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Income Tax Appellate Tribunal, VISAKHAPATNAM BENCH, VISAKHAPATNAM
Before: SHRI V. DURGA RAO& SHRI D.S. SUNDER SINGH
आदेश /O R D E R Per Bench: 1. These appeals are filed by the Dr.P.Venugopal, representative assessee (Rep.Assessee) of the appellants against the order of the Commissioner of Income Tax (Appeals) [CIT(A)]-10, Hyderabad vide ITA No.0017-0022/CIT(A)-10/ 2015-16, dated 01.01.2018 for the assessment year 2007-08. Since the issues involved in these appeals are identical, all the appeals are clubbed, heard together and disposed off in a common order for the sake of convenience as under. For the sake of convenience the facts are extracted from appeal No.ITA No.69/Viz/2018 of V.Pratima Rao.
The assessee has raised the following common grounds in all the appeals : The Ld. AO is not correct and the Ld. CIT (Appeals) is not correct in 1. holding that the notice under section 148 dated 24.03.2014 isnot barred by limitation. The Ld. CIT (Appeals) is not correct in holding that the order under 2. section 147 r.w.s. 143(3) dated 31.03.2015 served on 06.04.2015 is not barred by limitation. The Ld. AO is not correct in passing an order under section 147 without first 3. disposing the objections raised to the reopening. Hence the entire assessment is null and void. The Ld. CIT (Appeals) is not correct in holding that no objection was raised to the reopening. The Ld. AO is not correct in rejecting the reverse indexation adopted by 4. the assessee for arriving at the fair market value of the asset transferred as on 01.04.1981 and the Ld. CIT(Appeals) is not correct in confirming the same. The Ld. AO is not correct in charging interest under section 234A, 234B 5. and 234C and the Ld. CIT (Appeals) is not correct in confirming the levy/charge of interest.
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The appellant craves leave to add to, amend, alter, modify, delete all or 6. any of the above grounds of appeal.
Brief facts of the case are that Dr. P.Venu Gopal, vendee and the Rep. assessee has purchased the immovable property admeasuring 845 sq. yards vacant land situated at Maharanipeta Ward, Visakhapatnam, for a consideration of Rs.35,00,000/- (whose SRO value was Rs.78,39,000/-) vide document bearing No.2174/2006 dt. 04.05.2006 registered before the SRO, Visakhapatnam from the following persons:
Smt.Lalitha Devulapalli Venkata Rao, USA(NRI) 2. Smt. V. Ujwala Rao, Alberta(NRI) 3. Sri V. Gautam Rao, (NRI) 4. Smt. V. Pratima Rao, Edmonton(NRI) 5. Sri R. Mani Kumar, Doha(NRI) 6. Smt. R. Smitha Sarma, New York(NRI) 7. Sri R. Ramakanth Sarma, Mumbai 8. Sri R. Kodandarama Sarma, Secunderabad. The assessee has purchased the said property from 6 non-residents & 2 residents. The income on sale of the said property required to taxed and the payments made to the non-residents from sale of the said land attracts Long Term Capital Gains in their individual status and liable for deduction of tax at source u/s 195 of I.T.Act. However, no tax was deducted by the assessee u/s. 195 while making the payments to the said non residents. Further, though the non-residents are in receipt of such
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income from the assessee and are required to file their returns of income disclosing the capital gains, no such returns were filed by them. Hence, order u/s. 163(1)(c) was passed by the Assessing officer (AO) on 10.02.2014 treating the assessee as an Agent of the aforementioned non-residents for the A.Y.2007-08 after affording opportunity to the assessee.
3.1. As per the sale deed, the consideration was stated to be Rs.35,00,000/, whereas the market value of the said property was at Rs.78,39,000/-. Therefore, as per the provisions of Sec.50C, the Long Term Capital Gains in respect each case of the above non-resident is worked out as under:
Name of the non-resident Share in the property Share in sale Sl.No, consideration (Rs.) 1. Smt. Laliitha D.V. Rao 26,13,000 1/3 2. Smt V. Ujwala Rao 8,71,000 1/9 3 . Smt, V Gautam Rao 1/9 8,71,000 4 . Smt V. Pratima Rao 1/9 8,71000 5 . Sri R. Mani Kumar 1/12 6,53,250 6 . Sri R. Smitha Sarma 1/12 6,53,250
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In view of the above position, since the above non-residents have not filed their respective individual returns of income by disclosing the incomes from the long term capital gains, notices u/s. 148 were issued on 24.03.2014 to Dr. P. Venugopal, Rep. Assessee of Smt V Pratima Rao and Five others and served the same on him on 25.03.2014. As the Rep.Assessee had not complied with filing of return of income, reminders were issued on various dates and at last the Rep.assessee has filed the return on 11.07.2014 along with written submissions. Subsequently, notice u/s. 143(2) dt. 28.07.2014 and also notice u/s. 142(1) dt. 30.07.2014 were issued and served on the assessee. In response to the said notices the Ld.A.R. of the assessee has requested the AO to consider the written submissions furnished on 11.07.2014 before the AO to complete the assessment and the AO completed the assessment taxing the above sums in the hands of the non-residents making the assessee an agent of the non-residents.
Aggrieved by the order of the AO, the assessee went on appeal before the CIT(A) and challenged the validity of issue of notice u/s 148. The Ld.AR argued before the Ld.CIT(A) that the notice issued u/s 148 was barred by limitation. According to the assessee for the assessment year 2007-08, the
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time limit for issue of notice was 2 years from the end of the assessment year in which the income is first assessable and the same was expired on 31.03.2010. The amendment made to Income Tax Act section 149(3) was effective from 01.07.2012, hence the enlargement of time limit cannot be applied in the instant case. The Ld.A.R further submitted that the issue of time limit was already dead and the AO cannot revive and extend the time limit because of the subsequent amendment made to section 149(3) of I.T.Act. The Ld.AR argued that the amendment was not retrospective, hence, the same cannot be applied in the case of the assessee. The Ld.AR relied on the decision of Steel Strips Limited Vs. ACIT (1995) 211 ITR 1021 (P&H) and Addl.CIT Vs. Watan Mechanical and Turning Works (1977) 107 ITR 743. The Ld.CIT(A) observed that as per explanation to section 149(3), the amendment made by Finance Act, 2012 is applicable to the assessment year beginning on or before 01 April 2012, thus, there is no scope for any confusion or for interpretation giving rise to another view, therefore, held that the notice issued u/s 148 are valid. For the sake of convenience and clarity, we extract relevant part of Ld.CIT(A) order which reads as under : “6.1. I am in agreement with the stand taken by the Assessing Officer in view of the meaning clearly conveyed by the language of the explanation to Section 149(3), which is reproduced, as below.
Explanation - For the removal of doubts, it is hereby clarified that the provisions of sub-sections (1) and (3), as amended by the
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Finance Act, 2012, shall also be applicable for any assessment year beginning onor before the 1st day of April, 2012."
6.2. In view of the above, the Intention of the legislature is clear and the time of 6 years was available to issue notice u/s 148 in the present set of facts. Important changes have been made by the Finance Act, 2012. Apart from changing the existing provisions of Section 149(1), the period of two years is substituted by six years in Sec 149(3). It may be noted that the provisions of Sec 149 are procedural in nature. However, it is clarified by inserting the said explanation at the end of the section that amendments made by the Finance Act, 2012 shall apply to assessment year beginning on or before April 1, 2012. Thus, there is absolutely no scope for any interpretation giving rise to another view as the said explanation clarifies the position and leaves no scope, whatsoever, for any confusion or doubt.” The Ld.CIT(A) has taken support of Hon’ble Apex Court’s decision in the case of IPCA Laboratory Ltd. Vs. DCIT (SC) 266 ITR 521 and Gem Granites Vs. CIT (SC) 271 ITR 322 and accordingly upheld the issue of notice u/s 148.
Aggrieved by the order of the Ld.CIT(A), the assessee is in appeal before us. During the appeal hearing, the Ld.AR argued that in this case, the property was purchased by the Rep.Assessee by document bearing No.2174/2006 dated 04.05.2006 relevant to the assessment year 2007-08. The AO passed the order u/s 163(1)(c) on 10.02.2014 treating the assessee as an agent of the non residents for the assessment year 2007-08 and the notice u/s 148 was issued on 24.03.2014. By the time the notice was issued u/s 148, the time limit for issue of notice has been expired as provided u/s 149(3) of I.T.Act, thus the issue was dead on 31.03.2010.
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The amendment was not made before the date of expiry of the time limit for issue of notice and hence, the amendment cannot be applied in the assessee’s case. Therefore, argued that the notice issued u/s 148 is bad in law, barred by limitation, thus required to be quashed. The Ld.AR also relied on the decision of Addl.Commissioner of Income Tax Vs. Watan Mechanical and Turning Works (supra) and the decision of Coordinate Bench of Hyderabad ‘A’Bench in the case of Madhucon Sino Hydro JV Vs. DCIT, (International Taxation), Hyderabad in I.T.A.No.246/Hyd/2015 dated 15.07.2015 for the assessment year 2006-07 and the decision of Hon’ble Supreme Court in the case of S.S.Gadgil Vs. Lal& Co. 53 ITR 0231.
On the other hand, the Ld.DR supported the orders of the lower authorities and argued that as per explanation to Sub Section 149(3), the amendment is applicable for any assessment year beginning on or before 1st April 2012. Since the explanation is very clear and there is no ambiguity, no interpretation is called for, hence submitted that the orders of the Ld.CIT(A) may be upheld.
We have heard both the parties and perused the material placed on record. In this case, the Rep.Assessee has purchased the property from
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Lalitha D.V.Rao and 7 others and Out of the 8 vendors, the following are non residents : 1. Smt. Lalitha Devulapalli Venkata Rao, 2. Smt. V.Ujwala Rao 3. Sri V.Gautam Rao 4. Smt.V.Pratima Rao 5. Sri R.Mani Kumar 6. Smt.R.Smitha Sarma All six of them are non residents and payment made to non residents attracts the tax deduction at source u/s 195 of I.T.Act. The Rep.Assessee failed to deduct the tax at source as required u/s 195 of I.T.Act, hence, the AO has passed the order u/s 163 (1)(c) treating the assessee as an agent of non residents for the assessment year 2007-08 and issued notice u/s 148 on 24.03.2014. According to the assessee as per section 149(3), the time limit for issue of notice u/s 148 got expired on 31.03.2010 which was two years during the assessment year under consideration. For ready reference, we extract relevant section 149(3) of I.T.Act which reads as under : (3) If the person on whom a notice under section 148 is to be served is a person treated as the agent of a non-resident under section 163 and the assessment, reassessment or re computation to be made in pursuance of the notice is to be made on him as the agent of such non-resident, the notice shall not be issued after the expiry of a period of six years from the end of the relevant assessment year.
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Plain reading of section 149(3) shows that the time limit for issue of notice u/s 148 in case of agent of non residents was two years from the end of the relevant assessment year in which the transaction took place. However, the Act has been amended w.e.f. 1.7.2012 by substituting the period with six years in place of two years. In explanation to sub section (3) of 149, it was clarified that the amendment made by Finance Act 2012 shall also be applicable for any assessment year beginning on or before 1st day of Apr 2012. For ready reference, we extract relevant part of the explanation to Instruction 149(3) which reads as under : Explanation.—For the removal of doubts, it is hereby clarified that the provisions of sub-sections (1) and (3), as amended by the Finance Act, 2012, shall also be applicable for any assessment year beginning on or before the 1st day of April, 2012.
According to the Ld.DR and the AO, as per explanation to Section 149(3) , the time limit for issue of notice u/s 148 is six years instead of two years. Whereas the assessee contends that the time limit was two years.
7.1. We have carefully considered the arguments made by both the parties. In the instant case, the assessment year involved was 2007-08 and the time limit for issue of notice u/s 148 in the case of agent of non- resident was two years from the end of the relevant assessment year, which was expired on 31.03.2010. As argued by the Ld.AR the issue was dead as
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on 31.03.2010. The amendment has come into force w.e.f. 1.7.2012 and the amendment was also not retrospective effect. The amendment made subsequent to the expiry of the time limit cannot be made applicable to the assessments which was already time barred by that date and the issue stands dead. The issue which was already dead cannot be revived with a subsequent amendment unless the same amendment is made with retrospective effect. Similar issue has come up before the Hon’ble ITAT Coordinate Bench of Hyderabad, relied upon by the Ld.AR and the ITAT expressed similar view and held that the time limit for issue of notice u/s 148 was barred by limitation. For sake of clarity and convenience we extract relevant part of the order of ITAT Hyderabad Bench in the case of Madhucon Sino Hydro JV Vs. DCIT (supra).
We also notice from the material on record, one more fundamental flaw in the reassessment proceedings of this case, which is not even pointed out by the Appellant, is barred by limitation prescribed under provisions of sub-section (3) of Sec. 149 of the Act. The provisions of sub- section (3) of Section 149 of the Act as they stood at the relevant point of time read as follows:-
"(3) if the person on whom a notice under section 148 is to be served is a person treated as the agent of a non-resident under section 163 and the assessment, reassessment or re-computation to be made in pursuance of the notice is to be made on him as the agent of such non- resident, the notice shall not be issued after the expiry of a period of *[six] years from the end of the relevant assessment year.
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[Explanation—For the removal of doubts, it is hereby clarified that the provisions of sub-section (1) and (3), as amended by the Finance Act, 2012, shall also be applicable for any assessment year beginning on or before the J day of April, 2022.]"
*Substituted for 'two" by the Finance Act, 2012, w.e.f 1-7-2012. Thus, the provisions of sub-section (3) of Section 149 mandates that where the income escaping the assessment belongs to a non-resident, and the reassessment is to be made on agent of non-resident in accordance with the provisions of Sec. 163 of the Act, the notice u/s.148 should be issued only within the period of two years from the end of the relevant assessment year up to 30.06.2012 or within a period of six tears subsequent to 3006.2012. In this case, the relevant assessment year is 2006-07. Reassessment notice was required to be issued on or before 31.3.2008. Whereas, in the case on hand the reassessment notice was issued on 30.03.2013, which is clearly beyond the period of limitation prescribed under sub-section (3) of Section 149 of the Act. The amended period of six years is applicable only from the assessment year 2012-13 onwards as per the Explanation to the above sub-section. The Hon'ble Supreme Court in the case of Claggett Bronchi Co. Ltd. v. CIT [19891 177 ITR 409 (para 9) had held as under:-
“…..The issue of notice under section 148 of the Act to the agent after the expiry of two years from the end of the relevant assessment year is prohibition by the statute. The same ratio was followed in the following two cases (i) CIT v. S.G. Sambandam& Co., (2000) 242 ITR 708, 718 (Mad); (ii) Ingram Micro India Ltd. v. Deputy CIT (2012) 347 ITR 221 (Born)." 14. Respectfully following the ratio laid down in the above cases, we hold that the re-assessment proceedings in this ease are also barred by limitation and therefore void ab initio. The Hon’ble Supreme Court in the case of S.S.Gadgil Vs. Lal & Company (supra)held that limitation having expired under the old provision before
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coming into force of the amending law and the amending law having not been made retrospective, notice under section 34 was barred by limitation. For ready reference, we extract relevant para of the order of Hon’ble Supreme Court in para No.9 of the order which reads as under : 9. As we have already pointed out, the right to commence a proceeding for assessment against the assessee as an agent of a non-resident party under the IT Act before it was amended, ended on 31st March, 1956. It is true that under the amending Act by 5. 18 of the Finance Act, 1956, authority was conferred upon the ITO to assess a person as an agent of a foreign party under s. 43 within two years from the end of the year of assessment. But authority of the ITO under the Act before it was amended by the Finance Act of 1956, having already come to an end, the amending provision will not assist him to commence a proceeding even though at the date when he issued the notice it is within the period provided by that amending Act, This will be so, notwithstanding the fact that there has been no determinable point of time between the expiry of the time provided under the old Act and the commencement of the amending Act. The legislature has given to s. 18 of the Finance Act, 1956, only a limited retrospective operation, .e,, up to 1st April, 1956, only. That provision must be read subject to the rule that in the absence of an express provision or clear implication, the legislature does not intend to attribute to the amending provision greater retrospectivity than is expressly mentioned, nor to authorise the ITO to commence proceedings which before the new Act came into force had by the expiry of the period provided become barred.
7.2. Hon’ble AP High Court in the case of Addl.CIT Vs. Watan Mechanical and Turning Works (supra) held as under : It is well-settled that the IT Act as it stands amended on the 1st day of April of any financial year, must apply to the assessment of that year. Any amendments in the Act which come into force after the first day of April of financial year, would not apply to the assessment of that year, even if the assessment is actually made after the amendments come into force.' In the instant case, the assessment year involved is 2007-08 and the time limit for issue of notice u/s 148 was barred by limitation on 31.10.2010. The amendment to sub section 149(3) has come into force from 01.04.2012 i.e. after expiry of time limit for issue of notice u/s 148 in
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the case of the assessee. Therefore, we hold that the amendment is not applicable for enlargement of the time limit for issue of notice u/s 148 and the case is squarely covered by the decision of the Coordinate Bench of ITAT Hyderabad cited (supra) and the ratio laid down by the Hon’ble Supreme Court in the case of S.S.Gadgil (supra). Therefore, respectfully following the view taken by the Coordinate Bench, Hyderabad, we hold that reassessment proceedings initiated by the AO in this case is also barred by limitation. Therefore, the notice u/s 148 is squashed and the consequent assessments made are held to be void ab initio. Since we have quashed the notice issued u/s 148 we are of the view that the remaining grounds are considered not necessary to be adjudicated.
In the result appeals of the assessee are allowed.
The above order was pronounced in the open court on 6th June, 2018.
Sd/- Sd/- (धड.एस. सुन्दर ससह) (िी.दुगाा राि) (D.S. SUNDER SINGH) (V. DURGA RAO) लेखा सदस्य/ACCOUNTANT MEMBER न्याधयक सदस्य/JUDICIAL MEMBER धिशाखापटणम /Visakhapatnam ददनांक /Dated : 06.06.2018 L.Rama, SPS
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आदेश की प्रधतधलधप अग्रेधर्त/Copy of the order forwarded to:- 1. निर्ााररती/ The Rep.Assessee- Dr.P.Venugopal, 49-35-7, Akkayyapalem, Visakhapatnam 2. राजस्व/ The Revenue –Income Tax Officer, (International Taxation), Visakhapatnam 3. The Commissioner of Income Tax, (IT &TP), Hyderabad 4. The Commissioner of Income-Tax(Appeals)-10, Hyderabad 5. धिभागीय प्रधतधनधध, आयकर अपीलीय अधधकरण, धिशाखापटणम /DR, ITAT, Visakhapatnam 6.गाडाफ़ाईल / Guard file आदेशानुसार / BY ORDER // True Copy //
Sr. Private Secretary ITAT, VISAKHAPATNAM