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Facts
The assessee, Smt. Sumitra Devi, received Rs. 1,00,75,000/- from a plot sale. Reassessment proceedings for AY 2010-11 were initiated based on information that she hadn't filed her ITR, leading the AO to add Rs. 3,21,75,000/- as enhanced compensation. The CIT(A) deleted this addition, prompting the Revenue's appeal, while the assessee filed a Cross Objection challenging the reassessment's validity.
Held
The Tribunal upheld the assessee's Cross Objection, finding the reassessment proceedings invalid because the "reason to believe" was based on the factually incorrect premise that the assessee had not filed her ITR. Consequently, the Section 148 notice and the resulting assessment order were quashed. The Revenue's appeal was dismissed, also noting that the enhanced compensation, if taxable, per Section 45(5)(b) and Supreme Court precedent, should have been taxed in AY 2008-09, not 2010-11.
Key Issues
Whether reassessment proceedings initiated under Section 147/148 were valid when the reason to believe was factually incorrect regarding the non-filing of ITR. The correct assessment year for taxation of enhanced compensation under Section 45(5)(b) of the Income Tax Act.
Sections Cited
45(1), 45(5)(b), 147, 148, 151, 143(1), 143(3)
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, DELHI BENCH “G”: NEW DELHI
Before: DR. BRR KUMAR & MS. ASTHA CHANDRA&
O R D E R
PER ASTHA CHANDRA, JM
The appeal filed by the Revenue and the Cross Objection filed by the assessee arise out of the order dated 20.11.2019 of the Ld. Commissioner of Income Tax, Delhi-13 (“CIT(A)”) pertaining to Assessment year (“AY”) 2010- 11.
2. The Revenue has raised the following grounds:- “Whether on the facts and in the circumstances of the case, the Ld. CIT(A) has erred in deleting the addition of Rs. 3,21,75,000/- ignoring fact that the amount of enhanced compensation is taxable under section 45(5)(b) of the Income Tax Act, 1961 and that the enhanced compensation amount would invariably be subsequent to the date of compulsory acquisition of land.”
CO. No. 173/Del/2022 ITO vs.Smt. Sumitra Devi 2.1 Subsequently, on 29.05.2023 the Revenue has taken the following additional ground of appeal:-
The Ld. CIT|(A) failed to appreciate the amount of enhanced compensation of Rs. 3,20,87,825/- which was not taxed/declared by the assessee AY 2008-09, thereby the cost of acquisition was taken at nil against the sale consideration of Rs. 3,21,75,000/- against the transaction for sale of said plot which is to be taxed under section 45(1) after allowing the expenses incurred by the assessee at the time of acquiring of the plot.
3. The assessee has raised the following Cross Objection:-
“1. The appeal is not maintainable, inter alia, because: (1) The appeal is not in the Form No. 36 prescribed by Rule 47(1) of the Income Tax Rules, 1962. (2) As per Column No. 9 of the Form No. 36, the order appealed against was communicated on 10-12-2019 and, therefore, the last date to file appeal was 08-02-2020; but the appeal has been filed on 25-02-2020 and thus, the appeal is late by 17 days.
The initiation of the proceedings under section 147 of the Income Tax Act, 1961 (hereafter the Act) by the Id. Income Tax Officer, ward 44(4), New Delhi [hereafter the ITO, ward 44(4)], being without satisfying and complying with the pre-requisite mandatory conditions mandated by section 147, 148 and 151 of the Act, which are sine qua non for assumption of valid jurisdiction to initiate the proceedings under section 147 of the Act and without jurisdiction, is bad in law, null and void ab- initio and deserves to be annulled. (1) The purported 'reasons to believe' are based on the allegation that the Assessee did not file her return of income, whereas, as a matter of fact the return of income was filed by the Assessee. (2) The Id. ITO, ward 44(4) had no reason to believe' to initiate the proceedings under section 147 of the Act, the proceedings were initiated on highly misconceived grounds, in the nature of pretence and without any justification and on wrong facts. (3) The proceedings under section 147 of the Act were initiated to verify the escapement of income, which is not permissible by law. (4) There is no satisfaction of the Competent Authority, as required by section 151 of the Act, and without prejudice the satisfaction, if any, is bad in law, inter alia, because the satisfaction is (a) mechanical and without application of mind; (b) without recording reasons, and (c) without providing any opportunity of hearing.
CO. No. 173/Del/2022 ITO vs.Smt. Sumitra Devi (5) The Id. ITO, ward 44(4) initiated the proceedings under section 147 of the Act on the dictates and directions of the Higher Authorities.
The impugned assessment order passed by the Id. ITO Ward 38(2), is null and void ab initio inter alia because: (1) The proceedings u/s 147 of the Act was initiated and the notice u/s 148 of the Act was issued by the Id. ITO, ward 44(4), but assessment was made by the Id. ITO, ward 38(2), without there being any order, much less by the Competent Authority, transferring the case to the Id. ITO ward 38(2). (2) The action u/s 147 of the Act was initiated on the basis that the Assessee received cheque dated 14-09-2009 of Rs. 1,00,75,000, which escaped assessment; but in the assessment no addition for this allegation was made and the addition made is of receipt of enhanced compensation as Capital Gains.”
The brief facts are that the DDIT (Inv.), Unit VI(3), New Delhi shared information that during search operation on BPTP Group, a copy of agreement to sell a plot in Palam Colony, New Delhi was found. It was noticed therefrom that the said plot was sold by the family of one Shri Jeet Singh to M/s Concorde Real Estate Pvt. Ltd. a company controlled by BPTP Group for a sale consideration of Rs. 7.40 crores and the purchaser company had issued 10 cheques to ten family members. The said company had also issued 2 cheques of Rs. 1,00,75,000/- each to Shri Sukhbir Singh and Smt. Sumitra Devi, both dated 14.09.2009. Since ITR for AY 2010-11 was not filed by the assessee, Smt. Sumitra Devi, notice under section 148 of the Income Tax Act, 1961 (the “Act”) was issued by ITO, ward 44(4), New Delhi on 31.03.2017. In response, the assessee e-filed her ITR for AY 2010-11 declaring income of Rs. 1,17,650/-. As per new address given by the assessee, the territorial jurisdiction vested with Ld. ITO, Ward -35(7), New Delhi (“AO”) who continued the assessment proceedings. Statutory notice(s) were issued/served upon the assessee. Requisite details furnished were examined on test check basis. During assessment proceedings the assessee was asked to furnish explanation about the receipt of above said cheque dated 14.09.2009 and the assessee filed reply dated 14.11.2017 reproduced in para 4 of Ld. AO’s order who summarised the reply of the CO. No. 173/Del/2022 ITO vs.Smt. Sumitra Devi assessee in para 5 of the order. However, the reply was not found satisfactory and final show cause notice dated 15.11.2017 was issued asking the assessee to explain why her income be not treated under section 45(5)(b) of the Act and added to her income. Assessee filed written reply dated 04.12.2017 which the Ld. AO treated as repetition of earlier submission. According to the Ld. AO, the amount of Rs. 3,21,75,000/- received by the assessee is ‘enhanced compensation’ taxable as capital gain under section 45(5)(b) of the Act and added the same to her income. Accordingly, he completed the assessment on total income of Rs. 3,22,92,650/- on 07.12.2017 under section 143(3) of the Act.
The assessee appealed before the Ld. CIT(A) who dismissed the appeal on the following grounds raised before him :-
(i) non-compliance of provisions of section 147/148 of the Act; (ii) challenge of jurisdiction of authority issuing notice under section 148 and assessment done by another; (iii) objection to the addition of Rs. 3,21,75,000/- as against the amount of Rs. 1,00,75,000/- received through cheque (as per reason recorded under section 147)
The Ld. CIT(A), however deleted the addition of Rs. 3,21,75,000/- taxed under section 45|(5)(b) of the Act for AY 2010-11 by observing and recording the following findings:-
“4.5 The appellant has claimed that the 550 square meter land at Plot no. 43 Block -C, Village Rangapuri, Delhi which was allotted by DDA in light of Delhi High Court's order was compensation and not enhanced compensation. However, perusal of the documents submitted reveals that the competent authority, Land Acquisition Collector (LAC) initially declared an award @ Rs. 24 per square yard in the year 1986 (Award No. 16/86-87) which was challenged by the villagers in the High Court. Subsequently, the land owners were allotted alternative land for residential purpose which was therefore in the nature of enhanced compensation. The appellant was also a beneficiary of this order and was officially, along with her husband, allotted a 550 square meter plot vide letter F. No F18(246)/2005/LSB(R)/6137 dated 4
CO. No. 173/Del/2022 ITO vs.Smt. Sumitra Devi 12.06.2007 of Delhi Development Authority. At Para 9 (VI) of this letter Sh. Sukhbir Singh appellant's husband was asked to submit legally wedded affidavit on non judicial stamp paper of Rs. 10 attested by magistrate/notary public for inclusion of name of his spouse in the conveyance deed, if married. Hence, it is clear that it was a case of enhanced compensation and not compensation. In fact by virtue of this allotment letter, the appellant became co-owner of the allotted Plot. The current market rate as approved by DDA was Rs. 1,16,683/- per square meter at the time it was allotted. 4.6 Thereafter, the appellant has admitted that she along with her husband sold the allotted plot to Sh. Sanjay Dhawan on 29.10.2009 for a consideration of Rs. 6,43,50,000/-(the appellant's share being 50%), at the prevailing market rate on which stamp duty was paid. Hence, the holding period of the plot from the date of allotment 12.06.2007 till date of sale 29.10.2009 was approximately 28 months. Thus, the appellant received Rs. 3,21,75,000/- during the relevant assessment year i.e. AY 2010-11. The AO invoked the provisions of section 45(5)(b) and accordingly treated the entire amount as capital gains after treating the cost of acquisition and cost of improvement as NIL (Explanation (i) to section 45(5)(b)). The appellant has also raised an argument that even if the AO's contention was to be accepted, the capital gains should be charged in the previous in which such amount is received by the assessee. It has also been mentioned that no such liability has been brought out in the hands of her husband Sh. Sukhbir Singh who was also a co-recipient/seller of the residential plot. As per the given facts the enhanced compensation by way of the 550 square meter plot was received on 12.06.2007 which implies assessment year 2008-09 and not AY 2010-11. Thus, the capital gains to be taxed u/s 45(5)(b) should have been brought to tax in the assessment year 2008-09 as per law and also as held by the Hon'ble Supreme Court in case of CIT vs. Ghanshyam (HUF), 2009. 4.7 As regards, the second transaction ie. sale of the 550 square meter plot to Sh. Sanjay Dhawan on 29.10.2009, it is noted that the plot which was allotted to the appellant on 12.06.2007 had a market value (as approved by DDA) of Rs. 1,16,683/- per square meter i.e. approximately Rs. 6,41,75,650/- 50% of which would work out to Rs. 3,20,87,825/- with a stamp duty of Rs. 38,61,000/- (50% being 19,30,500/-). For the purpose of computing capital gains u/s 45(1), the cost of acquisition would be taken as Rs. 3,40,18,325/- against which, she received Rs. 3,21,75,000/- as sale proceeds. Hence, the AO's view that the receipt of Rs. 3,21,75,000/- was to be taxed u/s 45(5)(b) as enhanced compensation is not tenable for the relevant assessment year 2010-11 and is accordingly deleted.”
Dissatisfied by the deletion of addition by the Ld. CIT(A) of Rs. 3,21,75,000/- made by the Ld. AO, the Revenue is in appeal before the Tribunal and aggrieved by the aforementioned dismissal of assessee’s grounds by the Ld. CIT(A), the assessee is before the Tribunal by way of filing Cross Objections.
CO. No. 173/Del/2022 ITO vs.Smt. Sumitra Devi
Let us take up Cross Objection (“CO”) of the assessee first for consideration.
8.1 It is stated in CO No. 1 that the appeal filed by the Revenue is late by 17 days. Yes true it is. However, we find that the Revenue has made request for condonation of the said delay vide application dated 24.02.2020. For the reasons assigned for the delay, it deserves to be condoned.
CO No. 2 is regarding initiation of proceedings under section 147 which it says that it is bad in law for the reason that the return filed by the assessee on 29.12.2010 and processing thereof under section 143(1) of the Act is not considered; the deposit of cheque in bank is not income; there was no tangible material for ‘reason to believe’ that income has escaped assessment; notice under section 148 was not issued within the limitation period and that satisfaction recorded by the Ld. PCIT under section 151 of the Act is bad in law. In support of each of the above, many precedents are relied upon.
9.1 The Ld. CIT(A) dealt with the above issue in para 4.2 of the appellate order and dismissed the assessee’s appeal on the point by recording the following findings:
“4.2 Ground of appeal No. 1 refers to the non compliance of provisions of section 147/ 148 making the proceedings bad in law, it is noted that the AO was in receipt of information from the Investigation Wing. The AO made further necessary inquiries viz from the Citi Bank, Punjab National Bank and also carried out local enquiries though the ITI and then ascertained that the Appellant, alongwith her husband received payments for sale of property to one Sh. Sanjay Dhawan. One such payment was received by Ch no 427071 dated 14.09.2009 drawn at Citi Bank, issued by Concorde Real Estate Pvt. Ltd. which formed the basis of 148 notice and thereafter the AO followed due procedure and made the assessment accordingly. As regards the objection that the AO did not refer to the ITR filed by the A, while this fact cannot be totally negated, but the fact that the AO has clearly stated while recording the reasons, that no ITR has been filed as per information available on record. Even if the AO had referred to the ITR and its computation, it is amply clear that firstly, no such income had been shown and the computation filed raised more questions than
CO. No. 173/Del/2022 ITO vs.Smt. Sumitra Devi answers i.e. details of investment in new property, transfer expenses etc. Hence, this ground is dismissed.”
9.2 We have heard the submission of the parties and perused the records. According to the Ld. CIT(A) apart from the receipt of information from the Investigation Wing, the Ld. AO made independent local enquiries and requisite enquiries from the Banks which formed the basis of issue of notice under section 148 of the Act. It however appears that it has escaped the attention of the Ld. CIT(A) that specific ground No. 11 was taken before him that the purported ‘reasons to believe’ are based on the allegation that the assessee did not file her return of income, whereas, as a matter of fact the return of income was filed by the assessee. Evidence of filing e-return by the assessee on 29.10.2010 for AY 2010-11 and processing thereof on 21.02.2011 under section 143(1) of the Act appears at page 1 and 1A of the Paper Book. At page 11 of Paper Book is placed copy of reasons recorded by the Ld. AO (ward 44(4), New Delhi) dated 29.03.2017 wherein it is specifically mentioned that the assessee has not filed her return of income for the concerned year. Therefore the amount of Rs. 1,00,75,000/- has escaped assessment for failure to disclose fully and truly all material facts necessary for assessment. In proforma for obtaining approval of Ld. PCIT (page 9 of Paper Book) against column 8(a) also the information given by the Ld. AO is in negative to the question ‘whether any voluntary return had already been filed’. It is, therefore, obvious that the primary reason to believe escapement of income is alleged non filing of return for AY 2010-11 by the assessee which is contrary to the facts on record. The factum of non- consideration of ITR filed by the assessee on the part of the Ld. AO has been accepted by the Ld. CIT(A). In such a scenario Hon’ble Gujarat High Court in Sunrise Education Trust, 92 taxmann.com 74 observed as under:-
“5. Having heard Ld. Counsel for the parties and having perused the documents on record, it could be straightaway seen that the Assessing Officer in the reasons recorded, proceeded on the erroneous footing that the assessee had not filed return at all. The first premise for issuing the notice was thus
CO. No. 173/Del/2022 ITO vs.Smt. Sumitra Devi factually incorrect. It is now not disputed by the Revenue that the assessee did file return of income for the year under consideration which was duly acknowledged by the Department. The entire reasoning thus proceeded on the wrong premise that the assessee had never filed the return. This itself would be suffice to annul the notice of re-opening the assessment”.
9.3 The decision (supra) squarely applies to the facts of the assessee’s case before us. The Co-ordinate Bench of Delhi Tribunal relied upon the decision (supra) of Hon’ble Gujarat High Court in its order in Braham Prakash Lakra vs. ITO in decided on 19.11.2019. Reference may also be made to the decision of Hon’ble Delhi High Court in CIT vs. Indo Arab Air Services (2016) 283 CTR 92 (Del) wherein the Hon’ble Court observed that while law does not require AO to form definite opinion by conducting any detailed investigation regarding escapement of income from assessment, it certainly did require to form prima facie opinion based on tangible material which provide nexus or link to having reason to believe that income escaped assessment. The Ld. AR placed reliance on the decisions of Jaipur Bench of the Tribunal in Narain Dutta Sharma vs. ITO (2018) 91 taxmann.com 463 (Jaipur-Trib) and Hon’ble Gujarat High Court in Sagar Enterprises vs. ACIT (2002) 257 ITR 335(Guj) in support of his submissions. Following the decisions (supra) and applying their ratio to the facts of the assessee’s case we sustain CO No. 2 of the assessee which is sufficient to hold that the notice under section 148 issued to the assessee is bad in law and deserves to be quashed. We do so.
CO No. 3 is about issue of notice under section 148 by one Ld. AO and assessment being framed by another. Since we have quashed the notice under section 148 issued to the assessee, we are not adjudicating assessee’s CO No. 3.
Sustenance of assessee’s CO No. 2 results in quashing the notice issued to the assessee under section 148 of the Act and consequent impugned assessment order passed by the Ld. AO on 07.12.2017 under 8
CO. No. 173/Del/2022 ITO vs.Smt. Sumitra Devi section 143(3) of the Act. The appeal filled by the Revenue becomes infructuous.
However to meet the ends of justice, we now proceed to consider the appeal of the Revenue on merits.
12.1 The Representative of the parties have been heard and their submissions considered.
12.2 According to the original ground of appeal of the Revenue, the amount of enhanced compensation is taxable under section 45(5)(b) of the Act and the Ld. AO taxed the whole amount of Rs. 3,21,75,000/- accordingly. But the Ld. CIT(A) deleted the said addition. In our opinion, the Ld. CIT(A) was perfectly justified in deleting the impugned addition. In para 4.6 of the appellate order the Ld. CIT(A) recorded the finding that as per the given facts the enhanced compensation by way of the 550 sq. Meter plot was received on 12.06.2007 which implies AY 2008-09 and not AY 2010-11. Thus, the capital gain to be taxed under section 45(5)(b) of the Act should have been brought to tax in AY 2008-09 as per law and also as held by the Hon’ble Supreme Court in the case of CIT vs. Ghanshyam (HUF), 2009. This finding of the Ld. CIT(A) is fully in consonance with the principle of law laid down by the Hon’ble Supreme Court in the decision (supra) so eloquently expressed by the Ld. AO in para 7 of the assessment order as under:- such enhanced compensation/consideration is fully taxable as capital gain in the year in which it is received. The said compensation / consideration will be hit by the provision of section 45(5)(b) of the Act. The Hon’ble Supreme Court held in the case of CIT vs. Ghanshyam (HUF)(2009) 315 ITR (SC) held that “amount of enhancement is deemed to be income of the previous year in which it is received.
CO. No. 173/Del/2022 ITO vs.Smt. Sumitra Devi 12.3 In fact, before the Ld. CIT(A) the assessee had raised the plea that there was no material with the Ld. AO on the basis of which it could be established that enhanced compensation was received during the FY 2009- 10 relevant to AY 2010-11 under consideration. On the contrary, the compensation, if taxable in the year of receipt, it should have been taxed in AY 2008-09 and not AY 2010-11.
We uphold the decision of the Ld. CIT(A) on the issue and reject the original ground taken by the Revenue.
Regarding the additional ground taken before us suffice is to say that taxability of enhanced compensation under section 45(1) of the Act has neither been considered by the Ld. AO nor adjudicated by the Ld. CIT(A). Since the issue raised herein does not arise out of the order of the Ld. AO/CIT(A) we decline to admit and consider the same. Accordingly, the additional ground is not entertained.
The appeal of the Revenue is accordingly dismissed on merits as well.
In the result, the appeal of the Revenue stands dismissed and the Cross Objection of the assessee is partly allowed.