident from the stamp mark. It is not disputed by the Ld. DR. The said note filed by the assessee reads as under :

“Facts about the case The assessee has earned capital gains of Rs.64,30,59,971/- during the financial year 2007-08 from sale of shares i.e. long term capital gains other than sale of a residential house. The working of the same is enclosed herewith for your ready reference. Further, the assessee has deposited Rs.47,30,812/- in the capital gains account scheme on 15-09-2008. The assessee has purchased a residential property at Alibaug worth Rs.5,75,00,000/- on 12th June, 2009 i.e. within 2 years of the capital gains incurred.

The copy of the agreement is enclosed herewith for your ready reference. Also the details of the payment made for acquiring the said property is enclosed herewith.

Thus, as per the provisions of section 54F of the Income Tax Act, 1961, our client has rightly invested and purchased a residential property within the prescribed time i.e. 2 years from the transfer date.

Thus, our client is eligible for exemption under section 54F of the Act.”

7.1 We further notice that as per the purchase agreement of the residential property and Index No. II, which were filed before the AO during the course of original assessment proceedings, the agreement is for the purchase of

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residential property comprising of 6700 sq. ft. and 400 sq. ft. At page 3 of the said purchase agreement dated 12.06.2009 it is stated that :-

“And whereas the vendor is entitled to a portion of the said property bearing Survey No. 465/1 admeasuring 0-63-1 H.A. and Survey No. 465/2 admeasuring 0-63-2 (hereinafter referred to as “the said Plot”) along with residential house (hereafter referred to as “the said structure”) …. (hereinafter the said structure and the said Plot are collectively referred to as “the said Premises”

Further, at page 3 of the said purchase agreement it is mentioned that :

“Now this INDETURE WITHNESSTH that in consideration of the sum of Rs.5,75,00,000/- (Rupees Five Crores Seventy Five Lakhs Only) paid by the Purchaser to the Vendor, the Vendor do hereby grant, release, convey, sell, transfer, assign and assure unto the Purchaser forever the said Premises viz. residential house along with the land appurtenant thereto (i.e. the said Plot) being a portion of the said Property bearing Survey No 465/1 admeasuring 0-63-1 H.A and survey No. 465/2 admeasuring 0-63-2 situate at Village Zirad, Taluka Alibag, District Raigad more particularly described in the Third Schedule hereunder written and as shown in red color boundary line on the plan annexed as Annexure "A" hereto AND TOGETHER WITH all structures, houses bearing house no. 1057 of 6700 sq. feet and house no. 1059 of 400 sq. feet, yards, compound, sewer, fences, trees, drains, ways, paths, passages, common gullies, wells, water, water courses, lights, liberties, privileges, easements, profit.; advantages, rights, member and appurtenances whatsoever to the said Premises or any part thereof belonging or in anywise appertaining or usually held, used, occupied, or enjoyed therewith or reputed or known as part or member thereof or to belong or be appurtenant thereto (hereinafter collectively referred to as “the said Premises”)”

7.2 In the Board Resolution of Topnotch Realty P. Ltd. dated 22.09.2007, it is mentioned that :

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“Resolved that to Construct and Sale the residential house along-with land aggregately admeasuring 0-63-1 H.A. bearing Survey No.465(part-1) and 0-63-2 H.A bearing Survey No:465 (part-2) situated at Village Zhirad, Taluka Alibaug, District Raigad in the Registration District of Raigad and Sub-District of Alibaug for the Value of Rs.5,75,00,000/-(Rupees Five Crores Seventy Five Lakhs) to Mr. Jagdish Thakersey.”

7.3 The documents referred hereinabove at para 7, 7.1 and 7.2 had been filed before the AO vide letter dated 29.11.2010 received in the office of the AO on the same date.

From the above narration of facts, it is evident that the appellant had purchased a residential property i.e. House No. 1057 of 6700 sq. ft. and House No. 1059 of 400 sq. ft. along with the land appurtenant thereto and claimed deduction u/s 54F against the sale of long term shares.

7.4 In Padmasundra Rao v. State of TN 255 ITR 147 (SC), the Constitution Bench of the Hon’ble Supreme Court has held that reliance should not be placed on a decision without discussing how the factual situation fits in with the factual situation of the decision on which reliance is placed. Also it was held therein that circumstantial flexibility, e.g. one additional or different fact, may make a world of difference between conclusions in two cases.

Having examined the case laws relied on by the Ld. DR mentioned at para 6 hereinabove, we find that in view of the facts delineated at para 7, 7.1, 7.2 & 7.3 above, the instant case is distinguishable from the decisions relied upon.

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7.5 Let us now turn to the enunciation of law on the above matter. In State Bank of India (supra), the regular assessment for the assessment years 2013- 14 and 2014-15 were completed u/s 143(3) of the Act. Thereafter, the AO issued notices u/s 148 within a period of four years from the end of the relevant assessment year on the ground that deduction allowed to it in value of its advances on account of change in contractual terms, consequent to restructuring of assets, was of contingent nature and did not qualify to be allowed as a loss/deductible expenditure and, thus, income chargeable to tax had escaped assessment. In appeal, the Hon’ble Bombay High Court held that since said claim was considered during assessment proceedings and accepted for both years, it was a clear case of a change of opinion and, thus, reassessment notices were without jurisdiction.

In Marico Ltd. (supra), while computing book profit u/s 115JB, the assessee claimed deduction of depreciation of Rs.47.04 crores on account of amortization of brand value being intangible. The AO passed an order u/s 143(3), accepting the assessee’s claim for allowing depreciation for amortization of brand value to determine book profits u/s 115JB. However, later on the AO issued notice u/s 148 to reopen the assessment on the ground that income amounting to Rs.47.04 crores chargeable to tax had escaped assessment. The Hon’ble Bombay High Court in a writ petition filed by the assessee held that :

“It is undisputed position that query was raised on the very issue of reopening during regular assessment proceedings. The parties have responded to it and the assessment order makes no reference to the said issue at all. However, once a query has been raised by the Assessing Officer during the assessment proceedings and the assessee

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has responded to that query, it would necessarily follow, that the Assessing Officer has accepted the assessee's submissions, so as to not deal with that issue in the assessment order.

The further submission of the revenue was that in the absence of the Assessing Officer adjudicating upon the issue, it cannot be said that the Assessing Officer had formed an opinion during the regular assessment proceedings leading to the assessment order. An adjudication would only be on such issue where the assessee's submissions are not acceptable to the Revenue, then the occasion to decide a lis would arise i.e. adjudication. However, where the Revenue accepts the view propounded by the assessee in response to the Revenue's query, the Assessing Officer has certainly to form an opinion whether or not the stand taken by the assessee is acceptable. Therefore, it must follow that where queries have been raised during the assessment proceedings and the assessee has responded to the same, then the non-discussion of the same or non-rejection of the response of the assessee, would necessarily mean that the Assessing Officer has formed an opinion accepting the view of the assessee. Thus, an opinion is formed during the regular assessment proceedings, and it bars the Assessing Officer to reopen the same only on account of a different view.

Thus, the reasons in support of the impugned notice is the very issue in respect of which the Assessing Officer has raised the query during the original assessment proceedings and the assessee had responded to the same by two letters justifying its stand. The non-rejection of the explanation in the Assessment Order would amount to the Assessing Officer accepting the view of the assessee, thus, taking a view/forming an opinion. Therefore, the reasons in support of the impugned notice to proceed on a mere change of opinion therefore would be completely without jurisdiction in the present facts. Accordingly, the impugned notice is to be quashed and set aside. ”

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The SLP filed by the Revenue against the above order has been dismissed by the Hon’ble Supreme Court as reported in (2020) 117 taxmann.com 244 (SC).

7.6 It is well settled that mere fresh application of mind to the same set of facts or mere change of opinion does not confer jurisdiction even under the post-1989 section 147. The consistent view is that even after amendment of section 147 (w.e.f. 01.04.1989) mere change of opinion does not confer jurisdiction on the Assessing Officer to initiate proceedings for re-assessment merely by resorting to Explanation 1 to that section on the basis of change of opinion. Where, on the same material, the succeeding officer wants to take a different view than taken by the predecessor Assessing Officer and wants to take action u/s 147, such action cannot be sustained because the view taken by the subsequent officer is nothing but a change of opinion. The Hon’ble Supreme Court, while approving reported in 320 ITR 561, the Full Bench decision of the Delhi High Court in CIT v. Kelvinator of India Ltd. (2002) 256 ITR 1, observed that :

“After the Amending Act, 1989, Section 147 reads as under:

Income escaping assessment.

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this section and in sections 148 to 153 referred to as the relevant assessment year).

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 re-open 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 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 reassess. The Assessing Officer has no power to review; he has the power to re-assess. But reassessment 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.”

Thus mere change of opinion by Assessing Officer cannot be a ground for reassessment and that amendment of section 147 w.e.f. 01.04.1989 has not altered the position- the Assessing Officer must have reason to believe that income has escaped assessment ; the Assessing Officer does not have the power of review on the same set of facts and law.

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7.7 What is meant by true and full disclosure ? Law in this regard has been succintly laid down by a Constitution Bench of the Hon’ble Supreme Court in Calcutta Discount Co. Ltd. v. ITO (1961) 41 ITR 191 (SC), wherein it is held that :

“(8)...The words used are "omission or failure to disclose fully and truly all material facts necessary for his assessment for that year". It postulates a duty on every assessee to disclose fully and truly all material facts necessary for his assessment. What facts are material, and necessary for assessment will differ from case to case. In every assessment proceeding, the assessing authority will, for the purpose of computing or determining the proper tax due from an assessee, require to know all the facts which help him in coming to the correct conclusion. From the primary facts in his possession, whether on disclosure by the assessee, or discovered by him on the basis of the facts disclosed, or otherwise — the assessing authority has to draw inferences as regards certain other facts; and ultimately, from the primary facts and the further facts inferred from them, the authority has to draw the proper legal inferences, and ascertain on a correct interpretation of the taxing enactment, the proper tax leviable. Thus, when a question arises whether certain income received by an assessee is capital receipt, or revenue receipt, the assessing authority has to find out what primary facts have been proved, what other facts can be inferred from them, and taking all these together, to decide what the legal inference should be.

(9) There can be no doubt that the duty of disclosing all the primary facts relevant to the decision of the question before the assessing authority lies on the assessee. To meet a possible contention that when some account books or other evidence has been produced, there is no duty on the assessee to disclose further facts, which on due diligence, the Income- tax Officer might have discovered, the Legislature has put in the Explanation, which has been set out above. In view of the Explanation, it will not be open to the assessee to say, for example — "I have produced the account books and the documents: You, the assessing officer examine them, and find out the facts necessary for your purpose: My duty is done with disclosing these account-

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books and the documents." His omission to bring to the assessing authority's attention these particular items in the account books, or the particular portions of the documents, which are relevant, will amount to "omission to disclose fully and truly all material facts necessary for his assessment." Nor will he be able to contend successfully that by disclosing certain evidence, he should be deemed to have disclosed other evidence, which might have been discovered by the assessing authority if he had pursued investigation on the basis of what has been disclosed. The Explanation to the section, gives a quietus to all such contentions; and the position remains that so far as primary facts are concerned, it is the assessee's duty to disclose all of them — including particular entries in account books, particular portions of documents and documents, and other evidence, which could have been discovered by the assessing authority, from the documents and other evidence disclosed.

(10) Does the duty however extend beyond the full and truthful disclosure of all primary facts? In our opinion, the answer to this question must be in the negative. Once all the primary facts are before the assessing authority, he requires no further assistance by way of disclosure. It is for him to decide what inferences of facts can be reasonably drawn and what legal inferences have ultimately to be drawn. It is not for somebody else — far less the assessee — to tell the assessing authority what inferences — whether of facts or law should be drawn. Indeed, when it is remembered that people often differ as regards what inferences should be drawn from given facts, it will be meaningless to demand that the assessee must disclose what inferences — whether of facts or law — he would draw from the primary facts.

(11) If from primary facts more inferences than one could be drawn, it would not be possible to say that the assessee should have drawn any particular inference and communicated it to the assessing authority. How could an assessee be charged with failure to communicate an inference, which he might or might not have drawn?”

7.8 The above decision of the Constitution Bench clearly tells us that it is the duty of the assessee to disclose fully and truly all material facts which is termed

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as primary facts. Non-disclosure of other facts which may be termed as secondary facts is not necessary.

In our considered view, the assessee in the instant case disclosed all the primary facts necessary for assessment of its case to the Assessing Officer as delineated at para 7, 7.1, 7.2, & 7.3 herein above. Thus a mere change of opinion by the AO in the instant case cannot be a ground for reassessment.

7.9 In view of the above factual scenario and position of law, we hereby quash the reopening u/s 147 made by the AO. Since, the jurisdictional issue has been decided in favour of the assessee, the 5th ground of appeal becomes academic in nature

Order pronounced in the open Court on 11/01/2021.

Sd/- Sd/- (VIKAS AWASTHY) (N.K. PRADHAN) JUDICIAL MEMBER ACCOUNTANT MEMBER

Mumbai; Dated: 11/01/2021 Rahul Sharma, Sr. P.S. Copy of the Order forwarded to : 1. The Appellant 2. The Respondent. 3. The CIT(A)- 4. CIT 5. DR, ITAT, Mumbai 6. Guard file. BY ORDER, //True Copy// (Dy./Assistant Registrar) ITAT, Mumbai