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Income Tax Appellate Tribunal, DELHI ‘G’ BENCH,
Before: SHRI H.S. SIDHU, & SHRI B.P. JAIN
PER B.P. JAIN, ACCOUNTANT MEMBER,
This appeal filed by the assessee arises from the order of the CIT(A)- Ghaziabad vide order dated 18/11/2016 for A.Y 2012-13.
The ld. AR of the assessee Shri Hiren Mehta, CA brought to our notice the reasons recorded by the AO at page 7 of the order, which are reproduced hereinbelow:
In this case information was received from the office of the Director of Income tax, Intelligence & Criminal Investigation, Lucknow that Smt. Javitri Devi R/Q Vill. Noor Nagar, Ghaziabad had sold following properties to M/S Shri Colonisers & Developers (P) Ltd., Lucknow
Vide sale deed dated 12.09:2011 for Rs. 13,60,00,000/- and stamp duty was paid Rs. 11.01.50.100/- but market value of land was Rs. 14,50,00,000/-. Thus there is difference comes to Rs. 90,00,000/-.
Vide sale deed dated 12.09.2011 for Rs. 8,73,80,000/- and stamp duty was Rs. 91,00,000/- but market value of land was Rs. 13,90,00,000/-. Thus there is difference comes to Rs. 4,26:,20,000/-.
A letter dated 24.02.2014 Was, issued by the office of the Director of Income tax, Intelligence & Criminal Investigation, Lucknow which was duly served upon the assessee. Thereafter a reminder was also issued on 13.03.2014 but no reply was filed by the assessee.
On the basis of information a letter was issued on 06.05.2014 fixing the date for compliance on 16.05.2014. The assessee was required to submit the proof of filing the return and calculation of capital gains arises, from the sale of land. On the date fixed no compliance was" made by the assessee.
In this case total difference, between sale pfice and market price comes to Rs. 5,16,2p,000/- (Rs. 90,00,000/- + Rs.:4,26.20,000/- which is chargeable tq tax and section 50-C of the Act is applicable. The assessee has not filed return for the assessment year 2012-13. The assessee has concealed the particulars of her income.
I have reason to believe that income of Rs. 5,16,20,000/- has been escaped assessment within the meaning of section 147 of the Act. Issue notice u/s 148 of the Act.”
It was further brought to our notice at page 9 of the Sale Deed where circle rate is mentioned at front page of sale deed at Rs. 8,73,80,000/- and at Paper Book page 49 it is mentioned as 13,60,00,000/- whereas the sale deed was for Rs. 13 crores and Rs. 14.50 crores respectively with regard to the said sale deed. He further argued that the registration has been done at a higher value then the circle
rate and therefore, the provisions of section 50C of the Act are not applicable in the present case.
The ld. AR further submitted that moreover, the AO has recorded the reasons as mentioned hereinabove in the assessment proceedings and has not made any addition on any of the point on which the reasons have been recorded. He also relied upon the decisions of various courts of law in the case law book, especially the cases of Pr. CIT Vs. Meenakshi Overseas P. Ltd [2017] 82. Taxmann.com 300 [DEL] available at pages 1 to 11 of the paper book and the decision in the case of Ranbaxy Laboratories Ltd Vs. CIT [2011] 12 Taxmann 117 [Bom], available at pages 38 to 47 of the paper book.
The ld. AR further submitted that the facts of the present case and the decisions cited hereinabove and various other decisions relied upon as available in the assessee’s paper book, the reasons to believe are not, in fact, reasons but only the conclusions which do not satisfy the initiation of proceedings u/s 147/148 of the Act to reopen the assessment
and there is no independent application of mind of the AO in this regard. He, therefore, prayed to quash the assessment so made by the AO and confirmed by the CIT(A) on the ground that the initiation of reassessment proceedings are bad in law and are liable to be quashed.
Per contra, the ld. DR relied upon the orders of the authorities below and further relied upon the following decisions:
PCIT Vs. Paramount Communication [P] ltd [2017]- TIOL-253-SC-IT] PCIT Vs. Paramount Communication [P] ltd [2017] 79 Taxmann.com 409 [DEL] 392 ITR 444 [DEL] 2. Indu Lata Rangwala Vs. DCIT [2017 80 Taxmann.com 102 [DEL] [2016] 384 ITR 337 [DEL] [2016] 286 CTR 474 [DEL]
We have heard the rival submissions and have carefully perused the relevant material on record. We have also gone through the decisions relied upon by both the sides. From a reading of the reasons recorded by the AO at page 7 of the paper book, it is evident that the assessee has entered into a transaction with regard to two sale deeds for Rs. 13 crores and Rs. 14.50 crores respectively whereas the circle rate is
at Rs. 8,73,80,000/- and Rs. 13.60 crores. Certainly, the assessee has entered into a transaction where the sale consideration is more than the circle rate and, therefore, at the outset, provisions of section 50C of the Income-tax Act, 1961 [hereinafter referred to as 'the Act'. are not applicable. Therefore, the AO has not applied his mind independently and on the basis of information received from the Director of Income Tax, Lucknow, he has formed the belief, which, in fact, is a conclusion and accordingly, the proceedings so initiated are liable to be quashed.
Also, from a bare perusal of the reasons so recorded, reading of AO’s order, it is evident that the AO has not made any additions on account of this transaction u/s 50C of the Act or capital gains of the Income tax Act and on this point as well, the proceedings so initiated are liable to be quashed. We find support from the decisions relied upon by the ld. AR in the case of Meenakshi Overseas [P] Ltd and Ranbaxy Laboratories Ltd [supra]. The decision of the ITAT has been approved by the Hon'ble Delhi High Court. In the said decision, there are three parts of the reasons recorded
i.e., first part where the AO has received information from the Inv. Wing, secondly, the information led him to form belief that the income has escaped assessment which is absent in the said case and he recorded the conclusion that income has escaped assessment and thirdly, and last part contains that the alleged transaction is not bonafide and there is reason to believe that income has escaped assessment for the said A.Y. It was held by the Hon'ble High Court that the reasons to believe are, in fact, are not reasons but only conclusion and crucial link made available to the AO and formation of belief is absent and reopening u/s 147 of the Act is potent power not to be likely exercised. It cannot be invoked casually or mechanically. Accordingly, the Hon'ble High Court held that the initiation of proceedings u/s 147/148 of the Act by the AO to reopen the assessment does not satisfy the requirements. Order of the Hon'ble High Court of Delhi is dated 26.05.2017.
In the present case, from the reasons recorded, it is evident that the AO received information from the Director of Income tax [INV] and the said information cannot be said
to be tangible material. Secondly, the information so received has led AO to form belief that income has escaped assessment, which, in fact, is absent in the present case. Thirdly, the AO has not applied his independent mind and he has invoked the provisions of section 147 of the Act casually or mechanically that income has escaped assessment.
In the case of CIT Vs. Jet Airways [I] Ltd reported at 331 ITR 236 [Bom] order dated 12.04.2010, the question of law brought out reads as under:
“Where upon the issuance of a notice under section 148 of the Income-tax Act, 1961 read with section 147, the Assessing Officer does not assess or, as the case may be reassess the income which he has reason to believe had escaped assessment and which formed the basis of a notice under section 148, is it open to the Assessing Officer to assess or reassess independently any other income, which does not form the subject-matter of the notice?”
It has been held in said order at para 11 last part by the Hon'ble High Court as under”
“If the income, the escapement of which was the basis of the formation of the season to believe is not assessed or reassessed,
it would not be open to the Assessing Officer to independently assess only that income which comes to his notice subsequently in the course of the proceedings under the section as having escaped assessment. If upon the issuance of a notice under section 148(2), the Assessing Officer accepts the objections of the assessee and does not assess or reassess the income which was the basis of the notice, it would not be open to him to assess income under some other issue independently. Parliament when it enacted the provisions of section 147 with effect from 1-4-1989 clearly stipulated that the Assessing Officer has to assess or reassess the income which he had reason to believe had escaped assessment and also any other income chargeable to tax which came to his notice during the proceedings. In the absence of the assessment or reassessment of the former, he cannot independently assess the latter.”
In the last para 16 of the said order, it has been held thus: “Explanation 3 lifts the embargo, which was inserted by judicial interpretation, on the making of an assessment or reassessment on grounds other than those on the basis of which a notice was issued under section 148 setting out the reasons for the belief that income had escaped assessment. Those judicial decisions had held that when the assessment was sought to be reopened on the ground that income had escaped assessment on a certain issue, the Assessing Officer could not make an assessment or reassessment on another issue which came to his notice during
the proceedings. This interpretation will no longer hold the field after the insertion of Explanation 3 by the Finance Act (No. 2) of 2009. However, Explanation 3 does not and cannot override the necessity of fulfilling the conditions set out in the substantive part of section 147. An Explanation to a statutory provision is intended to explain its contents and cannot be construed to override it or render the substance and core nugatory. Section 147 has this effect that the Assessing Officer has to assess or reassess the income (“such income”) which escaped assessment and which was the basis of the formation of belief and if he does so, he can also assess or reassess any other income which has escaped assessment and which, comes to his notice during the course of the proceedings. However, if after issuing a notice under section 148, he accepted the contention of the assessee and holds that the income which he has initially formed a reason to believe had escaped assessment, has as a matter of fact not escaped assessment, it is not open to him independently to assess some other income. If he intends to do so, a fresh notice under section 148 would be necessary, the legality of which would be tested in the event of a challenge by the assessee.”
In the case of Ranbaxy Laboratories Ltd [supra], the Hon'ble High Court of Delhi has held in para 20 of its order as under: “The very basis of initiation of proceedings for which reasons to believe were recorded were income escaping assessment in respect of items of club fees, gifts and presents, etc., but the
same having not been done, the Assessing Officer proceeded to reduce the claim of deduction under Section 80 HH and 80-I which as per our discussion was not permissible. Had the Assessing Officer proceeded not to make disallowance in respect of the items of club fees, gifts and presents, etc., then in view of our discussion as above, he would have been justified as per explanation 3 to reduce the claim of deduction under Section 80 HH and 8-I as well.”
In the present case also, the AO has not made any addition, as pointed out hereinabove, of any amount on the points of reasons recorded and accordingly, the AO does not have jurisdiction to assess or reassess the income independently or any other income in respect of proceedings initiated, which does not form the subject-matter of the notice.
As regards the arguments made by the ld. DR that the assessee has not filed return of income and, therefore, for Explanation 2(a) to section 147 to apply, the income chargeable to tax which is deemed to have escaped assessment does not arise simplicitor on not filing return of income. In this regard, the Hon'ble High Court of Bombay in
the case of Ingram Micro [I] Exports [P] Ltd Vs. Dy. CIT [2017] 78 Taxmann.com 140 [Bom], available at pages 90 to 91 of the paper book held vide para 7 to 9 as under:
“7. However, it appears that for Explanation 2(a) of the Act to apply, the income chargeable to tax which is deemed to have escaped assessment does not arise simplicitor on not filing of return of income but must also be coupled with the prima facie satisfaction of the Assessing Officer that the income of a person concerned is chargeable to income tax even if it exceeds the maximum amount not exigible to tax. Therefore, prima facie for Explanation 2(a) of Section 147 of the Act to be invoked, the reasons must indicate that the Assessing Officer has applied his mind to the fact that the income is chargeable to tax under the Act and it has exceeded maximum amount not chargeable to income tax. The above satisfaction is not found in the reasons.
This Court in Hindustan Lever Ltd vs. R.B. Wadkar, Assistant Commissioner of Income Tax and Others 268 ITR Page 332 has held that reopening notice has to be justified on the basis of the reasons recorded at the time of issuing the impugned notice. The impugned notice must stand or fail on the reasons recorded. These reasons recorded cannot be supplemented by further reasons or by filing an affidavit and/or making oral submission. The reasons are a manifestation of the mind of the Assessing Officer and must be self explanatory and should not keep the assessee guessing. It cannot be justified on the basis of
inferences or interpretation. The reasons as recorded prima facie do not seem to indicate reasonable belief that income chargeable to tax has escaped assessment. 9. In view of above, prima facie the impugned notice is without jurisdiction. Accordingly, pending hearing and disposal of this petition there shall be stay of the impugned notice dated 31st March, 2016”
Accordingly, in view of the submissions made by the ld. AR, the arguments of the ld. DR fails in view of the decision of the Hon'ble High Court of Bombay in the case of Ingram Micro [I] Exports [supra].
As regards the decisions relied upon by the ld. DR, the same are distinguishable. In the case of PCIT Vs. Paramount Communication [P] Ltd [supra], it has been held that information was tangible material outside record and in the case of Indu Lata Rangwala [supra] it has been held that where initial return of income is processed u/s 143(1) of the Act, it is not necessary in such a case for the AO to come across some fresh tangible material to form ‘reasons to believe’ that income has escaped assessment, whereas facts in the present case are different as per our findings hereinabove. Under such facts and circumstances of the case,
the proceedings initiated u/s 147/148 of the Act are bad in law and are liable to be quashed. Thus, the assessee succeeds on the legal ground.
Since the assessee has contested only the legal ground and succeeded, therefore, we are not going into the merits of the other grounds of appeal. Accordingly, the grounds raised by the assessee stand allowed.
In the result, the appeal of the assessee is allowed.
The order is pronounced in the open court on 14.12.2017.
Sd/- Sd/- [H.S. SIDHU] [B.P. JAIN] JUDICIAL MEMBER ACCOUNTANT MEMBER Dated: 14th December, 2017 VL/ Copy forwarded to:
Appellant 2. Respondent 3. CIT 4. CIT(A) 5. DR Asst. Registrar, ITAT, New Delhi