M/S HOTEL WOODSIDE,MANGALORE vs. ASST.C.I.T., BANGALORE

IN THE INCOME TAX APPELLATE TRIBUNAL ‘A’ BENCH : BANGALORE BEFORE SHRI. A.K GARODIA, ACCOUNTANT MEMBER AND SMT. BEENA PILLAI, JUDICIAL MEMBER ITA No.1269 & 1270/Bang/2016 Assessment Year : 2006-07

M/s Hotel Woodside, The Asst. Commissioner C/o Mohitsham Complex Pvt. of Income Tax, Ltd., Circle-1(1), 6th Floor, Empire Mall, Vs. Mangaluru. M.G Road, Mangaluru-560 066.

PAN : AAAFH 8517 P APPELLANT RESPONDENT

Appellant by : Shri V Srinivasan, Advocate Respondent by : Shri Dilip, Standing Counsel for Dept.

Date of Hearing : 29-072020 Date of Pronouncement : 14-08-2020

ORDER PER BEENA PILLAI, JUDICIAL MEMBER Present appeal arises out of order dated 29/04/2016 passed by Ld.CIT(A) Mangaluru, for assessment year 2006-07 on following grounds of appeal:

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ITA No.1269/Bang/2016 1. The learned CIT[A] has erred in sustaining the order of the learned A.O. dated 28/12/2012, which was opposed to law, equity, weight of evidence, probabilities, facts and circumstances of the case instead of annulling the same under the facts and in the circumstances of the appellant's case. 2. The learned CIT[A] is not justified in sustaining the assessment made by the learned A.O. u/s.143[3] rws 147 dated 28/12/2012 without furnishing reason for re-opening, which was sought for by the appellant under the facts and in the circumstances of the appellant's case, having regard to the ratio of the decision of the Hon'ble Supreme Court in the case of GKN DRIVESHAFT reported in 259 ITR 19, which has been explained by several other decisions cited before him. 3. The learned CIT[A] failed to appreciate that the reasons which are to be mentioned as recorded by the learned A.O. in format meant for obtaining approval of the learned JC for issuance of notice u/s.148 of the Act, without recording the reasons elsewhere in the file other than in the format would not comply with the requirement of mandatorily requiring the provisions of section 148[2] of the Act and consequently, the impugned assessment is not valid in law. 4. The learned CIT[A] has erred that the agreement dated 07/06/2005, which is not engrossed on the requisite stamp paper and not registered in accordance with the law is a enforceable contract and further in holding the same is a valid contract to obtain the benefits of section 53A of the Transfer of Property Act, although the said agreement was not registered. 5. Without prejudice to the above, the learned CT[A] has failed to appreciate that the agreement dated 07/06/2005 came to be replaced by yet another agreement dated 15/04/2006 and consequently, the agreement being novated, no deemed transfer in terms of Section 2[47][v] of the Act, is exigible especially having regard to the ratio of the decision of CIT V. CHEMOSYN LTD. reported in ITA No.36 1 of 2013 Dated 11/02/2015 cited before him. 6. Without prejudice to the above, the order of re-assessment is bad in law and void-ab-initio for want of requisite jurisdiction especially, the mandatory requirements to assume jurisdiction u/s.148 of the Act did not exist and have not been complied with and consequently, the re- assessment requires to be cancelled. 7. The reasons recorded by the learned A.O. are more with a view to make enquiries or roving enquiries for assessment as against having any material having a live-link nexus for the formation of the belief that income has escaped assessment. Consequently, the assumption of jurisdiction by the A.O. is bad in law and requires to be annulled. 8. The leaned CIT[A] has erred in sustaining the impugned assessment before him, which was made without issuing a notice u/s.143[2] of the Act, and ought to have annulled the said assessment even if re-opening of the assessment were to be upheld in most unlikely event under the facts and in the circumstances of the appellant's case.

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circumstances of the appellant's case and the levy deserves to be cancelled. 16.1 The learned CIT[A] is not justified in sustaining the levy of interest u/s.234B of the Act, on the ground that it was mandatory without appreciating that in view of the loss suffered by the appellant there was no obligation to file an estimate and pay advance tax and consequently, the very levy of interest is bad in law and requires to be cancelled. 17. For the above and other grounds that may be urged at the time of hearing of the appeal, your appellant humbly prays that the appeal may be allowed and Justice rendered and the appellant may be awarded costs in prosecuting the appeal and also order for the refund of the institution fees as part of the costs.

IT(TP)A No.1270/Bang/2016

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a belief that the consideration for the alleged transfer of the property subject matter of transfer for capital gains was not Rs.17,55,35,000/- as stated in clause [18] of the agreement dated 07/06/2005 and the same stood altered to Rs.18,32,31,000I- to induce a belief that income has escaped assessment. The said letter is only the projected revenues and the alterations brought about in the original agreement and does not anyway alter the consideration specified in the said agreement to warrant an inference that income has escaped assessment. 6.1 The learned CIT[A] is not justified in enhancing the total alleged value of consideration to a sum of RS.46,23,14,942/- as against the sum of Rs.17,55,35,000/- made in the original assessment and a sum of Rs.18,32,31,000/- made in the order impugned in the appeal under the facts and in the circumstances of the appellant's case. 7. The rejection of the grounds taken in appeal by the learned CIT[A] are contrary to law, contrary to records and to the ratio of the catena of decisions cited before him and consequently the assessment made requires to be cancelled and the addition sustained requires to be deleted. 3. Each of the findings of the learned CIT[A] which are not specifically contested in the grounds of appeal inadvertently are deemed to have been contested as erroneous and contrary to law and evidence and are deemed to have challenged and contested in this grounds of appeal. 9. Without prejudice to the right to seek waiver with the Hon'ble CCIT/DG, -he appellant denies itself liable to be charged to interest u/s 234-B and 234-C of the Act, which under the facts and in the circumstances of the appellant's case and the levy deserves to be cancelled. 9.1 The learned CIT[A] is not justified in sustaining the levy of interest u!s.234B of the Act, on the ground that it was mandatory without appreciating that in view of the loss suffered by the appellant there was no obligation to file an estimate and pay advance tax and consequently, the very levy of interest is bad in law and requires to be cancelled. 10. For the above and other grounds that may be urged at the time of hearing of the appeal, your appellant humbly prays that the appeal may be allowed and Justice rendered and the appellant may be awarded costs in prosecuting the appeal and also order for the refund of the institution fees as part of the costs.” 2. It is submitted that, originally, Division bench of this Tribunal heard these appeals on 08/11/2017. However, due to difference of opinion that arose between Hon’ble Accountant Member and Hon’ble Judicial Member on certain issues, the matter was referred to third member by Hon’ble President ITAT, under section 255 (4) of the Act.

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2.1. The issues on which difference of opinion arose between Hon’ble Accountant Member and Hon’ble Judicial Member, has been summed up by Hon’ble Third Member in his order as under as follows: 1. Whether the order of assessment passed under section 147 of the act on 28/12/2012 was without furnishing reasons recorded for initiating the proceedings under section 147 of the act and therefore was void and of no effect ? 2. Whether there was transferred took place during previous year relevant to assessment year 2006-07? Hon’ble Third Member passed his order or 14/02/2020. 2.2. As a result, these appeals are placed before us for passing consequential order, giving effect to the majority view is pursuant to order passed by Hon’ble Third Member, dated 14/02/2020. ITA no.1269/Bang/2016: 3. Ground no.2,3,6 & 7 challenges the validity of assessment order dated 28/12/2012 passed without providing reasons recorded to assessee.

3.1. We note that this issue was subject matter of dissenting order by Hon’ble Accountant Member and was referred to Hon’ble Third Member. 3.2. We have perused order passed by Hon’ble Third Member dated 14/02/2020. We note that this issues has been decided as under: “I have given a very careful consideration to the rival contentions. I am of the view that the ratio laid down by the Hon'ble Supreme Court is that assessee is entitled to copy of reasons recorded and the condition for demanding such copy of reasons recorded is that he should file return of income in response to notice u/s. 148. The request for furnishing reasons recorded for initiating Proceedings u/s. 148, whether it should

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be made prior to furnishing of return of income or hereafter does not emanate torn the decision of the Hon’ble Supreme Court. The fact that the assessee made request for furnishing reasons recorded prior to the file of return of income and thereafter he did not seek copy of reasons recorded is no ground to deny the assessee the benefit or looking into the reasons for initiating reassessment proceedings u/s. 147. In fact, in the decision rendered by the Hon’ble Bombay High Court in the case of Trend Electronics (supra) on identical facts, the Hon'ble Court took the view that failure to furnish reasons recorded to the assessee when sought for rendered the order of reassessment invalid. With regard to the contention of the Id. Standing Counsel that in the case of Kothari Metals (supra), the Hon’ble High Court of Karnataka has specifically laid down that only after filing of return of income, the assessee is entitled to ask for copy of reasons recorded and the reasons should be furnished by me AO, we are of the view that no such mandate is laid down by the Hon’ble High Court or Karnataka that if the reasons recorded is made prior to furnishing return or income the reasons recorded should not be furnished unless and until the assessee makes another request for furnishing reasons recorded. In my opinion, it is not correct to say that any sequence of dates has been laid out by the Hon'ble Supreme Court in its decision rendered in the case of GKN Drive Shafts Ltd (supra) and the ratio of the decision is that the reasons recorded have to be furnished if demanded by the assessee, provided the assessee has filed return in response to notice u/s. 148 of the Act. In that view of the matter, I agree with the conclusions of the ld. JM.”

3.3. We note that, Hon’ble Third Member concurred with the view taken by Hon’ble Judicial Member, who observed that, order dated 28/02/2014 passed by Ld.AO under section 143 (3) read with 147 of the Act, without furnishing reasons recorded for initiating proceedings for reassessment under section 147 of the Act is void and of no effect. Respectfully following the same, we allow Grounds 2,3, 6 & 7. 4. Grounds 4, 5, 10, 10.1, 14 & 15 are in respect of, whether, transfer of property occurred u/s.2(47)(v) of the Act. This issue was subject matter of dissent by Hon’ble Accountant Member and was referred to Hon’ble Third Member.

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4.1. We have perused the order passed by Hon’ble Third Member dated 14/02/2020. We note that this issue has been decided as under: “30. I have given a careful consideration to the rival submissions. I shall deal with the argument of the learned standing counsel with regard to the applicability of Sec.2(47)(vi) of the Act It was not the case of the revenue authorities nor the revenue before the Division Bench that there was a transfer within the meaning of Sec. 2(47)(vi) of the Act. A new plea cannot be set up by the revenue before the third member. The point of difference between the ld. JM and the Id. AM is that the MoU dated 7.32008 is nothing but the same as the JDA dated 7.6.2005 and on registration of the MoU dated 7.3.2008 and by virtue of the provisions of Sec.47 of the Registration Act, 1908, the JDA dated 7.6.2005 has to be regarded as a registered JDA and therefore the decision of the Hon'ble Supreme Court in the case of Balbir Singh (supra) is not applicable to the facts of the Assessee's case. 31 Section 47 of the Registration Act, 1908 reads as follows:- Time from which registered document operates: A registered document shall operate from the time from which it would have commenced to operate if no registration thereof had been required or made and not from the time of its registration." 32. As we have already seen, the joint development agreement dated 762005 no longer exists as subsequently a MoU was entered into on 5.4.2006 in which the parties to the agreement were all different and the tens of agreement of joint development were also different and that MoU was substituted by another MoU dated 7.3.2008 which was ultimately registered. Though there is a reference to the agreement dated 7.6.2005 in the MoU dated 7.32008, it is only for the sake of completeness. The MoU dated 7.3.2008 does not state that it was in continuation of the MoU dated 15.4.2006 and the JDA dated 7.6.2005. For Sec-47 of the Registration Act, 1908 to apply, the registered JDA dated 7.3.2008 should specifically mention that JDA dated 7.62005 is the agreement between the parties and the terms of that agreement will be the bargain between the parties. There has been a complete change of parties as well as the terms of agreement in the MoU dated 15.4.2006 as well as 7.3.2008, in as much as the adjacent property was also considered for the purpose of joint development. Even MoU dated 15.4.2006 were substantially noted in the registered MoU dated 7.32008. Thus the agreement dated 76.2005 stood extinguished consequent to the later MoU dated 15.4.2006 between different parties and on different terms and the MoU dated 15.4.2000- also stood extinguished consequent to revised MoU dated 7.3.2008 which was ultimately registered on 4.7.2008-. Thus the provisions of Sec.47 of the Registration Act, 1908 cannot be applied to the facts of the present case. I agree with the ld.Counsel for the Assessee that the provisions of Sec.62 of the Contract Act, 1872 which contains principle of Novation of contracts is applicable in the present case and therefore the JD,,- 'A, dated 7.6.2005 and the MOU dated 15.4.2006 stood extinguished. In this

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regard as rightly pointed out, the terms of the MoU dated 7.3.2008 which was the ultimate bargain between the parties with regard to the extent of property that was subject matter of th'e JDA, the parties to the JDA and the terms of JDA. Therefore the JD dated 1.0.2003 and 4.7.2008 have to be regarded as substituted by a new contract. In this regard, I am of the view that the observations of the Id.AM that the substance of the JDA dated 07/06/2005 was incorporated even in the JDA dated 07/03/2008 which was registered, is incorrect and contrary to material on record. Therefore the provisions of Sec.47 of the Registration Act 1908 are inapplicable. The admitted position is that after 2001, any agreement for sate which is not registered and even assuming there is a delivery of possession the benefit of section 53A of the Act cannot be availed by the transferee and therefore the provisions of Sec.2(47)(v) of the Act cannot also be invoked. In this case the finding of the learned JM is that there was no delivery of possession under the JDA dated 7.6.2005 and Id. AM has disagreed with that finding. Even assuming the finding of the Id. AM on finding regarding delivery of possession to the Developer is correct, it is not possible for the revenue to say that delivery of possession under a unregistered agreement for sale entered into after Amendment to the Registration Act, 1908 and the Transfer of Property Act, 1872 by the Amendment Act, 2001, would also give rise to a transfer within the meaning of section 2(47v) of the Act. I, therefore, agree with the view of Id. JM and hold that there was no transfer of the property during the previous year relevant to AY 2O06-07.”

4.2. We note that, Hon’ble Third Member concurred with the view taken by Hon’ble Judicial Member, who held that there was no transfer of property during the previous year relevant to assessment year 2006-07. Respectfully following the same, we allow Grounds 4, 5, 10, 10.1, 14 & 15 of assessee. 5. Ground 9, 9.1 &13 are against computation of capital gains being erroneous and excessive. 5.1. We have perused the order passed by Hon’ble Judicial Memeber as well as the descent order by Hon’ble Accountant Member. We note that these issues are not subject matter of the descent order. Therefore, view of Hon’ble Judicial Member has to be adopted as it is as under.

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5.2. We note that these issues have been decided by Hon’ble Judicial Member as under: “19. As we have held that no transfer has taken place on. 07.04.2005, therefore there was no justification for lower authorities to compute the capital gains arising out of the alleged transfer on 07.06.2005, yet for completeness for record. we would like to record, that the finding recorded by the Commissioner (Appeal) that on account of grant of licence to construct dated 06.032006. the position said to have been handed a work to the developer, was a incorrect tinding of fact by the local authority. 19.1 In our view no transfer can take place within the meaning of section 2(47) of the act on the basis of the construction agreement/development agreement. as the said agreement failure to comply the provisions of the Transfer of Property Act Registration Act And Stamp Duty Act further reliance of the revenue on the judgement of T.K Dayalu was misplaced in the present set of facts and after the pronouncement of the judgement by the Hon’ble Supreme Court in matter of Balbir Singh (supra), as no possession was given for the purposes of Transfer Of Property Act in the assessment year under consideration. Therefore there was no justification for the authorities below to compute the capital gain by assuming that the transfer has taken place on 7 of June 2005. Further, the AO, in respect to 1TA.l27O/Bang/2016, had relied upon the letter dt. 17.01.2013 addressed by the developer from which the AO bad inferred that the sale consideration of the assessee’s land was Rs.18,32,31,000/- and not Rs.17,55,35,000/-. In our view the reliance of the AO on the said letter was premised on the fact that a transfer has taken place on 07.06.2005 and thereafter the cost has been arrived at. As we have held no transfer has taken place in the eyes of law on 7.06.2005, therefore, there was no occasion to revise the cost of land as Rs.18,32,31,000/- instead of Rs. 17,55,35,00O/- . Further the letter was dated. 17.01.2013 and the said letter mentioned the cost of land of the assessee as per MOU dt.07.03.2308 and not 07.062005. Therefore also the cost of land if required to LA- taken as on 07.03.2008 was Rs.18,32,31,000/-, whereas the present proceedings pertains to asst. year 2006-07 and not for the asst. Year 2009-10. It is an admitted position in law that the tax is to be charged in the year it accrued. Therefore the finding of the lower authorities is devoid of merit. In the result these grounds No 9, 9.1 and 11 of ITA No. 1269/Bang/16 & Ground No.6. 6.1 of ITA No.1270/Bang/20l6 of the assessee are allowed.” ---this space is left vacant intentinally ---

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5.3. Respectfully following the above observation, we hold that authorities below erred in computing capital gains in the hands of assessee during year under consideration. Accordingly these grounds raised by assessee stands allowed. 6. Ground No. 12 is in respect whether the transaction results in AOP. 6.1. We have perused the order passed by Hon’ble Judicial Member as well as the descent order by Hon’ble Accountant Member. We note that these issues are not subject matter of the descent order. Therefore, view of Hon’ble Judicial Member has to be adopted as it is as under. Hon’ble Jusicial Member held it to be academic. Accordingly, this ground is not adjudicated upon. 7. Ground No.16 & 16.1 are in respect of interest under section 234 A, B, C. 7.1. We have perused the order passed by Hon’ble Juducial Member as well as the descent order by Hon’ble Accountant Member. We note that these issues are not subject matter of the descent order. Therefore, view of Hon’ble Judicial Member has to be adopted as it is as under. 7.2. These grounds has been held to be consequential by Hon’ble Judicial Member in para 20 as under:

“20. These grounds raised by the assessee became academic/ redundant on account of our finding of fact recorded herein above therefore we do not deem it appropriate to adjudicating these grounds raised in the present appeal”

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Respectfully following the same, we hold this ground to be consequential in nature. 8. Ground No.1 and 17 have been submitted to be general in nature. In the result, appeal filed by assessee in ITA No.1269 stands allowed. ITA no.1270/Bang/2016 9. Ground No.2-5 are in respect of challenging validity of reassessment order dated 28/02/2014. 9.1. We have perused the order passed by Hon’ble Judicial Member as well as the descent order by Hon’ble Accountant Member. We note that these issues are not subject matter of the descent order. Therefore, view of Hon’ble Judicial Member has to be adopted as it is as under. 9.2. Hon’ble Judicial Member has decided these issues in para 14.2 of his order dated 22/01/2018 as under:

“14.2 We have heard the rival contentions and perused the record. First of all, in our view, there is no prohibition in law to reopen the assessment proceedings after the reopening was done prior thereto, as long as the requirement of law (Sections 147 and 148) are complied with and the reopening was done within the statutory period of limitation, the reopening done by the AO cannot be said to be bad in law. In the present case as is apparent from the letter dt.1701.2013 that the sale value of the land taken by the assessee was Rs.18,32,31,000/- and not Rs.17,55,35,000/-, therefore there is a clear deviation in the values taken by MCPL in the agreement dt. 07.06.2005 as well as in the letter dt. 13.01.2013. Therefore if the two letters of the builder as well as the agreement( JDA) are compared, then it is clear that the income had escaped assessment as the cost of the land was wrongly taken as Rs.17,55,35,000/-. In the first reopening proceedings for the purpose of calculating the long term capital gains the total cost of lard was taken as Rs.18,32,31,000/-. Thus there is escapement of long-term capital gains. Therefore, we find no merit in the submission of the assessee that the second reopening done by the AO was bad in law. Accordingly this issue is decided against the assessee and in favour of the Revenue.”

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Respectfully following the same, we dismiss this ground is raised by assessee. 10. Ground No. 7-8 is in respect of whether transfer of property occurred during the year under consideration under section 2 (47) (v) of the Act. 10.1. This issue was subject matter of dissent in order passed by Hon’ble Accountant Member dated 13/02/2018 and was referred to Hon’ble Third Member. 10.2. This issue has been addressed by Hon’ble Third Member in paragraph 30-32 of his order dated 14/02/2020. We have considered this issue while deciding Grounds 4, 5, 10, 10.1, 14 and 15 in ITA No.1269/B/2016, in paragraph 4.1. hereinabove. Hon’ble Third Member consented with view taken by Hon’ble Judicial Member. Respectfully following the majority view, we allow these grounds raised by assessee. 11. Ground 6.1, 7 & 8 are against computation of capital gains being erroneous and excessive. 11.1. This issue was not subject matter of dissent order passed by Hon’ble Accountant Member dated 13/02/2018, and therefore view taken by Hon’ble Judicial Member has to be followed. We have considered this issue while deciding Grounds 9,9.1,13 in ITA No.1269/B/2016, in paragraphs 5.2 -5.3 hereinabove. Respectfully following the majority view, we allow these grounds raised by assessee. 12. Ground 7 & 8 is in respect whether the transaction results in AOP.

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12.1. This issue was not subject matter of dissent order passed by Hon’ble Accountant Memebr dated 13/02/2018, and therefore view taken by Hon’ble Judicial Member has to be followed. We have considered this issue while deciding Grounds 12 in ITA No.1269/B/2016, in paragraph 6.1 hereinabove. Respectfully following the majority view, we allow these grounds raised by assessee. 13. Ground No.9 &9.1 are in respect of interest under section 234 A, B, C. 13.1. This issue was not subject matter of dissent order passed by Hon’ble Accountant Member dated 13/02/2018, and therefore view taken by Hon’ble Judicial Member has to be followed. We have considered this issue while deciding Grounds 16 &16.1 in ITA No.1269/B/2016, in paragraph 7.1 hereinabove. Respectfully following the majority view, we allow these grounds raised by assessee. 14. Ground No.1 and 10 have been submitted to be general in nature. In the result, appeal filed by assessee in ITA No.1270 stands partly allowed. Order pronounced in the open court on 14th August, 2020.

Sd/- Sd/- (A.K GARODIA) (BEENA PILLAI) Accountant Member Judicial Member

Bangalore, Dated, the 14th August, 2020. /Vms/*

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Copy to: 1. Appellant 2. Respondent 3. CIT 4. CIT(A) 5. DR, ITAT, Bangalore 6. Guard file

By order

Assistant Registrar, Income-Tax Appellate Tribunal. Bangalore.

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Date Initial On Dragon 1. Draft dictated on Sr.PS -08-2020 2. Draft placed before Sr.PS author -08-2020 3. Draft proposed & placed JM/AM before the second member -08-2020 4. Draft discussed/approved JM/AM by Second Member. -08-2020 5. Approved Draft comes to Sr.PS/PS the Sr.PS/PS -08-2020 6. Kept for pronouncement Sr.PS on -08-2020 7. Date of uploading the Sr.PS order on Website -- 8. If not uploaded, furnish Sr.PS the reason -08-2020 9. File sent to the Bench Sr.PS Clerk 10. Date on which file goes to the AR 11. Date on which file goes to the Head Clerk. 12. Date of dispatch of Order. No 13. Draft dictation sheets are Sr.PS attached