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Income Tax Appellate Tribunal, “B” BENCH : BANGALORE
Before: SHRI N. V. VASUDEVAN & SHRI JASON P. BOAZ
Per Bench These are a bunch of six appeals by three assessees and cross appeals by Revenue, directed against separate orders of the CIT(A)-4, Bangalore, dated 30.11.2017 for Assessment Year 2008-09. The grounds and issues raised by both parties being similar, these appeals were heard together and we deem it appropriate to dispose them off by way of this consolidated order.
Briefly stated, the facts of these cases are as under:
2.1 The three assessees are co-owners of an inherited property admeasuring 2 acres 29.42 guntas (1,19,161 sq. ft.) at No.424/376/487, Survey No.63 situated at Bannerghatta Main Road, Hulimavu Ward, Arekere Sub division, Bangalore. The three co-owners (namely Smt. Susheela Reddy, Shri Swaroop Kumar and Shri Shashank Kumar) entered into a joint development agreement (JDA) on 15.02.2008 with M/s. Vishala India Commercial Developers Pvt. Ltd., for construction of a commercial complex. For this purpose, the assessee executed a general power of attorney in favour of the Developer on 15.02.008. As per the JDA, the built up area was to be shared in the ratio 42% to the assessee and 58% to the developers. Apart from this, the assessees (i.e., co- owners) had received an amount of Rs.1 crore. The construction was completed and the possession of the property was handed over in the previous year relevant to Assessment Year 2011-12 and the assessees had declared capital gains thereon in Assessment Year 2011-12.
2.2 The Assessing Officer (AO), however, on observing the above facts of the matter, was of the opinion that capital gains arising on account of the JDA dated 15.02.2008 had escaped assessment for Assessment Year 2008-09 and ITA Nos. 498 to 500/Bang/2018 to 813/Bang/2018 therefore issued notices under section 148 of the Act dated 30.09.2013 to the assessees which were served on 03.10.2013. In response thereto, the three assessees filed returns of income for Assessment Year 2008-09 on 08.02.2014; each declaring capital gains of Rs.33,33,330/- and the date of transfer was mentioned as 15.10.2007, i.e., the date of receipt of the first cheque of the deposit received. As the assessees had received Rs.1 crore as deposit during the period relevant to Assessment Year 2008-09, one-third of the amount was shown as capital gains in each of the co-owners account. According to the AO, the capital gain arising on part performance of the contract, i.e., JDA, is to be assessed in the previous year relevant to the Assessment Year in which the JDA was executed. In support of this proposition, the AO, inter alia, cited the decision of the Hon’ble Karnataka High Court in the case of CIT Vs. Dr. T. K. Dayalu (2011) 14 taxmann.com 120 (Kar) wherein it was held that the capital gains is to be assessed in the year in which possession was allowed to the developer for development of the property.
2.3 The gist of the contentions of the assessee in this regard were that;
(i) No amount is assessable to tax in Assessment Year 2008-09 as there is no transfer of any capital asset by the assessee since the possession given by the assessee to the developer is permissive and not conclusive.
(ii) The general power of attorney (GPA) executed in favour of the developer did not involve the right to property and therefore there is no transfer.
ITA Nos. 498 to 500/Bang/2018 to 813/Bang/2018
(iii) Till date, the assessee has not transferred the undivided share of land to the developer and therefore no amount is assessable to tax as capital gains in Assessment Year 2008-09.
2.4.1 The assessee’s contentions did not find favour with the AO and he proceeded to hold that capital gain was payable by the assessees at the time of execution of the JDA and therefore the income from capital gain was assessable in the period relevant to Assessment Year 2008-09 only.
2.4.2 As regards the computation of capital gain; the AO considered the land value admitted by the developer as the selling price for the assessee and since the amount of selling price was shown by the developer in Assessment Year 2012-13 at Rs.58,75,14,825/-, the AO allowed it to be discounted at a certain rate and adopted an amount of Rs.34,98,49,940/- and 1/3rd of the same was considered in the hands of each of the 3 co-owners. In this manner, the capital gain was computed at Rs.10,74,15,585/- for each co- owner. The orders of assessment of these three assessees was accordingly concluded under section 143(3) r.w.s. 147 of the Act vide orders dated 10.02.2015.
3. Aggrieved by the orders of assessment dated 10.02.2015 for Assessment Year 2008-09 in the case of these three assessees, the matter was carried in appeal before the CIT(A)-4, Bangalore. Before the CIT(A), the assessee, inter alia, contended that since the AO did not furnish the reasons recorded for initiation of proceedings for assumption of jurisdiction under section 147 and issue of notices under section 148 of the Act, therefore the orders of assessment dated 10.02.2015 for Assessment Year 2008-09 were, ab initio, void / invalid. The assessee also raised grounds on the merits of the substantive additions made. The CIT(A) disposed off the appeal vide order dated 30.11.2017
ITA Nos. 498 to 500/Bang/2018 to 813/Bang/2018 allowing the assessee partial relief. (1) The CIT(A) dismissed the grounds raised by the assessee on the issue of non-furnishing of reasons recorded for re- opening the assessment under section 147 / 148 of the Act. In the impugned order, the CIT(A) has observed that separate service to the assessee of the reasons recorded for re-opening of the assessment constituted a mere procedural / technical requirement; the absence of which would not vitiate the assessment in totality in the given circumstances of the case on hand. (2) As far as the merits of the issue is concerned, the CIT(A) upheld the action of the AO in assessing the income in the hands of the assessees at the time when the JDA was signed. The CIT(A), however, granted the assessees partial relief on the issue of computation of capital gains; wherein the CIT(A) directed the AO to adopt the guidance value in respect of the property while computing the capital gains.
4. Aggrieved by the separate orders of CIT(A)-4, Bangalore, dated 30.11.2017 for Assessment Year 2008-09, these three assessees have preferred appeals before the Tribunal and Revenue has filed cross appeals.
Assessees’ appeals 4.1 In these three appeals, the assessee have filed similar grounds and we therefore extract hereunder only the grounds raised in the case of Smt. Susheela N. Reddy:-
1. The order of the authorities below in so far it is against the appellant is opposed to law, weight of evidence, facts and circumstances of the Appellant's case.
2. The learned CIT(A) failed to appreciate that the order of assessment passed under Section 143(3) read with 147 is without jurisdiction and void ab initio for non-service of the reasons mandatorily to be recorded under the facts and circumstances of the case.
ITA Nos. 498 to 500/Bang/2018 to 813/Bang/2018
The order of the learned CIT(A) suffers from the violation of principle of judicial propriety in not following the law laid down by the various courts and Apex Court that non-service of the reasons recorded when sought for renders the assessment invalid under the facts and circumstances of the case.
Without prejudice, learned CIT(A) failed to appreciate that,the order of reassessment is bad in law and void ab initio for want of requisite jurisdiction especially, the mandatory requirement to assume jurisdiction under section 147 of the act did not exist or the same having not been complied with and consequently, the reassessment requires to be cancelled under the facts and circumstances of the case.
5. Without prejudice, learned CIT(A) was not justified in not appreciating that no income had escaped assessment to make an assessment under Section 147 read with 143(3) of the Act and erred in upholding the assessment order under the facts and circumstances of the case.
6. Without prejudice, the learned CIT(A) failed to appreciate that no income accrued to the appellant on the date on entering into the joint development agreement and no income can be assessed for the impugned assessment year under the facts and circumstances of the case.
7. Without prejudice, the provisions of Section 2(47)(v) of the Act and Section 53A of the Transfer of Property Act cannot be applied to the case on hand as the possession given to the developer was only a permissive possession under the facts and circumstances of the case.
8. Without prejudice, the appellant has not transferred the un-divided share in the property till date and consequently the question of capital gains does not arise under the facts and circumstances of the case.
Without prejudice, computation of capital gains made by the learned assessing officer is not in accordance with the scheme of the Act under the facts and circumstances of the case.
ITA Nos. 498 to 500/Bang/2018 to 813/Bang/2018
The Appellant denies herself to be charged to interest under 234B and 234C of the Income Tax Act, under the facts and circumstances of the case. The levy is bad both on the extent levied and the rate levied which are not discernable from the order. Without prejudice to the quantification of the extent of interest it appears to be excessive and requires to be corrected.
The appellant craves leave to add, alter, substitute and delete any or all of the grounds of appeal urged above.
12. For the above and other grounds to be urged during the hearing of the appeal the Appellant prays that the appeal be allowed in the interest of equity and justice.
4.2 Revenue’s appeals
In these three cross appeals, Revenue has filed similar grounds of appeal and we therefore extract hereunder only the grounds raised in the case of Smt. Susheela N. Reddy:-
The Order of the Ld. CIT (A), in so far as it is prejudicial to the interest of the Revenue, is opposed to law and the fact and circumstances of the case.
2. On facts and in the circumstances of the case, whether the Ld CIT (A) is justified in directing the AO to re-compute the capital gain arising on account of Joint Development Agreement (JDA) by taking into account the fair market value of share of the assessee in the constructed area project as on the date of the JDA without appreciating the facts that the value of built up area which will be received by the land owner from developer after completion of construction would be "full value of consideration".
3. For these and other grounds that may be urged at the time of hearing, it is prayed that the order of the CIT (A) in so far as it relates to the above
ITA Nos. 498 to 500/Bang/2018 to 813/Bang/2018 grounds may be reversed and that of the Assessing Officer may be restored.
4. The appellant craves leave to add, alter, amend and / or delete any of the grounds that may be urged.
4.3 In the course of proceedings, the assessee has filed a paper book containing various documents and also cited certain judicial pronouncements that have been duly considered.
Assesssees’ appeals in to 500/Bang/2018 (Assessment Year 2008-09)
Ground Nos. 1, 11 & 12 (supra) are general in nature and therefore no adjudication is called for thereon.
Ground Nos. 2 to 5 – Validity of the Assessment Order 6.1 In these grounds (supra), the assessees contend that the orders of assessment passed under section 143(3) r.w.s. 147 of the Act dated 10.02.2015 in these three cases for Assessment Year 2008-09 are void-ab- initio as the AO had failed to furnish the reasons for re-opening the assessments for these Assessment Years which had been specifically requested for by each of the three assessees. The learned AR for these assessees submitted that the factual situation on this issue in these cases were that the AO issued notices under section 148 of the Act dated 30.09.2013 to all three assessees and in response to which Smt. Susheela Reddy and Shri Swaroop Kumar filed returns of income for Assessment Year 2008-09 on 08.02.2014 and Shri. Shashank Kumar filed the return of income on 03.02.2014. Smt. Susheela N. Reddy, vide letter dated 10.06.2014 (copy
ITA Nos. 498 to 500/Bang/2018 to 813/Bang/2018 placed at pages 7 and 8 of Paper Book); Shri. Swaroop Kumar, vide letter dated 08.12.2014 (copy placed at pages 141 to 147 of Paper Book) and Shri Shashank Kumar, vide letter dated 08.01.2015 (copy placed at pages 181 to 188 of Paper Book); all letters addressed to the AOs; requested for being furnished with the reasons recorded for re-opening of their respective assessments for Assessment Year 2008-09. According to the learned AR, the AO, without providing the three assessees with the reasons recorded for initiation of proceedings for re-opening of assessments for Assessment Year 2008-09 under section 147/148 of the Act, completed the assessments under section 143(3) r.w.s. 147 of the Act vide orders all dated 10.02.2015, which is against the law enunciated by the Hon’ble Apex Court in the case of GKN Driveshafts (India) Ltd., 259 ITR 19 (SC). In this regard, the learned AR also placed reliance on the decision of the Hon’ble Karnataka High Court in the case of PCIT Vs. V. Ramaiah (2019) 103 taxmann.com 201 (Kar) which has been upheld by the Hon’ble Apex Court in (2019) 103 taxmann.com 202 (SC), i.e., where the Hon’ble High Court upheld the Tribunal’s order quashing re-assessment proceedings on the ground that reasons recorded by AO for re- opening assessment were never communicated to the assessee. The SLP filed by the Department against the said decision was dismissed by the Hon’ble Apex Court. The learned AR prayed that in view of the above, the orders of assessment passed by the AO under section 143(3) r.w.s. 147 of the Act vide orders, all dated 10.02.2015, for Assessment Year 2008-09 require to be quashed in the case of all three assessees.
6.2 Per contra, the learned DR for Revenue, on this issue, placed reliance on the decision of the Hon’ble Madras High Court in the case of Home Finders Housing Ltd., Vs. ITO (2018) 93 taxmann.com 371 (Madras), wherein on further appeal by the assessee, the Hon’ble Apex Court has dismissed the assessee’s
ITA Nos. 498 to 500/Bang/2018 to 813/Bang/2018 appeal. It is submitted that on similar facts i.e., the completion of assessment by the AO, without disposing off the objections raised by the assessee to the reasons recorded for assumption of jurisdiction under section 147 of the Act by passing a speaking order thereon, the matter was remitted back to the file of the AO for considering the matter afresh after disposal of assessee’s objections. The learned DR submits that such non-compliance of the procedure laid down by the Hon’ble Apex Court in the case of GKN Driveshafts (India) Ltd., (supra) would not render the impugned orders of assessment void or non est, as such a violation is a procedural irregularity which could be cured by remitting the matter to the assessing authority for considering the matter afresh after disposal of the assessee’s objections.
6.3 In rejoinder, the learned AR of the assessee submitted that the decision of the Hon’ble jurisdictional High Court of Karnataka in the case of V. Ramaiah (supra), wherein the Hon’ble Court had quashed the re-assessment proceedings on the ground of non-furnishing of reasons recorded by the AO for re-opening the assessment to the assessee, the SLP filed by Revenue against the said decision was dismissed by the Hon’ble Apex Court. It is further submitted that while passing the decision in the case of Vs. Ramaiah (supra), the Hon’ble Karnataka High Court had also considered the decision of the Hon’ble Madras High Court in the case of Home Finders Housing Ltd., (404 ITR 611) (Mad) before quashing the reassessment proceedings on ground of non furnishing of reasons recorded for re-opening the assessment to the assessee by the AO. In the light of the above, the learned AR submitted that binding decision of the Hon’ble Karnataka High Court, affirmed by the Hon’ble Apex Court, in the case of V. Ramaiah (supra) ought to be followed and the orders of assessment for Assessment Year 2008-09 passed under section 143(3) r.w.s. 147 of the Act vide orders dated 20.02.2015 be accordingly quashed.
ITA Nos. 498 to 500/Bang/2018 to 813/Bang/2018 6.4.1 We have heard and considered the rival contentions in regard to the legal issue raised by the assessee in Ground Nos. 2 to 5 (supra) and considered the material on record; including the judicial pronouncements cited. The facts of the matter, as emerge from a perusal of the record, are that re-assessment proceedings were initiated by the AO for Assessment Year 2008-09 under section 147 of the Act and thereafter notice under section 148 of the Act was issued to the three assessees on 30.09.2013. In response to the notice under section 148 of the Act, Smt. Susheela N. Reddy and Shri. Swaroop Kumar filed returns of income on 08.02.2014 and Shri. Shashank Kumar on 03.02.2014. It is also not disputed that Smt. Susheela N. Reddy vide letter dated 10.06.2014 (copy placed on pages 7 & 8 of paper book); Shri. Swaroop Kumar vide letter dated 08.12.2014 (copy placed at pages 141 to 147 of paper book) acknowledged to have been received on 09.12.2014 and Shri. Shashank Kumar vide letter dated 08.01.2015 (placed at pages 181 to 186 of paper book) acknowledged o have been received on 09.01.2015 requested the AO to furnish the reasons recorded for taking up proceedings under sections 147 and 148 of the Act. As per the records before us and the impugned orders of assessment, there is no proof of the reasons recorded having been furnished to the three assessees by the AO. The learned DR for Revenue was also not able to controvert the factual position of the matter as laid out above i.e., that the reasons recorded by the AO for initiating re-assessment proceedings under sections 147 / 148 of the Act were not furnished to the three assessees by the AO as requested by the assessees. Having considered the rival contentions and the material on record, there is no dispute that the AO is bound to furnish the reasons recorded for initiating re-assessment proceedings to the assessees as requested for vide letters (supra), as per the law laid down by the Hon’ble Apex Court in the case of GKN Driveshafts (India) Ltd., Vs. ITO (259 ITR 19) (SC). The Hon’ble Karnataka High Court in the case of PCIT Vs. V. Ramaiah (2019) 103 taxmann.com 201 (KAR); which was upheld
ITA Nos. 498 to 500/Bang/2018 to 813/Bang/2018 / affirmed by Hon’ble Apex Court in its order (2019) 103 taxmann.com 202 (SC); while rendering its decision, has considered the decision of the Hon’ble Madras High Court in the case of Home Finders Housing Ltd., Vs. ITO (2018) 93 taxmann.com 371 (Madras), and then proceeded to hold that the re-assessment order / proceedings are to be quashed on the ground that the reasons recorded by the AO for re-opening the assessment were never furnished to the assessee as requested for.
6.4.2 In the case of Vs. Ramaiah (supra), the substantial question of law framed was as under:
6.4.3 The consideration of the issue, the reference to the decision of the Hon’ble Madras High Court in Home Finders Housing Ltd., (supra) and their decision at paras 3 to 9 thereof, the Hon’ble Karnataka High Court in the case of PCIT Vs. V. Ramaiah (supra) is extracted hereunder:
ITA Nos. 498 to 500/Bang/2018 to 813/Bang/2018 6.4.4 Taking into consideration the factual and legal matrix of the case, as discussed above from paras 6.1 to 6.4.3 of this order (supra), we are of the ITA Nos. 498 to 500/Bang/2018 to 813/Bang/2018 view that the decision of the Hon’ble Karnataka High Court in the case of PCIT Vs. V. Ramaiah (supra), is squarely applicable to the facts of the assessees in the cases on hand, where also the AO has not provided the assessees with the reasons recorded for re-opening the assessment as requested for by the assessees vide letters (cited supra). Respectfully following the aforesaid decision of the Hon’ble Karnataka High Court in the case of V. Ramaiah (supra), we are of the view and hold and direct that since the AO has failed to provide the assessees with reasons recorded for re-opening the assessments, in spite of the assessee’s written request for being provided with the same, the re-assessment orders passed under section 143(3) r.w.s. 147 of the Act dated 20.02.2015 for Assessment Year 2008-09 are liable to be quashed. Consequently, the grounds Nos. 2 to 5 raised by the three assessees are allowed.
In view of our finding / decision, allowing the ground Nos. 2 to 5 raised by the assessee by quashing the re-assessment orders dated 20.02.2015 for Assessment Year 2008-09 in the cases of all three assessees i.e., Smt. Susheela N. Reddy, Shri. Swaroop Kumar and Shri. Shashank Kumar, the other grounds of appeal
raised on merits by the assessee at Sl. Nos. 6 to 10. (supra) are rendered academic and do not require to be adjudicated and further, since the grounds raised in Revenue’s appeals would also now not survive for consideration, the same are dismissed.
ITA Nos. 498 to 500/Bang/2018 to 813/Bang/2018
In the result, the appeals of all three assessees for Assessment Year 2008-09 are allowed as indicated above and Revenue’s cross appeals are dismissed.
Pronounced in the open court on 12th June, 2019.