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Income Tax Appellate Tribunal, “G” BENCH, MUMBAI
AadoSa / O R D E R महावीर स िंह, न्याययक दस्य/ PER MAHAVIR SINGH, JM:
These cross appeals are arising out of the order of Commissioner of Income Tax (Appeals)-18, Mumbai [in short CIT(A)], Appeal No. CIT(A)- 18/IT-270/DCIT(2)(2)/2016-17 vide order dated 05.06.2017. The Assessment was framed by the Dy. Commissioner of Income Tax, Circle- 11(2)(2), Mumbai (in short ‘ACIT/ITO/ AO’) for the A.Y. 2011-12 vide order dated 28.11.2016 under section 143(3) of the Income Tax Act, 1961 (hereinafter ‘the Act’).
2. At the outset, it is noticed that this cross objection filed by the assessee is time barred by 33 days. It is noticed from the record that copy of form No. 36 and grounds of appeal
filed by the AO fixed for hearing on 21.02.2019, which were received by assessee on 10.11.2018. According to assessee, the cross objection ought to have been filed on or before 10.12.2018 but the same were filed only on 14.01.2009 along with condonation petition as there was a delay of 35 days. In its condonation petition and affidavit of the director of the assessee company it was contended that the assessee was of the view that since the addition have been deleted by CIT(A) on merits no further actions were required. But according to the learned Counsel, he advised the assessee to file cross objection which grounds were rejected by CIT(A) on the issue of reopening and upholding the disallowance under section 14A while computing the book profit. It was contended with all the facts relating to cross objection are on record and issue is legal and hence it should be 3. CO No. 28/Mum/2019 admitted. The assessee filed application for condonation and submitted the following reasons: - “3. However, during the course of discussion with me, it was realized that the assessee ought to have filed cross objections on rejection of grounds by the CIT(A) on the issue of reopening and upholding the disallowance under section 14A of the Act to the book profit.
4. Accordingly, the assessee is filing the enclosed cross objections along with the affidavit of its Director supporting the reasons for the current delay in filing the cross objections.
It is submitted that all material facts relevant to the cross objections are on the record and therefore, the same can be admitted for adjudication. It is further submitted that by admitting these cross objections no prejudice will be caused to the Revenue. It is submitted that the current marginal delay of 35 days in filing the captioned cross objections is not due to any malafide or deliberate act on the part of the assessee but for the reasons explained hereinabove as well as in the affidavit of the Director of the assessee. Therefore, it is humbly submitted that this is a fit case for condonation of this marginal delay.”
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3. On the other hand, the learned Sr. DR objected to the condonation of delay and admission of cross objection but he could not controvert the arguments and facts narrated in the petition as well as in affidavit.
4. After hearing both the sides and going through the facts, we find that the issue regarding reopening is legal issue and goes to the root of the matter and there is a reasonable cause that the assessee was under the bona-fide belief that since addition have been deleted by CIT(A), no further actions have been required on the part of the assessee. Hence, there is a reasonable cause and we condoned the delay and admit this cross objection and adjudicate upon.
5. The first issue in this appeal of cross objection of the assessee is against the order of CIT(A) confirming the action of the AO in reopening the assessment under section 147 of the Act read with section 148 of the Act, even on the basis of change of opinion. For this assessee has raised the following ground No. 1: -
1. The learned CIT(A) has erred in holding that the Assessing officer has rightly reopened the assessment by issuing a notice under section 48 of the Act. The learned CIT(A) ought to have quashed the notice issued under section 148 of the Act and consequential assessment order.”
Briefly stated facts are that the assessee company is engaged in the business of construction, development, real estate, trading in TDR and financing for the relevant AY 2011-12. The assessee filed its return of income on 30.09.2011. Subsequently, the assessee’s case was 5 CO No. 28/Mum/2019 selected for scrutiny by issuing notice under section 143(2) of the Act and during the course of assessment proceedings, the assessee submitted the details as regards to compensation paid to Rs. 4.50 crores to Sheth Developers and complete the assessment under section 143(3) of the Act vide order dated 28.01.2014. Subsequently, the assessment was reopened under section 147 of the Act by issuing notice under section 148 of the Act 29.03.2016. The assessee vide letter dated 11.07.2016 requested that the return of income filed vide acknowledgements number 243031501080716 on 8.07.2016 be treated as return of income filed in response to reopening notice. The assessee also requested to provide copy of reasons recorded for reopening of the assessment. The reasons were provided by the AO vide office letter No. DCIT- 11(2)(2)/Suraksha/148/Reasons/2016-17 dated 12.07.2016. Consequently, the assessee objected the reopening of the assessment vide letter dated 21.07.2016 and the AO rejected the objections vide order dated 25.08.2016 and the relevant text has reproduced in assessment order vide Para 4 as under: - “4…………………… 5.1 As regards the contention of the assessee that there was no new information which was not available or the time of assessment u/s.143(3) of the Act with the 40 which gives reason to believe that the income has escaped assessment is concerned, it is opt to mention here that the case was selected/or scrutiny under CASS for the reasons as mentioned below:
6 CO No. 28/Mum/2019 a) AO should examine the sale consideration, cost claimed while computing LTCG be/ore deduction u/s.548/C/D/G and GA.
Accordingly, the then AO primarily required the assessee to furnish the relevant derails/documents which could have helped her in examining the sale consideration and cost claimed while computing LTCG and deductions claimed thereof. Details available on the earlier assessment record clearly suggest that the very issue of payment of compensation to Sheth Developers was not considered by the then AO while completing the assessment u/s. 143(3) of the Act. Therefore, there is no substance in the plea of the assessee that there was no failure on the part of the assessee to disclose fully and truly all material facts necessary for assessment and hence the reopening of assessment u/s.147 of the Act is bad in law.
5.2 In respect of the issue of lumpsum compensation paid to Sheth Developers Put Ltd while not charging any interest/compensation from Orbit Enterprises, the contention of the assessee that the decision of not charging any interest from Orbit Enterprises was a prudent business decision is not acceptable for the 7 CO No. 28/Mum/2019 simple reason that M/s. Orbit Enterprises was one of its group concerns. While taking plea that 50% of the shore in the said partnership firm was held by Rojen Dhruv and Novnit infra Project Pvt. Ltd, the assessee company simply ignored the fact of holding other 50% of shores in its hands. It is also difficult to believe that how the assessee company holding 50% stake in MIs. Orbit Enterprises concluded that the advance given by it to M/s. Orbit Enterprises would not be recoverable and hence it is prudent to renegotiate the terms of agreement with it without charging any interest/compensation, as the case may be.
5.3 Without prejudice to the above facts, it is worth mentioning that in the instant case, the reopening has been done within 4 years from the end of the relevant assessment year 2011- 12 and as such, this case does not fall within the ambit of exception clause laid down by proviso I to section 147 of the Act which prohibits any action under section 147 after the expiry of 4 years from the end of the relevant assessment year in such cases where assessment u/s.143(3) of the Act was previously made unless any income chargeable to tax has escaped assessment by reason of the failure on the part of the assessee to disclose fully and 8 CO No. 28/Mum/2019 truly all material facts necessary for its assessment. For ready reference, the relevant portion of section 147 of the Act is reproduced herein as under:”
7. Accordingly, the AO completed the assessment on merits and made addition on account of unrecovered compensation of ₹ 4.50 lakhs while computing the normal income. Aggrieved, assessee preferred the appeal before CIT(A).
8. The CIT(A) uphold the reopening by observing as under: - “It is seen that case was reopened within four years. Case was earlier selected under CASS for examination of issue of LTCG. It was case of Limited scrutiny. It is seen from the records though appellant asked query regarding compensation payment in questionnaire, no opinion is formed on such an issue. Assessing Officer had information that appellant paid compensation to Sheath Developers and had not charged any income from Orbit enterprise that is related concern. On the basis of such information, Assessing Officer formed an opinion that income chargeable to tax had escaped the assessment. Supreme court in the case of Raymond Woolen Mills limited VS ITO 236 ITR 34 (<<THOUGH RAYMOND WOOELN DEALS WITH PRE AMEDEMENT 1989>>) held that in determining whether commencement of 9 CO No. 28/Mum/2019 reassessment proceedings was valid, it is only to be seen that whether there was prima facie some material on the basis of which the department could reopen the case. This information constitutes tangible material on the basis of which Assessing Officer had formed a belief that income has escaped assessment. There is no question of change of opinion as no opinion has been formed on this tangible material during original assessment. Hence Assessing Officer has rightly reopened the assessment and this ground of appeal is dismissed.”
Aggrieved, now assessee is in cross objection as the CIT(A) has upholding the reopening of assessment.
Before us, the learned Counsel for the assessee first of all took us through the reasons recorded which are reproduced in the assessment order and also provided by the assessee in its paper book at pages 47 and 48 and the relevant reasons read as under: - “In this case, the assessment for the year under consideration was finalized under section 143(3) on 28.01.2014 by the erstwhile DCIT-8(3), Mumbai determining he total income at ₹ 3,01,54,330/- under the normal provisions of the Act.
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Subsequently the following facts came to fore. The assessee paid a sum of ₹ 62 crores to M/s. Orbit Enterprises towards bookings in a upcoming project at G Block BKC, to M/s Sheth Developers. The project did not get underway due to non-receipt of commencement certificate from Municipal Authorities. The assessee returned the money paid by M/s Sheth Developers Pvt. Ltd amounting to ₹ 60.50 crores and also gave a whopping compensation of ₹ 4,50,00,000/-. From the records it is seen that the assessee company has got a refund of only ₹ 30 crores from M/s Orbit Enterprises and the assessee has not charged/ got any compensation from M/s Orbit Enterprises. M/s Orbit Enterprises is one of the group concerns. On one had the assessee is paying compensation to an outside party and on the other hand it is not charging any compensation form the group concern i.e. M/s Orbit Enterprises, particularly when the money taken from M/s Sheth Developers Pvt. Limited is paid to M/s Orbit Enterprises and the same is utilized towards the project undertaken by M/s Orbit Enterprises.
By not charging any compensation from the group concern M/s Orbit Enterprises, the assessee has foregone its income to that extent.
11 CO No. 28/Mum/2019 Therefore, by applying the principles of matching concept the claim of the compensation paid is not allowable to the assessee. Also the assessee company has not offered any income fro the advance received from M/s Sheth Developers Pvt. Ltd. By doing so the assessee has inflated its expenses by ₹ 4,50,00,000/-. The assessee company had booked an expense of ₹ 4,50,00,000/- and at the same time showed the said amount also under the head “loans-liability”. IN view of the above there is a valid reason to believe that income chargeable to income tax escaped assessment for the year under consideration.
3. Further, it is seen that the assessee had submitted computation of income under section 115JB of which was taken directly to ITNS. It was seen that the assessee, while computing book net profit to arrive at taxable book profit of ₹ 2,75,50,090. These adjustments were share of profit and loss from the partnership firms debited to profit and Loss accounts. Such adjustment was not required to be made.
In view of the above, there is a reason to believe that income chargeable to income tax has escaped assessment for the year under consideration. From the facts brought out on 12 CO No. 28/Mum/2019 record, it is evident that the escapement of income chargeable to tax is on account of the failure on the part of the assessee to disclose fully and truly all material facts necessary the assessment.”
10. The learned Counsel for the assessee stated that only reason for reopening of assessment is that the assessee has wrongly claimed the compensation payment of ₹ 4.50 crores to Sheth Developers Pvt. Ltd. as an expense and which was allowed by the AO during the course of original assessment proceedings and assessment framed under section 143(3) of the Act. The learned Counsel for the assessee sated that the original assessment was completed by the AO under section 143(3) of the Act vide order dated 28.01.2014. During the course of original Assessment Proceedings, the AO raised a query by issuing notice under section 142(1) of the Act dated 12.09.2013 and the relevant query of the said notice is at serial No. 35 which read as under: - “35. partywise details of compensation paid (₹ 4,50,00,000/-)”
The same was replied by the assessee vide replied dated 08.11.2013 vide pointed at serial no. 14 as under:-
14. Compensation of ₹ 4,50,00,000/- is paid to M/s Sheth Developers Pvt. Ltd. (addl. Sheth House, Opp Oberai Mall, Gen AK Vaidya Marg, Malad (E), Mumbai-400 097.
13 CO No. 28/Mum/2019 Further, submissions were filed by the assessee vide letter dated 15.01.2014 for not charging interest on loans and advances and details were filed vide serial No. 5 as under:-
5. Explanation for not charging interest on loan and advances given by us is as per Annexure B enclosed herewith.
Further, the issue was replied in regard to compensation of ₹. 4.50 crores paid to Sheth Developers Pvt. Ltd. and the relevant answer at serial No. 16 of the letter dated 15.01.2014 read as under: - “13. Compensation of ₹ 4,50,00,000/- is paid to M/s Sheth Developers Pvt. Ltd. (Addl. Sheth House, Opp Obera Mall, Gen A.K. Vaidya Marg Malad (E), Mumbai-400 097) copy of agreement with M/s Sheth Developers Pvt. Ltd is enclosed herewith for your record.”
Even the copy of agreement dated 05.04.2010 entered into between Suraksha Realty Limited, the first part (the assessee) and Sheth Developers Pvt. Ltd. the second part and vide this agreement the compensation of ₹ 4.50 crores was paid, was filed before the AO during the course of original proceedings. The relevant term of this agreement i.e. the recitals no. 2 and 3 read as under: - “2. The option agreement dated 15th September 2009 entered into between the parties hereto shall be terminated and, pursuant to the discussion by and between the parties hereto during the last one month it has been 14 CO No. 28/Mum/2019 agreed upon that Suraksha shall pay to Sheth a lumpsum amount of ₹ 65,00,00,000/- (Sixty Five Crores…… only), which will be consisting of the amount advanced by Sheth of ₹ 60,50,00,000/- (Rupees Sixty Crores Fifty Lakhs only) and compensation of ₹ 4,50,00,000/- (Rupees four Crores and Fifty Lakhs only). The entire amount shall be paid by Suraksha to Sheth within 12 (Twelve) months from the date of execution of this agreement.
Suraksha confirms that till the repayment of the said amount in full to Sheth, Sheth shall be entitle to retain its charge or rights in respect of the area of premises reserved under the said Option Agreement. However, in the event of any part payment of the said amount, Sheth shall pro rata release its rights in the said premises in favour of Suraksha. Sheth further hereby agrees that upon the realization of above mentioned cheque / repayment of the aid amount will have no right title or interest in the said premises or any other rights in the said project and Surakasha shall be free to deal with the said premises and the other premises in the project in any manner it determines appropriate.”
In view of the above facts, the learned Counsel for the assessee stated that once all these facts available before the AO during course of 15 CO No. 28/Mum/2019 original assessment proceedings and AO has gone into the details after raising the query and going through the replies and evidences, the AO has taken a conscious decision that the compensation paid of ₹ 4.50 crore by the assessee to Sheth Developers is allowable deduction, now reopening on the same set of facts is merely change of opinion which is not permissible under the provisions of section 147 of the Act.
On the other hand, the learned Sr. DR relied on the assessment order and the order of CIT(A) for reopening of assessment.
We have heard the rival contentions and gone through the facts and circumstances of the case. We noted that the above stated facts that the details regarding compensation paid by assessee to Sheth Developers of ₹ 4.50 crores were available with the AO during the course of assessment proceedings. The AO has raised specific query vide notice under section 142(1) and questionnaire annexed to the same regarding the compensation paid. The same was replied by the assessee explaining the position and also filed agreement for compensation paid vide letter dated 22.01.2014. Now, we noted that, even the CIT(A) while deciding the issue on merits has considered the same agreement and same evidences and allowed the claim of assessee on merits. We noted that once all these evidences were available before the AO during the course of original proceedings and even the same were filed by the assessee during the course of reassessment proceedings. There is nothing new or no tangible material was brought on record by the AO for reopening of assessment under section 147 of the Act. Once this is the position, we are of the view that this is nothing but a mere change in opinion and for change of opinion no reopening is permissible. The learned Counsel for the assessee for this proposition relied on the 16 CO No. 28/Mum/2019 decision of Hon’ble Bombay High Court in the case of NDT Systems and Another vs. ITO (2014) 363 ITR 603 (Bom), wherein Hon’ble Bombay High Court has considered the issue as under: - “…… We have considered the submissions. We find that the notice dated March 20, 2012, under section 148 of the Act has been issued within a period of four years from the end of the relevant assessment year, i.e., 2007-08. In such circumstances, the proviso to section 147 of the Act is clearly not applicable. Therefore, it is not necessary for the Revenue to prima facie establish that there has been a failure on the part of the petitioner to disclose fully and truly all material facts necessary for assessment, while issuing a notice reopening a completed assessment. However, even in case of reopening of assessment within a period of four years from the end of the relevant assessment year the Assessing Officer has to have reason to believe that income chargeable to tax has escaped assessment on the basis of tangible material. The words "reason to believe" has been construed by the Supreme Court in the matter of CIT v. Kelvinator of India Ltd. [2010] 320 ITR 561/187 Taxman 312 ; wherein the court has observed:
17 CO No. 28/Mum/2019 "However one needs to give schematic interpretation to the words 'reason to believe' failing which we are afraid section 147 would give arbitrary powers to the Assessing Officer to reopen assessment on the basis of 'mere change of opinion' which cannot be per se reason to reopen. We must also keep in mind the conceptual difference between power to review and power to reassess. The Assessing Officer has no power to review ; he has power to reassess. But reassessment has to be based on fulfilment of certain preconditions and if the concept of 'change of opinion' is removed as contended by the department then in the garb of reopening the assessment review would take place."
6. The aforesaid observations of the apex court make it clear that sanctity must be attached to the assessment orders and it cannot be disturbed merely on account of change of opinion This sanctity to assessment orders is not based on the basis of the time that has lapsed from the assessment order passed in the regular proceedings to the issue of notice for reopening an assessment.
Therefore, where all material facts necessary for determination of the income have been 18 CO No. 28/Mum/2019 disclosed by the assessee and the Assessing Officer has taken a particular view on those disclosed facts as reflected in the assessment order passed in regular proceedings, then without anything more, it would not be open to reopen those assessment proceedings. For in such a case it is a clear case of change of opinion. In the present facts it is very clear that during the assessment proceedings leading to the assessment order dated November 11, 2009, the petitioner had disclosed all facts with regard to deduction being claimed on account of labour charges and radiography charges. In fact, the assessment order dated December 11, 2009, records the fact that a notice was issued to the petitioner to explain why the expenses on account of labour and radiography charges should not be disallowed under section 40(a)(ia) of the Act. The petitioner explained its view point and the Assessing Officer on consideration of those facts in his order of assessment dated December 11, 2009, concluded that these payments on account of radiography charges and labour charges are tax deductible at source in terms of section 194C of the Act. Further, the obligation on the part of the assessee is only to make a full disclosure of primary facts and the inferences to be drawn therefrom and the 19 CO No. 28/Mum/2019 application of law thereon is the job of the Assessing Officer. The petitioner has disclosed all primary facts and on consideration of those facts as reflected in the assessment order dated December 11, 2003, the amount of income has been computed after holding that IDS has to be deducted under section 194C of the Act.
Therefore, the impugned notice and the reasons in support thereof clearly indicates that it has been issued merely on the basis of change of opinion and would amount to a review of the assessment order dated December 11, 2003. Further, the reasons for reopening as communicated by the petitioner is not on the basis of any tangible material but merely on verification of the material and primary facts already on record that the Assessing Officer has duly considered while passing the order dated December 11, 2003, for the assessment year 2007-08. There is no fresh tangible material which would warrant taking a view different from the one taken during the regular assessment proceedings. In fact even the order dated October 15, 2012 disposing of the objections clearly records that radiography charges and labour charges were made to various persons like senior technicians, senior radiographer and Jr. technicians, etc., from the chart submitted in 20 CO No. 28/Mum/2019 the regular assessment proceeding leading to order dated December 11, 2009. Therefore, it is very clear that the impugned notice for reassessing the assessment year 2007-08 has been issued merely on change of opinion and in fact seeks to review the assessment which is already completed.
9. One more aspect of the matter must be adverted to and that is in the order dated October 15, 2012, rejecting the objections filed by the petitioner with regard to reassessment proceedings for the assessment year 2007-08 a completely new ground has been added. In its order dated October 15, 2012, the additional ground to reopen assessment is the lack of co- relation between the payment received by the petitioner and the TDS certificate issued by the persons making payment to it during the assessment year 2007-08. This, according to the order dated October 15, 2012, resulted in underassessment of income to the extent of Rs. 21.61 lakhs. The aforesaid issue was not one of the grounds specified in the reasons communicated to the petitioner on July 23, 2012, for the purpose of reopening the assessment for the assessment year 2007-08. Our court in the matter of Hindustan Lever Ltd. v. R. B. Wadkar, Asstt. CIT (No.1) [2004] 21 CO No. 28/Mum/2019 268 ITR 332/137 Taxman 479 (Bom.) has held that for the purpose of examining the jurisdiction to reopen a completed assessment one is only concerned with the reasons recorded at the time of issuing notice under section 148 of the Act. These reasons cannot be supplemented/improved upon later. Therefore, the order dated October 15, 2012, disposing of the objection also cannot be sustained. So far as the ground urged by Ms. Khan that reopening of assessment has been done on the basis of audit objection, the same is not being examined. This is for the reason that even otherwise, the impugned notice is not sustainable.
In view of the above, we find that the impugned notice dated March 28, 2012, is bad in law as the same has been issued merely on account of change of opinion and amounts to review of the assessment order dated December 11, 2009. In the circumstances, the petition is allowed and the notice dated March 28, 2012, issued under section 148 of the Act is quashed and set aside.”