SGDC INDIA P. LTD.,NEW DELHI vs. DCIT, CIRCLE- 24(2), DELHI

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH : A : NEW DELHI

BEFORE SHRI R.K. PANDA, ACCOUNTANT MEMBER AND MS SUCHITRA KAMBLE, JUDICIAL MEMBER ITA Nos.403, 404 & 405/Del/2019 Assessment Years: 2009-10 to 2011-12 SGDC India Pvt. Ltd., Vs DCIT, (Formerly known as M/s Silverglades Circle-24(2), Gold Development Co. Pvt. Ltd.), Delhi. C-8/1-A, Vasant Vihar, New Delhi. PAN: AAJCS2432C (Appellant) (Respondent) Assessee by : Shri R.S. Singhvi, CA Revenue by : Shri P.V. Gupta, Sr. DR Date of Hearing : 22.04.2019 Date of Pronouncement : 28.06.2019 ORDER PER R.K. PANDA, AM: The above three appeals filed by the assessee are directed against the separate orders dated 28th December, 2018 of the CIT(A)-31, New Delhi, relating to assessment years 2009-10, 2010-11 and 2011-12, respectively.

ITA Nos.403 to 405/Del/2019

ITA No.403/Del/2019 (A.Y. 2009-10) 3. Facts of the case, in brief, are that the assessee is a company which was incorporated on 22nd July, 2005 under the Companies Act, 1956. It filed its return of income on 23.11.2009 declaring loss of Rs.62,12,919/-. The return was processed u/s 143(1) of the IT Act on 24th January, 2011. Subsequently, the assessment u/s 143(3) was completed for assessment year 2013-14 vide order dated 29th March, 2016 wherein it was held that the interest free security deposits received by the assessee were chargeable to tax. The Assessing Officer, therefore, recorded detailed reasons for reopening of assessment which has been reproduced by him from pages 1 to 16 of the assessment order. After obtaining approval of the competent authority, the Assessing Officer issued notice u/s 148 of the IT act on 31.03.2016. The assessee, in response to the notice u/s 148, submitted a letter dated 26th April, 2016 along with a copy of the return declaring loss of Rs.62,12,920 which was filed on 25th April, 2016 and requested for copy of reasons recorded for such reopening. The Assessing Officer provided the copy of reasons recorded for reopening of the assessment on 17.11.2016. While providing the reasons, the Assessing Officer clearly mentioned that if no objection was filed by 22.11.2016, it would be understood that there is no objection for reopening of the assessment proceedings. The Assessing Officer, thereafter, issued notices u/s 143(2) and 142(1). The objections were not filed by the date prescribed by the Assessing Officer, but, the assessee filed a brief objection on 16.12.2016 stating that the reasons recorded contained exact part of assessment order passed u/s 143(3) for 2

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assessment year 2013-14 which cannot be considered as tangible material for

reopening of assessment. It was submitted that the interest free security deposits

were duly recorded in the books of account and the same information was available

at the time of processing of return u/s 143(1). Relying on various decisions, it was

argued that the case cannot be reopened. Vide order sheet entry dated 16.12.2016,

the Assessing Officer intimated the assessee that since the objections were not filed

till 22.11.2016 it would not be possible to dispose them off separately since

objections have been filed at the fag end of the time barring month. However, the

Assessing Officer disposed off the objections after recording reasons in para 3.2 of

the assessment order and rejected such objections.

assessee to explain as to why the amount of Rs.7,00,64,800/- received during the

year by the assessee on account of non-refundable interest free security deposits

should not be added to the income declared by the assessee company for the

impugned assessment year. The assessee filed the copy of financial statement for

financial year 2008-09, copy of operation and maintenance agreement and one

sample copy of buyer agreement along with a detailed reply as to why the amount

received during the year on account of non-refundable interest free security deposit

should not be added to the income. It was submitted that there is specific agreement

with Silverline Holding Pvt. Ltd. and the amount is refundable as per that contract.

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It was submitted that there is no privity of contract between the assessee company and the villa owners, but, has been engaged by M/s Silverline Holding Pvt. Ltd.

from M/s Silverline Holding Pvt. Ltd., pursuant to the agreement between the assessee and M/s Silverline Holding Pvt. Ltd., the assessee did not file the financial statement/details of M/s Silverline Holding Pvt. Ltd. Further, this fact is not

supported by the balance sheet of the assessee, since, in the balance sheet of the assessee, it is shown as interest-free security deposits received and nowhere it is mentioned that this amount has been received from M/s Silverline Holding Pvt. Ltd.

The submission of the assessee that it has received the security deposit from members of the villa owners through M/s Silverline Holding Pvt. Ltd., in the normal course of business for maintaining and operating the golf course at ‘TARUDHAN

VALLEY COMPLEX’ was also rejected by the Assessing Officer on the ground that the assessee did not furnish any copy of agreement with buyers of the villa owners, but, it simply submitted that the security deposit received by the assessee is refundable to M/s Silverline Holding Pvt. Ltd. The argument of the assessee that

there is not privity of contract between the assessee company and the villa owners, but, have been engaged by M/s Silverline Holding Pvt. Ltd., was also rejected by the Assessing Officer on the ground that it is contradictory with the statement given subsequently on 23rd December, 2016 wherein the assessee itself stated that the

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security deposit received from members being villa owners through M/s Silverline

Holding Pvt. Ltd. The Assessing Officer noted that during the course of assessment

proceedings in the case of M/s Silverline Holding Pvt. Ltd., the assessee had

furnished the copy of tripartite buyer’s agreement, wherein the assessee company is

a party, in which it is specifically mentioned that the security deposits will be non-

refundable and M/s Silverline Holding Pvt. Ltd., after collecting the same will

transfer to the assessee. Accordingly, M/s Silver Line Holding Pvt. Ltd. receives the

security deposits from customer without passing through its account, transfers the

same to the assessee and the assessee booked this amount as interest free security

deposit under schedule of the balance sheet. The assessee company did not produce

any document which shows/proves that this security deposit is shown as advance or

receivable at the assets side or shown as liability towards customers in the balance

sheet of M/s Silver Line Holding Pvt. Ltd. Hence, the contention of the assessee that

this amount has been received from M/s Silver Line Holding Pvt. Ltd. as refundable

liability is not supported. However, as per tri-party agreement among M/s Silver

Line Holding Pvt. Ltd., customers and the assessee, the security deposits are non

refundable. Actually this is a valid document which executes at the time of

receiving the security deposits and the contract which the assessee has mentioned to

be entered between the assessee company and M/s Silver Line Holding Pvt. Ltd., is

only a modus operandi to avoid the taxability of the income/receipt and to create

complexity in the transaction in order to hide the genuine nature of transaction.

Finally the Assessing Officer concluded that the amount of Rs.7,00,64,800/- 5

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received by the assessee during the year has to be brought to tax. The relevant

conclusion of the Assessing Officer at para 8 of his order reads as under:-

“8. Conclusion

Considering the above facts and detailed discussion, it is clear that the security deposit received from the customers/buyers of Villa owners is non refundable, and accordingly it is taxable in the hand of recipient. Now the question arises whether the assessee is recipient of the non refundable security deposit from the buyer or M/s Silver Line Holding Pvt. Ltd. is a recipient of this non refundable security deposit. To answer this question a reference of the buyer agreement is relevant. Clause 18(a) to (e) provides the terms and conditions of the payment of security deposit which is reproduced as under:- (a) The buyer shall pat an interest free security deposit of Rs…..(Rupees……….) to “Company” for onward transfer to SGDP for due performance of its obligations towards Company. (b) The buyer hereby authorizes the Company to collect the said security deposit from the buyer and remit the same to SGDP as per the payment terms of the “Company” (c) The said security deposit will be non-refundable. However, the same would be transferred to the nominee of the buyer subject to approval of the Company. The Security Deposit shall be employed in suitable investment as (d) deemed fit by the Company for generating revenue/income and the revenue income so earned from the investments shall be employed towards operation & maintenance cost of the Golf Course. In case of any shortfall in running the O&M costs after adjusting the incomes from the investments made out of the security amount the same shall be made good by raising the additional bills to the buyers for recouping the shortfall in such O&M expenses of the Golf Course. The Company or SGDP or its nominees or the Maintenance Agency (e) shall entitled to purchase the capital equipments as determined by it from time to time in order to provide the proper maintenance facilities. Similarly, in the event of any future extraordinary capital cost towards maintenance, not presently envisaged the Company or SGDP or its nominees or the Maintenance Agency shall call upon the buyer and the Buyer shall make a prorate contribution with the other Buyers for meeting such capital costs. In case of necessity the buyers would also be required to recoup/increase the Security Deposit as and when found necessary.

On perusal of the above mentioned terms and conditions, it is ii. established that the recipient of the non-refundable security deposit is the assessee and this will be taxable in the hand of the assessee only. Further, M/s Silver Line Holding Pvt. Ltd. is acted as conduit between the buyer of Villas 6

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and the assessee for collecting non-refundable security deposits and making payment to the assessee only. However, the assessee vide submission dated 23.12.2016 tried to shift the same on M/s Silver Line Holding Pvt. Ltd. which is not acceptable as per terms of Buyer Agreement.

Once it is decided that the security deposit is the non- iii. refundable and taxable in the hand of assessee again a question arise with respect to the quantum of taxability during the year under consideration, whether the cumulative figure as shown in the balance sheet is taxable in the current year under consideration or during the year in which it is received by the assessee. The judicious way of taxing the same over the year in which the deposits have been received. Accordingly, it is seen that the cumulative figure of non refundable security deposits as on 31.03.2009 is at Rs.7,83,50,000/-, out of which Rs. 7,00,64,800/- received during the year. Hence, an amount of Rs.7,00,64,800/- is added to the income of the assessee.”

challenged the validity of reassessment proceedings. However, the ld.CIT(A)

upheld the validity of reassessment proceedings as well as the addition on merit. So

far as the validity of reassessment proceedings are concerned, the ld.CIT(A) upheld

the same by observing as under:-

“4.1.Ground no. 1 and 2 are against the reopening of the assessment u/s 148 as well as non disposal of objections filed by the appellant. On perusal of the material available on record, it is noticed that the appellant had received interest free security deposits in various assessment years including the year under consideration. The details of non refundable security deposits received are under:- Particulars F.Y. 2007- 08 F.Y. 2008- 09 F.Y. 2009-10 F.Y. 20010-11 F.Y. 2011-12 F.Y. 2012-13 Opening 82,85,200/- 7,83,50,000/- 10,54,53,085/- 12,05,00,000/- 12,53,50,000/- Balance 82,85,200/- 7,00,64,800/ 2,71,03,085/- 1,50,46,915/- 48,50,000/- 39,00,000/- Received during the year Total 82,85,200 7,83,50,000 10,54,53,085 12,05,00,000 12,53,50,000 12,92,50,000

During the course of assessment proceedings for assessment year 2013- 14, the AO examined the issue of non refundable security deposits and held that the same is chargeable to tax as income of the appellant. Since the return of income for the year under consideration was processed only u/s 143(1), on the basis of findings recorded in assessment year 2013-14, the AO initiated proceedings u/s 148 after recording detailed reasons as reproduced in para 2 of the assessment year. The copy of reasons was provided to the assessee on 7

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17.11.2016 with clear cut direction that in case, no objection was filed by 22.11.2016, it would be understood that the appellant had no objection to the reopening of the assessment proceedings. Undisputedly, the objections were not filed by the specified date. However, only after issuance of show cause notice on 05.12.2016, the assessee filed an objection on 16.12.2016. Since the objections were filed very late, the AO vide order sheet dated 16.12.2016 informed the A/R of the appellant that it would not be possible to dispose off the objections separately at the feg end of time barring month. However, to meet the requirement of procedure, the AO has disposed off the objections vide para 3.2 of the assessment order. Under these circumstances, I am of the considered view that the AO has properly followed the procedure laid down by the Hon'ble Supreme Court in the case of GKN Driveshafts (India) Ltd (Supra). Hence the grounds of appeal and arguments raised on this account being without any basis are rejected. 4.1.1. As regards the arguments of the Ld. AR that this issue was considered by the AO in assessment year 2012-13 during the course of scrutiny assessment proceedings which had reached the finality and hence cannot be reconsidered, I find that in the assessment order of that year, there was no discussion on this account. Moreover, the assessment of the year under consideration was completed only u/s 143(1) which cannot be treated an order of assessment and since there being no assessment, the question of reconsideration of the issue or change of opinion, does not arise. This view gets support from the decision of Hon'ble Supreme Court in the case of ACIT Vs Rajesh Jhaveri Stock Brokers Pvt Ltd (2007) 291 ITR 500 (SC). The ld. AR has also argued that there was no failure on the part of appellant to disclose fully & truly all material facts. This argument is only relevant when assessment u/s 143(3) or 147 had been completed prior to the reopening. In view of the above mentioned factual and legal position, thus the decisions relied upon by the Ld. AR become distinguishable on the facts and hence are of no help to the appellant. Accordingly, I hold that the AO has rightly initiated the reassessment proceedings u/s 148 and both the grounds of appeal raised in this regard are dismissed.”

action of the Assessing Officer on the ground that such security deposits are not

liable to be refunded to the clients under any circumstances. Further, the assessee

has not been shown as a debtor by M/s Silverline Holding Pvt. Ltd. Relying on the

decision of the Mumbai Bench of the Tribunal in the case of Aakash Lavlesh

Leisure Pvt. Ltd. (2017) 78 taxmann.com 338 (Mum), the ld.CIT(A) held that the

non-refundable security deposits received by the assessee have nexus with the

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O&M services provided to the clients and, hence, the same are liable to be taxed as

revenue receipts. He accordingly upheld the addition on merit also.

Tribunal by raising the following grounds:-

“l (i) That on facts and circumstances of the case, the CIT(A) is not justified in confirming reassessment u/s. 148 without appreciating that the original assessment was completed u/s 143(3) and there being no case of any omission or failure on the part of the assessee in disclosing relevant information for the purpose of completion of assessment, the reassessment is not in conformity with proviso to sec. 147 and accordingly same is illegal and without jurisdiction. (ii) That in any case, reassessment is merely on the basis of change of opinion and in the absence of any fresh tangible material, recording of reasons are mechanical, vague and unsubstantiated. (iii) That the reassessment is even otherwise not sustainable in the absence of proper approval u/s 151 and disposal of objection filed in respect of reassessment proceedings. 2(i) That on facts and in law the Ld. CIT(A) erred in treating the sum of Rs. 7,00,64.800/- received during the year as refundable maintenance security deposit from M/s Silver Line Holdings Pvt. Ltd. in terms of agreement dated 24.12.2008 as taxable income of the appellant. (ii) That the claim of refundable maintenance security deposit amounting to Rs.7,00,64.800/- considered as income chargeable to tax is not on the basis of any legal right or legal claim and same is merely for maintenance and running of Golf course for providing services to the members and accordingly presumption of any income in respect of same is highly arbitrary and misconceived. (iii) That the AO has not even specified section and head of income under which such refundable security deposit is chargeable to tax. 3(i) That the Ld. CIT(A) while confirming the impugned addition failed to consider and appreciate that the said maintenance security deposit is a liability which is refundable to the developer M/s. Silver Line Holding Pvt. Ltd. on expiry of term of contract and as such presumption of same as taxable income is illegal, arbitrary and misconceived. 9

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(ii) That appellant is holding such refundable security deposit in trust for running and maintenance of Golf course and there is no case of any taxable income in the hands of appellant. (iii) That in any case money collected from members is for mutual benefit of members and as such there is no case of any taxable income in the hands of appellant. 4. That orders of lower authorities are not justified on facts and same are bad in law. 5. That the appellant craves leaves to add, alter, amend, forgot any of the grounds of appeal at the time of hearing.”

in upholding the reassessment proceedings as well as the addition on merit. So far

as the validity of reassessment proceedings are concerned, he submitted that such

reassessment proceedings are based on change of opinion and are wholly without

jurisdiction. Referring to the copy of reasons recorded u/s 147 of the Act, a copy of

which is placed at pages 2 to 18 of the paper book, he submitted that a perusal of the

reasons shows that the reassessment proceedings have been initiated solely on the

basis of opinion formed in assessment year 2013-14 which is inconsistent with the

view taken in assessment year 2012-13. Referring to the copy of the order passed

u/s 143(3) for assessment year 2012-13, copy of which is placed at pages 96 and 97

of the paper book, he submitted that no such addition has been made by the

Assessing Officer on account of such non-refundable security deposit. He

submitted that the factual position to this effect has been accepted by the Assessing

Officer in the reasons itself wherein it is clearly mentioned that this very issue has

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been examined in assessment year 2012-13 and detailed note was sought from the

assessee. The ld. counsel for the assessee drew the attention of Bench to para 5(c)

at pages 14 & 15 of the assessment order which reads as under:-

“c. the contention of the assessee that my predecessor during the course of assessment proceedings for A.Y. 2012-13 sought detailed note on the said nature and taxability of the interest free security deposit and in response thereto, assessee filed the details and the A.O. after due examination, queries raised and explained and which were accepted is not tenable as the principle of Res Judicata or estoppels does not apply - Held in New Jehangir Vakil Mills Co. Ltd. vs. Commissioner of Income-tax (1963) 49 ITR 137 (SC).

reasons u/s 148 could not be based on change of opinion and once a particular issue

has been examined in the case of the assessee, it is not open for the Assessing

Officer to initiate reassessment proceedings u/s 147 merely because a contrary view

has been taken in some different assessment year as it will tantamount to reopening

of assessment on the basis of change of opinion which is impermissible. For the

above proposition, the ld. counsel for the assessee relied on the following

decisions:- i) CIT vs. Kelvinator of India Ltd. (2010) 320 ITR 561 (SC); ii) NYK Line (India) Ltd. vs. DCIT (2012) 346 ITR 361 (Bom); iii) Bharti Infratel Ltd. vs. DCIT (2019) 101 taxmann.com 285 (Delhi); iv) Pr. CIT v. Tupperware India P. Ltd. (2016) 284 CTR 68 (Del); v) Mahendra Mills Ltd. vs. AAC (1975) 99 ITR 135 (SC);

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based on tangible material or information extraneous to record. He submitted that

the Assessing Officer in the instant case has not brought on record any tangible

material or information so as to establish a case of escapement of income. The

whole basis of reopening is addition made in assessment year 2013-14 which by no

stretch of imagination could be termed as tangible material for the purpose of

provisions of section 147 of the Act when in assessment year 2012-13 this very

issue has been accepted after due examination. He submitted that the requirement of

tangible material for the purpose of section 148 is mandatory irrespective of mode

of original assessment i.e., 143(3) or 143(1) as held by the Hon'ble Delhi High Court in the case of Pr. CIT v. Tupperware India P. Ltd. (2016) 284 CTR 68 (Del).

and preceding years which is available before the Assessing Officer as held by the

Hon'ble Supreme Court in the case of Mahendra Mills Ltd. vs. AAC (1975) 99 ITR 135 (SC). He submitted that in the present case, the issue of refundable security

deposit was examined in A.Y. 2012-13 and the opinion so formed will be equally

relevant for A.Y. 2009-10 to A.Y. 2011-12 as well and as such the reassessment

proceedings based on different view adopted in A.Y. 2013-14 would be based on

change of opinion and reappraisal of facts already on record and as such the

impugned reassessment proceedings are vitiated on two counts i.e., (a) Reasons are

based on change of opinion; and (b) reasons are not based on tangible material. So

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far as various decisions relied on by the Assessing Officer and CIT(A) are

concerned, he submitted that they are distinguishable and not applicable to the facts

of the present case.

12.1 So far as the merit of the case is concerned, the ld counsel for the assessee

submitted that M/s Silverline Holding Pvt. Ltd. is the owner of villas and golf

course and the same were sold to the prospective buyers as per buyers agreement

between M/s Silverline Holding Pvt. Ltd. and the prospective buyers. In order to

provide value added services, M/s Silverline Holding Pvt. Ltd., entered into

operation and maintenance agreement dated 24.12.2008 with assessee and offered

use of golf course facilities. The assessee was only responsible for running and

maintenance of golf course and scope and area of activities was defined under the

said agreement. Further the security deposit collected by M/s Silverline Holding

Pvt. Ltd., from the customers was transferred to the assessee for running and

maintenance of golf course and not as trading receipt. The ld. counsel for the

assessee drew the attention of the bench to clause 3 of the operation and

maintenance agreement and submitted that the assessee is neither the owner of the

golf course nor have any legal right to collect any security refundable or otherwise

from the buyers. Referring to clause 18-22 of the buyers agreement, copy of which

is palced at pages 19 to 45 of the paper book, he submitted that the security deposit

was received by M/s Silverline Holding Pvt. Ltd., in terms of buyer’s agreement.

He submitted that a perusal of the terms of buyer’s agreement shows that the

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security deposit shall be collected by M/s Silverline Holding Pvt. Ltd., and the same shall be employed by M/s Silverline Holding Pvt. Ltd., or its nominee for running and maintenance of golf course as per instructions of M/s Silverline Holding Pvt. Ltd. The right to collect and use the security deposit vests with M/s Silverline Holding Pvt. Ltd. The assessee company is only eligible for use of refundable deposit for running and maintenance of golf course as per advice and direction of M/s Silverline Holding Pvt. Ltd. and it has no legal or ownership right in respect of such deposit. Referring to copy of the audited balance sheet, he submitted that the assessee company is holding such deposit as custodian and for exclusive use of running and maintenance of golf course. Referring to the corrigendum dated 29th September, 2009, copy of which is placed at pages 50-52 of the paper book and the renewal agreement dated 27th October, 2017, copy placed at pages 53-55 of the paper book, he submitted that as per the above, the assessee company can hold the deposit only for the purpose of maintenance and running of the golf course. Once the assessee company cease to have running and maintenance right or becomes non- functional, the security deposit being liability is to be refunded to M/s Silverline Holding Pvt. Ltd.

12.2 So far as the decision in the case of Aakash Lavlesh Leisure Pvt. Ltd. (supra) relied on by the CIT(A) is concerned, he submitted that the said decision, in fact, supports the case of the assessee and reliance on the same by the CIT(A) is misplaced. He submitted that in that case, the refundable security deposit was

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accepted by the Assessing Officer as non-taxable receipt and the dispute before the

ITAT was only with regard to non-refundable deposit. However, in the present

case, the security deposit received by the assessee is shown as liability and is fully

refundable to M/s Silverline Holding Pvt. Ltd., and, therefore, the decision of the

Mumbai bench of the Tribunal relied on by the CIT(A) is, in fact, in support of the

assessee. So far as the observation of the Assessing Officer that M/s Silverline

Holding Pvt. Ltd., has not recorded these entries in the balance sheet is concerned,

he submitted that the Assessing Officer and the CIT(A) has not properly considered

the facts of accounting and legal principles. He submitted that M/s Silverline

Holding Pvt. Ltd., received the security deposit from the buyers who were willing to

avail golf course facilities and receipt of security deposits being for specific purpose

of maintenance of golf course the same were transferred to the assessee as the

assessee was appointed as maintenance agency of the golf course. The receipt of

security deposit and the transfer of the same to the assessee company is

corroborated from ledger account and bank statement of M/s Silverline Holding Pvt.

Ltd., copy of which is placed at pages 90-92 of the paper book. In any case, even if

there is any procedural deficiency in the balance sheet of M/s Silverline Holding

Pvt. Ltd., no adverse inference could be drawn against the assessee. He submitted

that the Assessing Officer as well as the CIT(A) have totally disregarded the

principles of real income and considered the issue of maintenance security in an

illegal and arbitrary manner. He submitted that the use of the term ‘non-refundable’

has been misconstrued by the Assessing Officer as it is implicit that when the 15

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assessee or M/s Silverline Holding Pvt. Ltd. cease to provide golf course services,

the deposit is to be refunded. The concept of non-refundable is only relevant till the

services of golf course are available to the members.

12.3 Referring to the decision of the Hon'ble Supreme Court in the case of Infosys

Technologies Ltd., 297 ITR 167 (SC), he submitted that the Hon'ble Supreme Court

in the said decision has held that unless a benefit/receipt is made taxable, it cannot

be regarded as ‘income’. He accordingly submitted that even on merit refundable

security deposit is not taxable during the year.

12.4 Without prejudice to the above, the ld. counsel for the assessee in the

alternate contention submitted that even otherwise the security deposit received

during the year cannot be fully taxed in this very year as the same is towards life

membership of the golf course. Therefore, such refundable security deposit has to

be apportioned and spread over to a number of years as reasonably estimated for the

purpose of taxation and the same by no stretch of imagination can be entirely taxed

in the year of receipt.

on the issue of validity of reassessment proceedings as well as the addition on merit.

So far as the reopening of the case is concerned, the ld. DR submitted that the

original assessment was completed u/s 143(1) for assessment years 2009-10 and

2010-11 and under section 143(3) for assessment year 2011-12. Referring to

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various decisions, he submitted that the reassessment proceedings initiated by the Assessing Officer and upheld by the CIT(A) are fully justified:-

has held that so long as the conditions of section 147 are fulfilled, the Assessing Officer is free to initiate proceedings under section 147 and failure to take steps under section 143(3) will not render the Assessing Officer powerless to initiate

reassessment proceedings, even when intimation under section 143(1) has been issued.

not decided while passing assessment order under section 143(3) was not a case of change of opinion. It was held that assessment was reopened validly.

15.1 Referring to the decision in the case of Indu Lata Ranqwala Vs DCIT,

reported in 384 ITR 337 (Del), he submitted that the Hon'ble Delhi High Court in the said decision has held that where initial return of income is processed under section 143(1), it is not necessary in such a case for Assessing Officer to come

across some fresh tangible material to form 'reasons to believe' that income has escaped assessment.

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15.2 Referring to the decision in the case of Mona Mahesh Bhojani Vs ITO (2017- TIOL-345-SC-IT) he submitted that SLP dismissed against appeal challenging the

judgment, whereby the High Court had held that reopening initiated in case of an

assessee who had not filed his return, could not be claimed by the assessee to be

based on 'change of opinion'. The Assessee had also challenged the action of High

Court in holding that when the AO had tangible material at his command to form a

bonafide belief that income chargeable to tax had escaped assessment, the writ court

would not interfere with the formation of such belief unless it is shown to be wholly

perverse.

15.3 Referring to the decision in the case of Vasudev Fatandas Vaswani Vs ITO (2018-TIOL-2305-HC-AHM-IT) he submitted that the Hon’ble Gujarat High Court

in the said decision has held that when issuing notice for re-opening assessment, the

AO is only required to show reasonable belief that income escaped assessment & is

not required to establish the same beyond reasonable doubt.

15.4 Referring to the decision in the case of Thakorbhai Maqanbhai Patel Vs ITO (2017) 245 taxman 333 (SC), he submitted that the Hon'ble Supreme Court in the

said decision has dismissed SLP against High Court's ruling where reopening of

assessment u/s 147 was held to be valid despite the AO not passing speaking order

against objections filed by the assessee.

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15.5 Referring to the decision in the case of Aravaliinfrapower Ltd, Vs DCIT(2017-TIOL42-SC-IT) he submitted that in the said decision, the Hon'ble

Supreme Court confirmed the decision of High Court, whereby it was held that

reopening of assessment is justified, when the bank statements as well as the ITR

form disclosing returns, raises more questions than satisfying the queries already

raised.

15.6 Referring to the decision in the case of Aravaliinfrapower Ltd, Vs DCIT [2017] 77 taxmann.com 322 (Delhi) he submitted that in the said decision the

Hon’ble Delhi High Court held that where assessee-company furnished only cheque

numbers, but failed to provide bank details of share applicants and it was found that

share applicants had meager income while investing huge sum of Rs. 8 crores,

reopening notice was justified.

15.7 Referring to the decision in the case of Raymond Woollen Mills Ltd. v. ITO

And Others, 236 ITR 34, he submitted that in the said decision the Hon’ble

Supreme Court held that in determining whether commencement of reassessment proceedings was valid it has only to be seen whether there was prima facie some

material on the basis of which the department could reopen the case. The

sufficiency or correctness of the material is not a thing to be considered at this stage.

15.8 Referring to the decision in the case of R.K. Malhotra ITO vs.

KasturbhaiLalbhai (1977) 109 ITR 537 (SC), he submitted that in the said decision

the Hon'ble Supreme Court held that the intimation which the Income-tax Officer 19

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received from the audit department would constitute "information" within the

meaning of section 147(b).

15.9 Referring to the decision in the case of CIT Vs P.V.S. Beedies (P.) Ltd., (1999) 237 ITR 13 (SC), he submitted that in the said decision the Hon’ble Supreme

Court held that Audit party had merely pointed out a fact which had been

overlooked by Assessing Officer and this was not a case of information on a

question of law. Reopening of case under section 147(b) on basis of factual

information given by internal audit party was valid in law.

15.10 Referring to the decision in the case of Paramount Intercontinental Pvt Ltd Vs ITO (2017-TIOL-376-HC-DEL-IT), he submitted that in the said decision, the

Hon’ble Delhi High Court held that when assessee himself is unable to satisfactorily

explain correctness of the entries made in his books, he cannot challenge the

reassessment notice issued u/s 147.

15.11 Referring to the decision in the case of Dr Chhanqur Rai Vs CIT (2017- TIOL-660-HC-ALL-IT), he submitted that in the said decision, The Hon’ble

Allahabad High Court held that non-disclosure of corresponding income by the

assessee so as to prove the source of investment in residential property, is sufficient

for belief of escaped assessment.

15.12 Referring to the decision in the case of Amsa India Pvt. Ltd Vs CIT (2017-TIOL-603-HC-DEL-IT), he submitted that in the said decision, the Hon'ble

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Delhi High Court held that the department can reassess the returns furnished by the

assessee if the AO has a reason to believe that the facts have a proximate link with

the assessee's concealed income.

order of the CIT(A). He submitted that since the amount is non-refundable to the

clients under any circumstances, therefore, such non-refundable security deposit

partakes the character of revenue receipts. Since the ld.CIT(A) while dealing with

this issue has elaborately discussed the issue and has given a clear-cut finding that

such non-refundable security deposits received by the assessee have nexus with the

O&M services provided to the clients, therefore, the same is liable to be taxed as

revenue receipts. He accordingly submitted that the order of the CIT(A) be upheld

and the grounds raised by the assessee be dismissed.

orders of the authorities below and the paper book filed on behalf of the assessee.

We have also considered the various decisions cited before us. We find the assessee

in the instant case is engaged in the business of operation and maintenance of golf

course owned by M/s Silverline Holding Pvt. Ltd. It filed its return of income on

23.11.2009 declaring loss of Rs.62,12,919/-. We find the Assessing Officer, on the

basis of the assessment order for assessment year 2013-14, wherein the refundable

security deposit received from M/s Silverline Holding Pvt. Ltd. was considered as

taxable income in the hands of the assessee, reopened the assessment by issue of

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notice u/s 148 of the IT Act. Rejecting the various arguments advanced by the

assessee, the Assessing Officer made addition of Rs.7,00,64,800/- on account of

such security deposit received by the assessee during the year under consideration

on the ground that such security deposit received by M/s Silverline Holding Pvt.

Ltd., is non-refundable and has to be brought to tax. Further, the security deposit so

received from M/s Silverline Holding Pvt. Ltd., has not been shown as advances in

the balance sheet of M/s Silverline Holding Pvt. Ltd., and although the assessee in

the balance sheet has shown such interest free security deposit but has not shown

the same in the name of M/s Silverline Holding Pvt. Ltd. We find the ld.CIT(A)

upheld the reassessment proceedings initiated by the Assessing Officer the reasons

for which have already been reproduced in the preceding paragraphs. It is the

submission of the ld. counsel for the assessee that the reassessment proceedings

initiated u/s 147/148 are based on change of opinion and the reasons to believe are

not based on any tangible material or information extraneous to the record. In sum

and substance, the case of the assessee is that the reopening of the assessment is not

valid since the reasons are based on change of opinion, re-appraisal of facts already

on record and the reasons are not based on any tangible material.

From the various details furnished by the assessee in the paper book, we find the

original assessment for assessment year 2011-12 and 2012-13 were completed u/s

143(3) whereas the assessment for assessment year 2009-10 and 2010-11 were

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completed u/s 143(1). In the orders passed for assessment year 2011-12 and 2012-

13, the issue of security deposit was duly accepted and it was not disturbed.

However, during the assessment year 2013-14, the Assessing Officer deviated from

his earlier stand and brought to tax the refundable security deposit to tax. While

reopening the assessment for the impugned assessment year, the Assessing Officer

observed that the earlier assessments are not binding as per principle of res judicata or estoppels. Under this scenario, the question that arises for our consideration is as

to whether the reassessment proceedings are valid when the original assessment has

been completed u/s 143(1) for the impugned assessment year [for assessment year

2010-11 – 143(1) and for assessment year 2011-12 – 143(3)] when the very issue of

chargeability of refundable security deposit as revenue receipt or not was examined

in 2012-13 and the reassessment proceedings were initiated on the basis of the

findings in assessment year 2013-14.

impugned assessment year is based on the findings of the assessment order for

assessment year 2013-14 whereas the same issue was decided and accepted in

assessment year 2012-13. Thus, we find merit in the submission of the ld. counsel

for the assessee that the reassessment proceedings are based on change of opinion

and re-appraisal of facts already on record and are not based on any tangible

material and, therefore, such reassessment proceedings are vitiated. We find the Hon'ble Bombay High Court in the case of NYK Line (India) Ltd. (supra) has held

ITA Nos.403 to 405/Del/2019

that where the assessee has disclosed all material facts relating to container

detention charges at the time of making assessment, mere fact that Assessing

Officer had come to a different conclusion in respect of said income in subsequent

assessment year would not justify reopening of assessment. It has been held in the

said decision that an order of assessment which has been passed for a subsequent

assessment year may not be the foundation to reopen an assessment for an earlier

assessment year. However, there must be some new facts which come to light in

the course of assessment for subsequent assessment year which emerge in the order

of assessment. Otherwise, a mere change of opinion on the part of the Assessing

Officer in the assessment for a subsequent assessment year would not by itself

legitimize the reopening of an assessment for an earlier year.

India P. Ltd. (supra) has held that section 147 makes no distinction between an

order passed u/s 143(3) and intimation issued u/s 143(1) and, therefore, different

standards cannot be adopted while interpreting the words ‘reason to believe’ vis-à-

vis section 143(1) and section 143(3) and requirements of section 147 cannot be

dispensed with when an assessment made u/s 143(1) is sought to be reopened. It

was accordingly held that in absence of any tangible material available with the

Assessing Officer to form requisite belief regarding escapement of income,

reopening of assessment made u/s 143(1) was bad in law. The relevant observations

of the Hon'ble High Court from para 14 onwards read as under:-

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“14. The question examined by the Court in CIT v. Orient Craft Ltd. (supra) is identical to the one sought to be projected by the Revenue in this appeal viz., whether the Tribunal was right in law in holding that in the absence of any tangible material available with the AO to form the requisite belief regarding escapement of income, the reopening (under Section 147/148) of the assessment made under Section 143 (1) was bad in law? 15. In CIT v. Orient Craft Ltd. (supra) the Revenue sought to argue, placing reliance on Rajesh Jhaveri Stock Brokers P. Ltd. (supra) that "intimation" could not be equated with "assessment". The Court observed that the decision in Rajesh Jhaveri Stock Brokers P. Ltd. (supra) "contrary to what the Revenue would have us believe, does not give a carte blanche to the Assessing Officer to disturb the finality of the intimation under Section 143 (1) at his whims and caprice; he must have reason to believe within the meaning of the Section." The Court in Orient Craft Ltd. recorded that the decision in Rajesh Jhaveri Stock Brokers P. Ltd. underscored that the intimation under Section 143 (1) of the Act could be disturbed by initiating reassessment proceedings only: "so long as the ingredients of Section 147 are fulfilled and with reference to Section 143(1) vis-a-vis Section 147, the only ingredient is that there should be reason to believe that income chargeable to tax has escaped assessment and it does not matter that there has been no failure or omission on the part of the assessee to disclose full and true particulars at the time of the original assessment. There is nothing in the language of Section 147 to unshackle the Assessing Officer from the need to show "reason to believe". The fact that the intimation issued under Section 143(1) cannot be equated to an "assessment", a position which has been elaborated by the Supreme Court in the judgment cited above, cannot in our opinion lead to the conclusion that the requirements of Section 147 can be dispensed with when the finality of an intimation under Section 143(1) is sought to be disturbed." 16. The Court in CIT v. Orient Craft Ltd. (supra) examined the meaning given of the words „reasons to believe‟, quoted from the decision of the Supreme Court in CIT v. Kelvinator India Ltd. and held as under: "Having regard to the judicial interpretation placed upon the expression "reason to believe", and the continued use of that expression right from 1948 till date, we have to understand the meaning of the expression in exactly the same manner in which it has been understood by the courts. The assumption of the Revenue that somehow the words "reason to believe" have to be understood in a liberal manner where the finality of an intimation under Section 143(1) is sought to be disturbed is erroneous and misconceived. As pointed out earlier, there is no warrant for such an assumption because

ITA Nos.403 to 405/Del/2019

of the language employed in Section 147; it makes no distinction between an order passed under section 143(3) and the intimation issued under section 143(1). Therefore it is not permissible to adopt different standards while interpreting the words "reason to believe" vis-à-vis Section 143(1) and Section 143(3). We are unable to appreciate what permits the Revenue to assume that somehow the same rigorous standards which are applicable in the interpretation of the expression when it is applied to the reopening of an assessment earlier made under Section 143(3) cannot apply where only an intimation was issued earlier under Section 143(1). It would in effect place an assessee in whose case the return was processed under Section 143(1) in a more vulnerable position than an assessee in whose case there was a full-fledged scrutiny assessment made under Section 143(3). Whether the return is put to scrutiny or is accepted without demur is not a matter which is within the control of assessee; he has no choice in the matter. The other consequence, which is somewhat graver, would be that the entire rigorous procedure involved in reopening an assessment and the burden of proving valid reasons to believe could be circumvented by first accepting the return under Section 143(1) and thereafter issue notices to reopen the assessment. An interpretation which makes a distinction between the meaning and content of the expression "reason to believe" in cases where assessments were framed earlier under Section 143(3) and cases where mere intimations were issued earlier under Section 143(1) may well lead to such an unintended mischief. It would be discriminatory too. An interpretation that leads to absurd results or mischief is to be eschewed." 17. The Court in CIT v. Orient Craft Ltd. (supra) further comprehensively rejected the argument of the Revenue, which it seeks to urge in the present case as well, that an 'intimation' under Section 143 (1) cannot be equated to an assessment. The Court held: "The argument of the revenue that an intimation cannot be equated to an assessment, relying upon certain observations of the Supreme Court in Rajesh Jhaveri (supra) would also appear to be self-defeating, because if an "intimation" is not an "assessment" then it can never be subjected to Section 147 proceedings, for, that section covers only an "assessment" and we wonder if the revenue would be prepared to concede that position. It is nobody‟s case that an "intimation" cannot be subjected to Section 147 proceedings; all that is contended by the assessee, and quite rightly, is that if the revenue wants to invoke Section 147 it should play by the rules of that section and cannot bog down. In other words, the expression "reason to believe" cannot have two different standards or sets of meaning, one applicable where the assessment was earlier made under Section 143(3) and another applicable where an intimation was

ITA Nos.403 to 405/Del/2019

earlier issued under Section 143(1). It follows that it is open to the assessee to contend that notwithstanding that the argument of "change of opinion" is not available to him, it would still be open to him to contest the reopening on the ground that there was either no reason to believe or that the alleged reason to believe is not relevant for the formation of the belief that income chargeable to tax has escaped assessment. In doing so, it is further open to the assessee to challenge the reasons recorded under Section 148(2) on the ground that they do not meet the standards set in the various judicial pronouncements." 18. It may be noticed at this stage that the decision in Orient Craft Ltd has been followed by this Court in Madhukar Khosla v. Assistant Commissioner of Income Tax (2013) 354 ITR 356. 19. There is no ground urged in the present appeal by the Revenue that the decision in CIT v. Orient Craft Ltd. was erroneously decided and requires reconsideration. During the course of arguments it was submitted that having regard to the decision of the Full Bench in CIT-VI v. Usha International Ltd. (2012) 348 ITR 485, the question should be re-examined by the Court. 20. In the first place, it requires to be noted that the decision in Orient Craft Ltd. was delivered after the decision of the Full Bench in Usha International Ltd. (supra). Secondly, the subsequent decision in Madhukar Khosla noted the decision in Usha International Ltd. and reiterated the dictum in Orient Craft Ltd. Again in a decision dated 28th January 2015 in Mohan Gupta (HUF) v. Commissioner of Income Tax-XI (2014) 366 ITR 115 (Del) the Court reiterated the decision in Orient Craft Ltd. Thirdly, the Court finds that the questions framed for consideration by the Full Bench in Usha International Ltd. as set out in para 1 of the said judgment did not pertain to reopening of an assessment under Section 143 (1) of the Act. The four questions referred to the Full Bench were as under: "(i) What is meant by the term "change of opinion"? (ii) Whether assessment proceedings can be validly reopened under Section 147 of the Act, even within four year, if an assessee has furnished full and true particulars at the time of original assessment with reference to income alleged to have escaped assessment and whether and when in such cases reopening is valid or invalid on the ground of change of opinion? (iii) Whether the bar or prohibition under the principle "change of opinion" will apply even when the Assessing Officer has not asked any question or query with respect to an entry/note, but there is evidence and material to show that the Assessing Officer had raised queries and questions on other aspects?

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(iv) Whether and in what circumstances Section 114 (e) of the Evidence Act can be applied and it can be held that it is a case of change of opinion?" 21. Therefore, the central issue examined in the decision of the Full Bench in Usha International Ltd. was as to what constituted a „change of opinion‟. The Court, therefore, does not consider the decision in Orient Craft Ltd. as being contrary to the decision in Usha International Ltd. In other words, there is no occasion for the Court to refer to a larger bench the question of the correctness of the decision in Orient Craft Ltd. which decision squarely applies to the facts of the present case. 22. For all of the aforementioned reasons, the Court holds that no substantial question of law arises from the impugned order of the ITAT. The appeal is accordingly dismissed.”

(supra) has held that where assessee has disclosed all material facts relating to

transfer of assets in course of assessment, initiation of reassessment proceedings

merely on the basis of change of opinion was not justified.

any tangible material or information to establish a case of escapement of income.

The whole basis of the reopening in the instant case is based on addition made in

assessment year 2013-14 which, in our opinion, cannot be termed as tangible

material for the purpose of the provisions of section 147 of the IT Act, especially

when the Assessing Officer in the assessment year 2012-13 has accepted this very

issue after due examination and no addition has been made. In our opinion, for the

purpose of section 148, the requirement of tangible material is mandatory

irrespective of mode of original assessment as held by the Hon'ble Delhi High Court

in the case of Tupperware India P. Ltd. (supra). Further, as held by the Hon'ble 28

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Supreme Court in the case of Mahendra Mills Ltd. (supra), the term ‘record’

includes the entire record of subsequent and preceding years. Since the issue of

refundable security deposit was examined in assessment year 2012-13 and the

opinion so formed will be equally relevant for assessment year 2009-10 to 2011-12

as well and as such the reassessment proceedings based on a different view adopted

in assessment year 2013-14, in our opinion, would be based on change of opinion

and reappraisal of facts already on record. Therefore, we agree with the contention

of the ld. counsel for the assessee that the reassessment proceedings so initiated are

void on the ground that the reasons are not based on any tangible material for

recording of such reasons. The various decisions relied on by the ld. DR are

distinguishable and not applicable to the facts of the present case. In view of the

above discussion, we hold that the reassessment proceedings initiated by the

Assessing Officer are not in accordance with the law. We, therefore, set aside the

order of the CIT(A) on this issue and the grounds of appeal challenging the validity

of reassessment proceedings are decided in favour of the assessee. Since the

assessee succeeds on this legal ground, the grounds on merit are not being

adjudicated being academic in nature.

ITA Nos.404 & 405/Del/2019 (A.Ys. 2010-11 &2011-12) 23. After hearing both the sides, we find the grounds raised by the assessee in the

above appeals are identical to the grounds of appeal in ITA No.403/Del/2019. We

have already decided the issue and the grounds relating to validity of reassessment

proceedings have been adjudicated in favour of the assessee. Following similar 29

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reasoning, the grounds challenging the validity of reassessment proceedings for the above two years are decided in favour of the assessee. Since the assessee succeeds on the legal ground for both the assessment years, therefore, the grounds challenging the addition on merit are not being adjudicated being academic in nature.