ADHI KUMARA GURU,CHENNAI vs. DCIT, NCC-22(1), CHENNAI

The return was selected for limited scrutiny The return was selected for limited scrutiny u/s. 143(2) of the Act, inter alia, to verify the issue of “large deduction claimed Act, inter alia, to verify the issue of “large deduction claimed Act, inter alia, to verify the issue of “large deduction claimed u/s.s 54B, 54C, 54D, 54G, and 54GA.” A scrutiny assessment order was 54B, 54C, 54D, 54G, and 54GA.” A scrutiny assessment order was 54B, 54C, 54D, 54G, and 54GA.” A scrutiny assessment order was subsequently passed on 28.11.2016, assessing the total income at subsequently passed on 28.11.2016, assessing the total income at subsequently passed on 28.11.2016, assessing the total income at Rs.61,77,060/- after disallowing the cost of improvement of after disallowing the cost of improvement of after disallowing the cost of improvement of Rs.15,00,000/- claimed by the claimed by the assessee while computing while computing ‘Short Term Capital Gains’.

Basis of forming reasons to believe and details of escapement of Basis of forming reasons to believe and details of escapement of Basis of forming reasons to believe and details of escapement of income: The details with regards to sale consideration of the capital income: The details with regards to sale consideration of the capital income: The details with regards to sale consideration of the capital gains on which deduction u/s 54F was claimed in the A.Y.2013 gains on which deduction u/s 54F was claimed in the A.Y.2013 gains on which deduction u/s 54F was claimed in the A.Y.2013-14 and offered during the year under consideration (for the and offered during the year under consideration (for the A.Y 2014 A.Y 2014- 15) are not furnished by the assessee. As such the deduction 15) are not furnished by the assessee. As such the deduction 15) are not furnished by the assessee. As such the deduction claimed uls 54F on the total amount of Rs. 1,02,54,584/ claimed uls 54F on the total amount of Rs. 1,02,54,584/- was not was not correct. Further, the capital gains ac correct. Further, the capital gains accrues to the assessee for the rues to the assessee for the year under consideration on 19.06.2013 on the date on year under consideration on 19.06.2013 on the date on which the which the property was sold. But on that day, he owns one more property on property was sold. But on that day, he owns one more property on property was sold. But on that day, he owns one more property on which deduction u/s 54F claimed for the A.Y.2013 which deduction u/s 54F claimed for the A.Y.2013-14. Surprisingly, 14. Surprisingly, this property was also sold on the same date i. was also sold on the same date i.e. on 19.06.2013. on 19.06.2013. Since it is not known which property was sold ea Since it is not known which property was sold earlier and which was er and which was sold later, it may concluded that the assessee owns more than one may concluded that the assessee owns more than one may concluded that the assessee owns more than one residential property as on 19.06.2013. As such, the assessee is not residential property as on 19.06.2013. As such, the assessee is not residential property as on 19.06.2013. As such, the assessee is not eligible for claiming deduction u/s.54F. Besides, the income offered eligible for claiming deduction u/s.54F. Besides, the income offered eligible for claiming deduction u/s.54F. Besides, the income offered under capital gains includes dee under capital gains includes deemed income u/s.54F(3) arisen on income u/s.54F(3) arisen on account of selling the property on which deduction uls.54F was account of selling the property on which deduction uls.54F was account of selling the property on which deduction uls.54F was claimed for the A.Y.3 claimed for the A.Y.3-14. The deemed capital gains income is not 14. The deemed capital gains income is not eligible for deduction u/s.54F again. eligible for deduction u/s.54F again. The cost of improvement of Rs.15,00,000/ The cost of improvement of Rs.15,00,000/- claimed by the claimed by the assessee against STCG offered was not substantia ainst STCG offered was not substantiated. Therefore, I ted. Therefore, I have reason to believe that income chargeable to tax has escaped have reason to believe that income chargeable to tax has escaped have reason to believe that income chargeable to tax has escaped assessment.

In the assessment order, the In the assessment order, the AO (AO) observed that the (AO) observed that the assessee had sold, on had sold, on 19.06.2013, the property in respect of which 19.06.2013, the property in respect of which deduction u/s.54F had been claimed in A.Y.2013 54F had been claimed in A.Y.2013-14. It was further 14. It was further noted that the property giving rise to capital gains during the year noted that the property giving rise to capital gains during the year noted that the property giving rise to capital gains during the year Adhi Kumara Guru under consideration was also sold on the same date, i.e., under consideration was also sold on the same date, i.e., under consideration was also sold on the same date, i.e., 19.06.2013. Since the AO was unable to determine whether the 19.06.2013. Since the AO was unable to determine whether the 19.06.2013. Since the AO was unable to determine whether the assessee had sold or purchased the property first on that date, he had sold or purchased the property first on that date, he had sold or purchased the property first on that date, he concluded that the assessee assessee owned more than one residential house owned more than one residential house on 19.06.2013 and was therefore not eligible to claim deduction 9.06.2013 and was therefore not eligible to claim deduction 9.06.2013 and was therefore not eligible to claim deduction u/s.54F of the Act. The AO further held that deduction 54F of the Act. The AO further held that deduction 54F of the Act. The AO further held that deduction u/s.54F could not be claimed in respect of a property for which such deduction had not be claimed in respect of a property for which such deduction had not be claimed in respect of a property for which such deduction had already been claimed in an earlier year. Accordingly, the already been claimed in an earlier year. Accordingly, the already been claimed in an earlier year. Accordingly, the AO proceeded to disallow the exemption of proceeded to disallow the exemption of Rs.1,02,54,584/ 1,02,54,584/- claimed u/s.54F of the Act.

In appeal, the assessee assessee, in addition to contesting the matter , in addition to contesting the matter on merits, raised a specific ground challenging the validity of the on merits, raised a specific ground challenging the validity of the on merits, raised a specific ground challenging the validity of the reopening of the assessment on t reopening of the assessment on the ground that it was based purely he ground that it was based purely on a change of opinion, which is impermissible in law. However, the on a change of opinion, which is impermissible in law. However, the on a change of opinion, which is impermissible in law. However, the ld.CIT(A) rejected this contention, holding that the original scrutiny CIT(A) rejected this contention, holding that the original scrutiny CIT(A) rejected this contention, holding that the original scrutiny assessment was a limited scrutiny and did not involve examination assessment was a limited scrutiny and did not involve examination assessment was a limited scrutiny and did not involve examination of the deduction claimed claimed u/s.54F of the Act. He further observed 54F of the Act. He further observed that it was not evident whether the first reassessment proceedings that it was not evident whether the first reassessment proceedings that it was not evident whether the first reassessment proceedings were initiated to examine the claim of deduction were initiated to examine the claim of deduction u/s. u/s.54F. On this basis, the ld.CIT(A) dismissed the ground and upheld the reopening CIT(A) dismissed the ground and upheld the reopening CIT(A) dismissed the ground and upheld the reopening of the assessment.

The assessee now submits that the reopening of the assessment now submits that the reopening of the assessment now submits that the reopening of the assessment is illegal, as it has been carried out solely on account of a change of is illegal, as it has been carried out solely on account of a change of is illegal, as it has been carried out solely on account of a change of opinion. It is contended that even during the original scrutiny opinion. It is contended that even during the original scrutiny opinion. It is contended that even during the original scrutiny assessment, various deductions claimed by assessment, various deductions claimed by the assessee assessee were examined. Although the case was selected for limited scrutiny, the examined. Although the case was selected for limited scrutiny, the examined. Although the case was selected for limited scrutiny, the AO made an addition of AO made an addition of Rs.15,00,000/- to the assessee assessee’s Short Adhi Kumara Guru Term Capital Gains by disallowing the cost of improvement, thereby Term Capital Gains by disallowing the cost of improvement, thereby Term Capital Gains by disallowing the cost of improvement, thereby demonstrating application of mind. Furthe demonstrating application of mind. Further, from the reasons r, from the reasons recorded for the first reopening, it is evident that the assessment recorded for the first reopening, it is evident that the assessment recorded for the first reopening, it is evident that the assessment was reopened specifically to examine the claim of deduction was reopened specifically to examine the claim of deduction was reopened specifically to examine the claim of deduction u/s.54F of the Act. The AO had expressly recorded that the deduction was of the Act. The AO had expressly recorded that the deduction was of the Act. The AO had expressly recorded that the deduction was not allowable on the ground that th not allowable on the ground that the assessee owned more than one owned more than one residential house on the date of transfer. This issue was duly residential house on the date of transfer. This issue was duly residential house on the date of transfer. This issue was duly examined during the first reassessment proceedings, which examined during the first reassessment proceedings, which examined during the first reassessment proceedings, which culminated without any addition, as the deduction culminated without any addition, as the deduction culminated without any addition, as the deduction u/s.54F was ultimately allowed. In effect, the reasses ultimately allowed. In effect, the reassessment proceedings were sment proceedings were dropped. This clearly establishes that the first reopening was dropped. This clearly establishes that the first reopening was dropped. This clearly establishes that the first reopening was initiated specifically to examine the claim initiated specifically to examine the claim u/s.54F, rendering the 54F, rendering the observations of the ld. ld.CIT(A) incorrect.

The assessee further submits that the reasons recorded for the further submits that the reasons recorded for the further submits that the reasons recorded for the second reopening also pertain to examination of the same claim of second reopening also pertain to examination of the same claim of second reopening also pertain to examination of the same claim of deduction u/s.54F, based on the very same material that was 54F, based on the very same material that was 54F, based on the very same material that was already available with the AO during the earlier assessment and already available with the AO during the earlier assessment and already available with the AO during the earlier assessment and reassessment proceedings. In fact, in the reasons recorded for the oceedings. In fact, in the reasons recorded for the oceedings. In fact, in the reasons recorded for the second reopening, the AO himself acknowledged that the relevant second reopening, the AO himself acknowledged that the relevant second reopening, the AO himself acknowledged that the relevant material was already on record. It is thus contended that no new material was already on record. It is thus contended that no new material was already on record. It is thus contended that no new tangible material had come into the possession of the AO prior to tangible material had come into the possession of the AO prior to tangible material had come into the possession of the AO prior to initiating the second reopening. g the second reopening. Reliance is placed on the judgment Reliance is placed on the judgment of the Hon’ble Supreme Court in of the Hon’ble Supreme Court in Commissioner of Income Commissioner of Income-tax, Delhi v. Kelvinator of India Ltd. v. Kelvinator of India Ltd. [2010] 320 ITR 561 (SC), to submit that [2010] 320 ITR 561 (SC), to submit that the second reopening, being based on a mere change of opinion, the second reopening, being based on a mere change of opinion, the second reopening, being based on a mere change of opinion, is unsustainable in law and liable to be quashed. The AO had already unsustainable in law and liable to be quashed. The AO had already unsustainable in law and liable to be quashed. The AO had already applied his mind to the material on record during the earlier two applied his mind to the material on record during the earlier two applied his mind to the material on record during the earlier two proceedings and had consciously allowed the deduction claimed proceedings and had consciously allowed the deduction claimed proceedings and had consciously allowed the deduction claimed Adhi Kumara Guru u/s.54F of the Act. Having examined the issue and formed an 54F of the Act. Having examined the issue and formed an 54F of the Act. Having examined the issue and formed an opinion that the deduction was allowable, the AO passed the first opinion that the deduction was allowable, the AO passed the first opinion that the deduction was allowable, the AO passed the first reassessment order granting the deduction in full. Since the AO has reassessment order granting the deduction in full. Since the AO has reassessment order granting the deduction in full. Since the AO has no power to review his own order, the present reassessment, which no power to review his own order, the present reassessment, which no power to review his own order, the present reassessment, which amounts to a review of the earlier reassessment order, amounts to a review of the earlier reassessment order, amounts to a review of the earlier reassessment order, is without jurisdiction and deserves to be set aside. jurisdiction and deserves to be set aside.

The learned Departmental Representative ( The learned Departmental Representative (ld. DR), on the d. DR), on the other hand, supported the order of the other hand, supported the order of the ld.CIT(A) and submitted that CIT(A) and submitted that the reopening of the assessment was valid. She contended that the reopening of the assessment was valid. She contended that the reopening of the assessment was valid. She contended that although various deductions were examined during the limited various deductions were examined during the limited various deductions were examined during the limited scrutiny assessment, the deduction claimed scrutiny assessment, the deduction claimed u/s.54F of the Act was 54F of the Act was not among them, and therefore no opinion was formed by the AO on not among them, and therefore no opinion was formed by the AO on not among them, and therefore no opinion was formed by the AO on this issue at that stage. Further, during the first reassessment this issue at that stage. Further, during the first reassessment this issue at that stage. Further, during the first reassessment proceedings, the AO examined the claim ings, the AO examined the claim u/s.54F only from the 54F only from the limited perspective of whether the limited perspective of whether the assessee owned more than one owned more than one residential house on the date of transfer. According to her, the residential house on the date of transfer. According to her, the residential house on the date of transfer. According to her, the examination was confined solely to this aspect. examination was confined solely to this aspect. Referring to the Referring to the reasons recorded for the second reopening, the Ld. DR submitted recorded for the second reopening, the Ld. DR submitted recorded for the second reopening, the Ld. DR submitted that the AO reopened the assessment on the ground that the that the AO reopened the assessment on the ground that the that the AO reopened the assessment on the ground that the assessee had claimed deduction had claimed deduction u/s.54F in respect of capital gains 54F in respect of capital gains arising from a property for which deduction u arising from a property for which deduction u/s.54F had already 54F had already been claimed in A.Y.2013 ed in A.Y.2013-14. It was contended that the AO 14. It was contended that the AO reopened the assessment for the second time on the premise that reopened the assessment for the second time on the premise that reopened the assessment for the second time on the premise that deduction u/s.54F was not allowable on deemed income and 54F was not allowable on deemed income and 54F was not allowable on deemed income and therefore required disallowance. She accordingly argued that the therefore required disallowance. She accordingly argued that the therefore required disallowance. She accordingly argued that the reopening was valid an reopening was valid and did not amount to a change of opinion with d did not amount to a change of opinion with respect to the deduction claimed respect to the deduction claimed u/s.54F of the Act.

In view of the settled legal position laid down by the Hon’ble In view of the settled legal position laid down by the Hon’ble In view of the settled legal position laid down by the Hon’ble Supreme Court in CIT v. Kelvinator of India Ltd. CIT v. Kelvinator of India Ltd. (320 ITR 561), (320 ITR 561), reassessment proceedings cannot be initiated merely on account of reassessment proceedings cannot be initiated merely on account of reassessment proceedings cannot be initiated merely on account of a change of opinion. Once the a change of opinion. Once the AO has applied his mind to an issue his mind to an issue and taken a conscious decision, he has no power to review the same and taken a conscious decision, he has no power to review the same and taken a conscious decision, he has no power to review the same under the guise of reopening the assessment. under the guise of reopening the assessment. In the present case, In the present case, the second reopening clearly amounts to a review of the earlier the second reopening clearly amounts to a review of the earlier the second reopening clearly amounts to a review of the earlier reassessment order, which is impermis reassessment order, which is impermissible in law. The action of the sible in law. The action of the AO lacks jurisdiction and is therefore invalid. lacks jurisdiction and is therefore invalid. Consequently, the Consequently, the reassessment order dated 13.12.2019 passed reassessment order dated 13.12.2019 passed u/s. 143(3) read with 143(3) read with section 147 of the Act is hereby section 147 of the Act is hereby quashed. Since the reassessment . Since the reassessment Adhi Kumara Guru itself is held to be invalid itself is held to be invalid, we do not deem it necessary to adjudicate do not deem it necessary to adjudicate the issues raised on merits. the issues raised on merits.

In the result, the appeal filed by the assessee is allowed. In the result, the appeal filed by the assessee is allowed. In the result, the appeal filed by the assessee is allowed.