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Facts
The assessee sold a shop, and the Assessing Officer (AO) reopened the assessment for AY 2010-11, believing that capital gains had escaped assessment, as the assessee had not filed an Income Tax Return (ITR). The core disputes involved the correct assessment year for the capital gain (date of registration vs. date of payment/possession), the cost of acquisition for property converted from tenancy to ownership, and the validity of reopening the assessment beyond the four-year period.
Held
The Tribunal upheld the validity of the reassessment proceedings (dismissing grounds 1-6) since the assessee had not filed an ITR, and there was information indicating escaped income. However, regarding the capital gains computation (grounds 7-15), the Tribunal partly allowed the appeal, directing the AO to recompute capital gains by considering the Rs.1,50,000/- paid for acquiring ownership rights as the cost of acquisition, with indexation benefit from April 1, 2005, and to provide the assessee with an opportunity to furnish relevant documents.
Key Issues
1. Validity of reassessment proceedings initiated under Section 147/148 when the assessee had not filed an ITR and the notice was issued beyond four years. 2. Determination of the correct date of transfer for capital gains purposes (date of registration vs. date of payment/possession) and the appropriate cost of acquisition for a property where tenancy rights were converted to ownership.
Sections Cited
148, 147, 2(47), 50C, 139(1), 45, 53A, 148(2), 143(2), 153
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Income Tax Appellate Tribunal, “D” BENCH, MUMBAI
Before: SMT BEENA PILLAI & SHRI PRABHASH SHANKAR
Present for: Assessee by : Shri S. D. Chheda Revenue by : Shri R. R. Makwana (SR. DR) Date of Hearing : 14.11.2024 Date of Pronouncement : 16.12.2024 O R D E R Per Beena Pillai, JM: Present appeal filed by the assessee arises out of order dated 11.07.2024 passed by NFAC Delhi for assessment year 2018-19 on following grounds of appeal: 1. “The learned CIT(A) has erred in law and in facts in confirming the action of AD to notice under section 148 of The Income Tax Act & the sppellant prays that under section 147 be declared illegal & bad in law.
Damji J. Gala ;A. Y.2010-11 2. The learned CIT(A) has erred in law and in facts in confirming the action of AQ to issue notice under section 148 when the substratum for formation of belief that income liable to tax has escaped assessment has not formed part of the reasons recorded and also year of chargeability of capital gain tax has not formed part of the reasons recorded.
3. The learned CIT (A) has erred in law and in facts in confirming action of reopening on the ground that the appellant had released his legal right over the property vide sale deed dated 27.05.2009 during the A.Y. 2010-11 and accordingly, it is held that the property was transferred in the A.Y. 2010-11 and not on 31.3.2009 i.e. A. Y. 2009-10 inspite of the fact that the ground taken by AO for date of transfer was only that date of registration is date of transfer which is contrary to section 2(47) and specially when issues of payment and possession has been accepted by AO and there is no contrary finding for the same specially when all the full payments are by cheques before 31.3.09 and the possession has been confirmed by owner on 31.3.09.
4. The learned CIT (A) has erred in law and in facts in confirming action of reopening on the ground that the the appellant had not filed any return of income for the relevant assessment year and the AO had reason to believe that the income received by the appellant on account of sale of above property has escaped assessment inspite of the fact that the above sale was already shown in earlier year return of income of A.Y. 2009-10 and there is nothing in recorded reason that income in a particular year has escaped income in respect to above property.
5. The learned CIT(A) has erred in law and in facts in confirming the action of AO for not disposing the objection on the points raised by the appellant.
6. The learned CIT(A) has erred in law and in facts in confirming the action of AO to issue notice under section 148 of The Income Tax Act in mechanical manner and without applying mind and without sanction from higher authority.
7. The learned CIT (A) has confirming action of AO to treat date of registration as date of transfer on the ground that the appellant had released his legal right over the property vide sale deed dated 27.05.2009 during the A.Y. 2010-11 and accordingly, it is held that the property was transferred in the A.Y. 2010-11 Lad not on 31.3.2009 i.e.A.Y. 2009-10 inspite of the fact that the ground taken by AO for date of transfer was only that date of registration is date of transfer which is contrary to section 2(47) and specially when issues of payment and possession has been Page | 2 Damji J. Gala ;A. Y.2010-11 accepted by AO and there is no contrary finding for the same specially when all the full payments are by cheques before 31.3.09 and the possession has been confirmed by owner on 31.3.09 8. The learned CIT(A) has erred in law and in facts in confirming the action of AO to held that is the appellant has non filled return of income, the date of transfer is date of registration and failed to understand that the non filling return of income cannot change the date of transfer u/s 2 (47).
9. The learned CIT(A) has erred in law and in facts in confirming the action of AO to held that possession date of the property is not substantiated by the documents submitted by the appellant.
The learned CIT(A) has erred in law and in facts in confirming the action of AO in not allowing the acquisition cost of the property i.e. is market value of the property as on 14/3/2005.Inspite of the fact that the date of acquisition has been accepted in the computation by AO himself as there was conversion/surrender of tenancy right into ownership right.
The learned CIT(A) has erred in law and in facts in confirming the action of AO in failure to understand that the appellant has sold ownership right whereas the acquisition cost considered by AO is only for the conversion of tenancy right and not for ownership rights and failed to understand that tenancy and ownership right are not the same right.
12. The learned CIT(A) has erred in law and in facts in confirming the action of AO in failure to follow binding decision of jurisdictional high court of Chaturbhuj Dwarkadas Kapadia vs. CIT (260 ITR 491) for the date of transfer under section 2 (47) even when the facts are same.
13. The learned CIT(A) has erred in law and in facts in confirming the action of AO in failure to follow binding decision of Mumbai ITAT in the appeal no ITA no. 8862/Mum./2011 in case of Mrs. Tauqeer Fatema Rizvi vs ITO for allowance of cost of acquisition in case of conversion of property from tenancy to ownership.
14. The learned CIT(A) has erred in law and in facts in confirming the action of AO in not referring the matter to DVO inspite of objections by the appellant against the market value and erred in law and in facts taking sales value as ready reckoner value.
15. Your appellant leaves the right to amend, add, or alter the grounds at the time of regular hearing & each ground is without prejudice to each other he learned AO has erred in law and in facts.”
Damji J. Gala ;A. Y.2010-11 Brief facts of the case are as under: 2. Admittedly the assessee has not filed return of income for year under consideration. Based on the information received from the office of DCIT Mumbai notice u/s. 148 was issued to assessee on 29.03.2017. The reasons recorded for reopening were sought by the assessee vide letter dated 05.04.2017. The Ld.AO thereafter issued the reasons recorded, scanned and reproduced as under:- “The assessee has not filed return of income for the year under consideration.
Information has been received from the Dy. Commissioner of Income Tax-14(2), Mumbai that "During the scrutiny assessment proceedings of one Shri Ashok M Shah for A.Y. 2010-11, it is noticed that Shri Damji Jivraj Gala, who is assed to tax in ITO ward-19(1)(4), Mumbai has sold the shop situated at Menzamine floor, Tambakwala Building, 163/165, Kewal St., Dr. Vega St., Mumbai-400 002 to Shri Ashok M Shah for a consideration of Rs. 45,00,000/- Whereas, the market value of the same property was Rs. 83,02,221/-. Therefore capital gains, if any, derived by Shri Damji Jivraj Gala, PAN (AABPG1169M) needs to be assessed as per provisions of section 50C of the IT Act. The assessee Shri Damji Jivraj Gala has not filed return of income for the A.Y. 2010-11 thereby the above transaction remains unexplained and need to be taxed as per the provisions of section 50C of the IT Act.
In view of the above facts and circumstances of the case and after application of my mind, I have reason to believe that the income of the assessee Damji Jivraj Gala chargeable to tax for the A.Y. 2010-11 amounting to atleast Rs. 38,02,221/- has escaped assessment due to failure of the assessee to disclose fully and truly all material facts necessary for the assessment in this case in terms of provisions of Section 147 of the I. T. Act.
Notice u/s 148 is issued with the prior approval of Pr C.I.T.-19, Mumbai.” 2.1. The assessee subsequently filed its objection by submitting as under: “1) The recorded reasons state that the case has been reopened on the basis of information received from another AO on the basis of scrutiny Page | 4 Damji J. Gala ;A. Y.2010-11 assessment of a.y.2010-11 in the case Ashok M Shah for chargeability of capital gain u/s 50C. The recorded reason does not state any material other than plain letter received from another AO to held that income has escaped assessment The recorded reason does not state or contain anything on the basis of material that the income is of a particular year or the capital gain is chargeable in particular year and also it does not state any material relied for the same. It does not contain the details of payment or date of transfer, date of possession etc to determine the year of chargeability. Reasons recorded are vague and not proper. The assessee has received all the payments in F.Y. 08-09 and the even possession has been given in F.Y.08-09.The capital gain is chargeable in F.Y.08-09 and not in F.Y.09-10. The copy of the sale deed alongwith possession letter is attached herewith. The date of registration is F.Y.09-10 but the date of chargeability is not the year of registration but year of transfer Nothing has been recorded in recorded reason that the relevant year for escapement of income is F.Y.09-10 and even recorded reason does not say so that another AO has stated that the transaction is related to F.Y.09- 10. A.O. has to record his satisfaction about the correctness or otherwise of the information after going through records and material. The A.O. cannot accept the truth of the vague information in a mechanical manner. The AO has not applied his mind to the facts of the case. The notice u/s 148 is bad & illegal in law. 2) Even for the market value, The AO has not applied mind to the fact that the market value has to be considered for the year in which cheque is issued and not the year of registration In the case of relevent year is A.Y 09-10 & not A.Y.10-11.The date of payments are dully reflected in the agreement. The AO has failed to consider the fact that the building is more than 50 year old as apparent from the property tax assessment and 50% depreciation is available under the ready reckoner rate and which has not been given at the time of registration to determine the market value u/s 50C. The AO has not even applied his mind to the above facts of the case for considering market value for the purpose of section 50C and escapement of income. 3) As per The recorded reason, the matter has been reopened only on the basis of letter from another AO. But it does not contain any material or application of mind from AO to held that the income has escaped assessment. The reason is vague and no ordinary person shall come to conclusion on the basis of recorded reason that the income has escaped assessment in a particular year. There is no assertion regarding the basis on which material on record. He has come to such conclusion and the material should be duly recorded in a recorded reason. Therefore, the material on the basis of which the A.O. seeks to assume the jurisdiction under section 147 if the Act is the information received from the external source viz. another AO, It cannot be disputed that on the basis of the Page | 5 Damji J. Gala ;A. Y.2010-11 information received from another agency, there cannot be any reassessment proceedings. However, after considering the information/material received from other source, A.O. is required to consider the material on record in case of the assessee and thereafter is required to form an independent opinion on the basis of the material on record that the income has escaped assessment. Without forming such an opinion, solely and mechanically relying upon the information received from other source, there cannot be any reassessment for the verification. 4) The Assessing Officer has not referred to any material on the basis of which he proceeded to invoke the provisions of section 147 of the Act. The assertion made by the Assessing Officer is a bare one, without any reference to the material on the basis of which he made such assertion. It is settled legal position as held by a catena of decisions that the substratum for formation of belief that income liable to tax has escaped assessment has to form part of the reasons recorded. The material, on the basis of which, the belief that income chargeable to tax has escaped assessment has been formed, has to find place in the reasons itself, the formation of belief that income has escaped assessment not being based upon record, it is evident that the substratum for reopening the assessment. The reasons recorded should be self-explanatory and should not keep the assessee guessing for the reasons. Reasons provide link between conclusion and evidence. The reasons recorded must be based on evidence. The AO, in the event of challenge to the reasons must be able to justify the same based on material available on record.... That vital link is the safeguard against arbitrary reopening of the concluded assessment. The reasons which have been recorded could never have led a prudent person to form an opinion that income had escaped assessment within the meaning of section 147. In view of above you would appreciate that there is no capital gain chargeable in F.Y.09-10 and the notice u/s 148 is bad & ilegal and required to be dropped. We shall be highly obliged for the same.”
2.2. The Ld.AO thereafter vide order dated 09.10.2017 disposed of the objections filed by the assessee by observing as under: “Please refer to your letter dated 3.10.2017, raising objection to the reopening of your case u/s. 147 of the I.T. Act for the above assessment year. In this respect, please note that your case was reopened on the basis of information received from the Dy. Commissioner of Income-Tax- 14(2), Mumbai.
Damji J. Gala ;A. Y.2010-11 Clause (a) of Explanation 2 to Section 147 of the Income-tax Act clearly states that 'where a return of income has not been furnished by the assessee and it is noticed by the Assessing Officer that the assessee has understated the income shall be deemed to be income escaping assessment for the purpose of Section 147 of the I.T. Act. Income escaping assessment under the Income-tax Act covers the case of discovery of mistake in assessment caused by either an erroneous consideration of transaction or due to its non-consideration. Words "reason to believe" cannot mean that the A.O. should have finally ascertained the facts by legal evidence. They only mean that if the A.O. satisfies himself that the taxable income has escaped assessment, it would amount to saying that he had reason to believe that such income had escaped assessment. The A.O's jurisdiction to initiate proceedings u/s.147 for assessment or reassessment is correctly and rightly exercised even if he may have taken an erroneous view of the law with regard to the mistake committed at the time of first assessment proceedings. You may go through the copy of reasons recorded (already provided to you) and you will find that the A.O. has mentioned "In view of these facts, and after application of my mind, I have reason to believe that the income has escaped assessment for the said assessment year due to failure of the assessee to disclose fully and truly all material facts necessary for assessment in this case in terms of provisions of Section 147 of the I.T. Act". It is well established in law that assessment can be re-opened on the basis of information received from the department's sources. The information collected shows that you have sold the shop for consideration of Rs. 45,00,000/-, whereas the market value of the same property was Rs. 83,02,221/-Since you have not filed the return for A.Y.2010-11, the above transaction remains unexplained and need to be taxed as per the provisions of section 50C of the I.T. Act. Hence there has been a direct link with the income escaping assessment in your case. Further, according to the registration of the document, ownership of the asset got transferred to the buyer on 27.05.2009, hence chargeability of capital gain is in F.Y.2009-10 relevant to A.Y.2010-11 and not as per the date of payment. In view of the above discussion and Legal position, the reopening of the assessment in your case for the above assessment year is in order and your objection to the said reopening is summarily rejected. Notice u/s.143(2) of the act is enclosed herewith.”
2.3. During the scrutiny proceedings, the assessee was called upon to explain as to why capital gain arising out of sale of shop should Page | 7 Damji J. Gala ;A. Y.2010-11 not be added to its total income for A.Y. 2010-11, since the assets got transferred to the buyer vide registration of the document on 27.05.2009. In response, the assessee submitted that, the subject property was a tenanted property as on 01.01.1985 and that the assessee acquired ownership rights by extinguishing the tenancy rights on 14.03.2005 by paying a sum of Rs.1,50,000/-. He submitted that, in view of these facts the acquisition of the assets will be the market value of the property as on 14.05.2005 and not Rs.1,50,000/- paid towards conversion of tenancy rights to ownership. The assessee submitted that, as the market price of the property between 14.03.2005 and 31.03.2009 was stable, nothing would be left for capital gain, if the market value as on 14.03.2005 is considered being 78,97,500/- as cost of acquisition. He further submitted that assessee earned substantial business loss during the immediate precedings years and therefore the said loss also would set off against the capital gain if any. 2.4. The assessee also submitted that, as per the provisions of section 2(47) of the act, the transfer took place in financial year 2008-09 being A.Y. 2009-10, and not the year under consideration. He had submitted that, if at all any capital gain is to be charged, the same to relevant for AY.2009-10. The assessee relied on the decision of Hon'ble Bombay High Court in case of Chaturbhuj Dwarkadas Kapadia vs. CIT reported in 260 ITR 491.
(i) The assessee has not filed its return of income for A.Ys. 2008-09 and 2009-10. This shows willful breach of Law on the part of the assessee. Unless any return is filed, there is no way in which the income of the assessee can be known to the department. Therefore, in order to pre-emt any possibility of the income escaping assessment, the registration date is to be treated as date of transfer. Also it is obvious that the said property sale could not have come to notice, if it was not registered. (ii) Although all the payments were made in F.Y. 2008-09 the transaction was completed by executing registration of the agreement on 27.05.2009 i.e. F.Y. 2009-10. Hence, transfer of the property has taken place in F.Y. 2009-10 and so chargeability of capital gain also arises in A.Y. 2010-11 relevant to F.Y. 2009-10. (iii) As per the payment schedule given and also verified from the bank statement last payment was made only on 31.03.2009. (iv) The assessee's claim that he has given possession on 31.03.2009 is not substantiated from the payment receipt which is just on a plain paper and also not part of agreement. (v) The said property was a tenanted property since 01.01.1985 and had acquired ownership rights by extinguishing tenancy rights on 14.03.2005 by making payment of Rs.1,50,000/-. From this, it is very clear that assessee has paid Rs.1,50,000/- for conversion of tenancy right to ownership on 14.03.2005. The said document was registered with the registrar on 14.03.2005 by paying consideration of Rs.1,50,000/- only. Hence the cost of acquisition of the property comes only to Rs. 1,50,000/-. (vi) Assessee's claim for cost of acquisition of Rs.78,97,500/- is baseless since assessee has made payment of Rs. 1,50,000/- for acquiring the ownership rights over the property. Hence the cost of acquisition of the property comes only to Rs. 1,50,000/-and assessee's claim to consider market price of the property on date of extinguishing tenancy right as cost of acquisition to the assessee cannot be accepted. (vii) The assessee relied upon the judgement of jurisdictional High Court in the case of Chaturbhuj Dwarkadas Kapadia vs. CIT [260 ITR 491] wherein the issue decided was in respect of Development Agreement" which is not applicable to assessee's case.”
Damji J. Gala ;A. Y.2010-11 2.5.1. The Ld.AO thus computed the addition at Rs.81,04,721/- by considering the sale value as per section 50C of the act at Rs.83,02,221/- by reducing the index cost of acquisition at Rs.1,50,000/-. Aggrieved by the order of the Ld.AO assessee preferred appeal before the Ld. CIT(A).
3. The assessee challenged the reopening of the assessment as well as the addition made in the hands of the assessee. The Ld. CIT(A) decided the issues raised by observing as under: “7. Decision: All the information available on record alongwith the impugned assessment order and the grounds of appeal
and the submission of appellant on various dates as filed by the appellant in this case has been considered. The ground wise issues are discussed as under: 7.1 Grounds of appeal number 1 to 4: Vide ground nos 1 to 4 of appeal, the appellant has claimed that the A.O. has erred in law issuing notice u/s 148 of the Act in mechanical manner and without formation of belief that income liable to tax has escaped assessment. The appellant has also alleged that the objection on the points raised by the by him have not been disposed and prayed that the assessment under section 148 be declared illegal & bad in law. 7.1.1 The submission made by the appellant has been perused. It is observed that the payment in respect of the alleged property was made during the A.Y. 2009-10 but the property was legally transferred by an instrument dated 27.05.2009. The appellant had submitted the declaration regarding receipt of sum of Rs. 45,00,000/- by various cheques on plain paper. The persons who have signed as witness are certifying that the payment in respect of shop is received by the appellant. In the same paper after the signature of witness, the declaration is given by Sh. Manilal Malshi Shah and Ashok Malshi Shah that they have taken the vacant possession of the shop. This declaration is without any witness. The declaration given by Sh. Manilal Malshi Shah and Ashok Malshi Shah is on plain paper and not attested by witnesses, cannot be considered as valid piece of evidence in respect of taking over the vacant possession of the shop. Moreover, the declaration given by the appellant nowhere suggests that after receiving the amount of Rs. 45,00,000/-, the vacant Page |
10. Damji J. Gala ;A. Y.2010-11 possession of the shop was handed over to Sh. Manilal Malshi Shah and Ashok Malshi Shah. It clearly indicates that the declaration regarding vacant possession of the shop is afterthought and made to show that the property was transferred in the A.Y. 2008-09. However, it is noticed that the appellant had released his legal right over the property vide sale deed dated 27.05.2009 during the A.Y. 2010-11 and accordingly, it is held that the property was transferred in the A.Y. 2010-11. Further, the AO had issued notice u/s 148 of the Act after receiving the intimation from the AO of Sh. Ashok M. Shah. Since the appellant had not filed any return of income for the relevant assessment year, the AO had reason to believe that the income received by the appellant on account of sale of above property has escaped assessment and accordingly, notice u/s 148 of the Act was issued to the appellant. With regard to the disposal of objections to the notice u/s 148 of the Act, it is noticed that the appellant had raised his objections on 03.10.2017 which were duly disposed of by the AO vide speaking order dated 09.10.2017. Therefore, no infirmity is found in the action of the AO in initiating the assessment proceedings u/s 147 of the Act. The case laws cited by the appellant are not applicable as the facts of this case are different. Hence, no merit is found in the claims made by the appellant in these grounds. Accordingly, the ground nos 1 to 4 of appeal are dismissed. 7.2 Grounds of appeal number 5,6,7 and 10: Vide ground nos 5,6,7 and 10 of the appeal, the appellant has claimed that the AO has erred in considering the date of registration (FY 09-10) as date of transfer without considering the fact that possession and all payments has been effected in (FY 08-09). The appellant has cited Hon'ble High Court, Bombay in the case of Chaturbhuj Dwarkadas Kapadia vs. CIT (260 ITR 491) in support of his arguments. 7.2.1 The submission made by the appellant has been perused. It is observed that the payment in respect of the alleged property was made during the AY 2009-10 but the property was legally transferred by an instrument dated 27.05.2009. The appellant had submitted the declaration regarding receipt of sum of Rs. 45,00,000/- by various cheques on plain paper. The persons who have signed as witness are certifying that the payment in respect of shop is received by the appellant. In the same paper after the signature of witness, the declaration is given by Sh. Manilal Malshi Shah and Ashok Malshi Shah that they have taken the vacant possession of the shop. This declaration is without any witness. The declaration given by the Sh. Manilal Malshi Shah and Ashok Malshi Shah is on plain paper and not attested by witnesses, cannot be considered as valid piece of evidence in respect of vacant possession of the shop. Moreover, the declaration given by the appellant nowhere suggests that after receiving the amount of Rs. 45,00,000/-, the vacant possession of the shop was handed over to Sh. Manilal Malshi Shah and Ashok Malshi Page |
11. Damji J. Gala ;A. Y.2010-11 Shah. The appellant has not filed any other evidence to justify that the vacant possession of the shop was given before 31.03.2009. In the absence of any valid documentary evidences, no infirmity is found in the action of the AO in treating the date of registration of sale deed i.e. 27.05.2009 as date of transfer of the property. The case laws cited by the appellant are not applicable as the facts of this case are different. Hence, no merit is found in the claims made by the appellant in these grounds. Accordingly, the ground nos 5,6,7 and 10 of appeal are dismissed. 7.3 Grounds of appeal number 8, 9 and 11: Vide ground nos 8,9 and 11 of the appeal, the appellant has claimed that the AO has erred in not treating market value of the property as on 14/3/2005 as the acquisition cost of the property. Further, the appellant has also alleged that the AO has also erred in treating the cost on conversion of tenancy rights to ownership rights as cost of acquisition and failed to understand that tenancy and ownership right are not the same right. The appellant has cited Hon'ble ITAT Mumbai in the case of Mrs. Tauqeer Fatema Rizvi vs ITO in appeal no in support of his arguments. 7.3.1 The submission of the appellant along with the assessment order has been examined. The case of the appellant is on the different footing than the case cited by the appellant. The case of the appellant is that the ownership of the tenanted property was acquired by paying a cost of Rs. 1,50,000/- whereas in the cases cited by the appellant, the tenancy rights were relinquished under Development Agreement with the condition that new flats will be given as an alternate accommodation for surrendering the tenancy rights in the old structure by the builder. Accordingly, it was held that the market value of the said flat as on the date of its possession would be the cost of its acquisition. In the present case the appellant has not surrendered his tenancy rights under any development agreement but by paying Rs. 1,50,000/- became absolute owner of the property. Therefore, the cost of acquisition of the property in the hands of the appellant will be taken at Rs. 1,50,000/- and not the market value of the property on the date of acquisition. Accordingly, no infirmity is noticed in the AO's action of considering the cost of acquisition of the property at Rs. 1,50,000/-. Therefore, no merit is found in the claims made by the appellant in these grounds. Accordingly, the ground nos 8,9 and 11 of appeal are dismissed. 7.4 Grounds of appeal number 12: Vide ground no 12 of the appeal, the appellant has claimed that the AO has erred in not referring the matter to DVO in spite of objections by the appellant against the market value and taking sales value as ready reckoner value. 7.4.1 The submission made by the appellant in this regard has been perused and not found in order. It is observed that during the course of Page |
12. Damji J. Gala ;A. Y.2010-11 assessment proceedings the appellant has neither raised any objection for valuation of the property nor submitted any request to refer the matter to DVO. In the absence of any objection from the appellant regarding market value of the property, the AO has no reason to refer the matter to DVO. Accordingly, no infirmity is noticed in the AO's action of considering the market value of the property as sale consideration for calculation of capital gain. Therefore, no merit is found in the claims made by the appellant in this ground. Accordingly, the ground no 12 of appeal is dismissed. 7.5 Grounds of appeal number 13: Vide Ground No 13 of the appeal, the appellant has requested to add to, alter, amend, modify, substitute, delete and/or rescind all or any of the ground of appeal on or before the final hearing. Since, the appellant has not submitted any request to amend the appeal; therefore, this ground of appeal is not entertained.” Aggrieved by the order of Ld. CIT(A) assessee is in appeal before this Tribunal.
4. Ground no 1-2 raised by the assessee is on the validity of the issuance of notice u/s. 148 of the act. The Ld.AR submitted that, the reasons recorded does not state any material other than information received from another assessing officer to hold that, income of assessee as escaped assessment. Ld.AR submitted that, the reasons recorded also do not contain any details of any payment or date of transfer or date of possession etc. to determine the year of chargeability. He thus contended that the reasons recorded are weak and not proper in the absence of tangible material. 4.1. The Ld.AR submitted that the reopening is based on the borrowed satisfaction and that the Ld.AO has not applied his mind to the fact that the market value has to be considered for the year in which the payment is made and not in the year of registration.
Damji J. Gala ;A. Y.2010-11 He placed reliance on following decision on support of this contention. “1. Arvind Sahdeo Gupta vs ITO (4793/2021of Bombay high court) 2. M/S. Ingram Micro(India) exports PTE Ltd. vs DCIT(2920/2016 of Bombay high court) 3. Fomento Resorts & Hotels Ltd Vs.ACIT (63/2017 of Bombay high court of goa) 4. Karan Khurana Delhi vs ITO[ ITA NO.1783/Del./2019] 5. Pioneer Town Planners Pvt. Ltd Vs DCIT (ITA No.132/Del/2018) 6. Aaishwarya Dying Mills Pvt Ltd vs The DCIT (22523/2017 of Gujrat high court) 7. Aaishwarya Dying Mills Pvt Ltd vs The DCIT(SC) 8. Shri Anil Singhal Vs ITO (ITA No.2044/Del/2017)” 4.2. On the contrary the Ld.DR vehemently opposed the submission of the Ld.AR. He submitted that, the assessee had not filed original return of income for the year under consideration. Therefore based on the information received from the investigation wing the Ld.AO was right in his capacity to issue notice u/s. 148 of the act. It is submitted by the Ld.DR that, in the absence of the original return of income for the year under consideration, there was prima facie reason to believe that income has escaped assessment. It is submitted by the Ld.DR that notice has been issued to the assessee beyond the period of 4 years, and as per the information received the income that is stated to have escaped assessment is more than Rs.1,00,000/-. He thus submitted that, it was thus incumbent upon the Ld.AO to verify the details of the immovable property sold Damji J. Gala ;A. Y.2010-11 by the assessee based on the registered document on 27.05.2009. The Ld.DR thus relied on the observations of Ld. CIT(A) in support of reopening of the assessment.
We have perused the submissions advanced by both sides in light of records placed before us.
Hon’ble Bombay High Court in case of CIT vs. Jet Airways reported in (2010) 195 taxman 197, following observation of Hon’ble Court clinches the issue that is raised for consideration before this Tribunal in the present facts of the case.:
“5. The condition precedent to the exercise of the jurisdiction under section 147 is the formation of a reason to believe by the Assessing Officer that any income chargeable to tax has escaped assessment. Upon the formation of a reason to believe, the Assessing Officer, before making the assessment, reassessment or recomputation under section 147, has to serve a notice on the assessee requiring him to furnish a return of his income. Upon the formation of the reason to believe that income chargeable to tax has escaped assessment, the Assessing Officer is empowered to assess or to reassess such income 'and also' any other income chargeable to tax which has escaped assessment and which comes to his notice subsequently in the course of the proceedings under section 147.
6. The memorandum states that some of the Courts have held that the Assessing Officer has to restrict the reassessment proceedings only to issues in respect of which reasons have been recorded for reopening the assessment, and that it is not open to him to touch upon any other issue for which no reasons have been recorded. This interpretation was regarded by the Parliament as being contrary to the legislative intent. Hence, the Explanation 3 came to be inserted to provide that the Assessing Officer may assess or reassess income in respect of any issue which comes to his notice subsequently in the course of proceedings under section 147, though the reasons for such issue have not been included in the reasons recorded in the notice under section 148(2). ….
The effect of section 147, as it now stands after the amendment of 2009, can, therefore, be summarised as follows : (i) the Assessing Officer must have reason to believe that any income chargeable to tax has escaped assessment for any assessment year; (ii) upon the formation of that belief and before he proceeds to Page | 15 Damji J. Gala ;A. Y.2010-11 make an assessment, reassessment or recomputation, the Assessing Officer has to serve a notice on the assessee under sub-section (1) of section 148; (iii) the Assessing Officer may assess or reassess such income, which he has reason to believe, has escaped assessment and also any other income chargeable to tax which has escaped assessment and which comes to his notice subsequently in the course of the proceedings under the section; and (iv) though the notice under section 148(2) does not include a particular issue with respect to which income has escaped assessment, yet he may nonetheless, assess or reassess the income in respect of any issue which has escaped assessment and which comes to his notice subsequently in the course of the proceedings under the section. ……… 11. The rival submissions which have been urged on behalf of the revenue and the assessee can be dealt with, both as a matter of first principle, interpreting the section as it stands and on the basis of precedents on the subject. Interpreting the provision as it stands and without adding or deducting from the words used by Parliament, it is clear that upon the formation of a reason to believe under section 147 and following the issuance of a notice under section 148, the Assessing Officer has the power to assess or reassess the income, which he has reason to believe had escaped assessment and also any other income chargeable to tax. The words "and also" cannot be ignored. The interpretation which the Court places on the provision should not result in diluting the effect of these words or rendering any part of the language used by Parliament otiose. Parliament having used the words "assess or reassess such income and also any other income chargeable to tax which has escaped assessment", the words "and also" cannot be read as being in the alternative. On the contrary, the correct interpretation would be to regard those words as being conjunctive and cumulative. It is of some significance that Parliament has not used the word "or". The Legislature did not rest content by merely using the word "and". The words "and", as well as "also" have been used together and in conjunction. The Shorter Oxford Dictionary defines the expression "also" to mean 'further, in addition, besides, too'. The word has been treated as being relative and conjunctive. Evidently, therefore, what Parliament intends by use of the words "and also" is that the Assessing Officer, upon the formation of a reason to believe under section 147 and the issuance of a notice under section 148(2) must assess or reassess: (i) 'such income'; and also (ii) any other income chargeable to tax which has escaped assessment and which comes to his notice subsequently in the course of the proceedings under the section. The words 'such income' refer to the income chargeable to tax which has escaped assessment and in respect of which the Assessing Officer has formed a reason to believe that it has escaped assessment. Hence, the language which has been used by Parliament is indicative of the position that the assessment or reassessment must be in respect of the income in respect of which he has formed a reason to believe that it has Page | 16 Damji J. Gala ;A. Y.2010-11 escaped assessment and also in respect of any other income which comes to his notice subsequently during the course of the proceedings as having escaped assessment. 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 CIT v. Sun Engg. Works (P.) Ltd. [1992] 198 ITR 2971 , the Supreme Court dealt with the following question of law in the course of its judgment:— "Where an item unconnected with the escapement of income has been concluded finally against the assessee, how far in reassessment on an escaped item of income is it open to the assessee to seek a review of the concluded item for the purpose of computation of the escaped income?" The issue which arose before the Supreme Court was whether, in the course of a reassessment on an escaped item of income could an assessee seek a review in respect of an item which stood concluded in the original order of assessment. The Supreme Court dealt with the provisions of section 147, as they stood prior to the amendment on 1-4-1989. The Supreme Court held that the expression "escaped assessment" includes both "non-assessment" as well as "under assessment". Income is said to have escaped assessment within the meaning of the section when it has not been charged in the hands of an assessee during the relevant assessment year. The expression "assess" refers to a situation where the assessment of the assessee for a particular year is, for the first time, made by resorting to the provisions of section 147. The expression "reassess" refers to a situation where an assessment has already been made but the Assessing Officer has reason to believe that there is under assessment on account of the existence of any of the grounds contemplated by Explanation 1 to section 147. The Supreme Court adverted to the Judgment in V. Jaganmohan Rao v. CIT [1970] 75 ITR 373, which held that once an assessment is validly reopened, the previous under assessment is set aside and the Income-tax Officer has the jurisdiction and duty to levy tax on the entire income that had escaped assessment during the previous year. The Court held that the object of section 147 enures to the benefit of the revenue and it is not open to the assessee to convert the reassessment Page | 17 Damji J. Gala ;A. Y.2010-11 proceedings as an appeal or revision and thereby seek relief in respect of items which were rejected earlier or in respect of items not claimed during the course of the original assessment proceedings. The judgment in V. Jaganmohan Rao's case (supra) dealt with the language of sections 22(2) and 34 of the Act of 1922 while the judgment in Sun Engg. Works (P.) Ltd.'s case (supra) interprets the provisions of section 147 as they stood prior to the amendment on 1-4-1989.
The effect of the amended provisions came to be considered in two distinct lines of precedent on the subject. The first line of authority, to which a reference has already been made earlier, adopted the principle that where the Assessing Officer has formed a reason to believe that income has escaped assessment and has issued a notice under section 148 on certain specific issues, it was not open to him during the course of the proceedings for assessment or reassessment to assess or reassess any other income, which may have escaped assessment but which did not form the subject-matter of the notice under section 148. This view was adopted in the Judgment of the Punjab and Haryana High Court in Vipan Khanna's case (supra) and in the judgment of the Kerala High Court in Travancore Cements Ltd.'s case (supra). This line of authority, would now cease to reflect the correct position in law, by virtue of the amendment which has been brought in by the insertion of Explanation 3 to section 147 by Finance (No. 2) Act of 2009. The effect of the Explanation is that once an Assessing Officer has formed a reason to believe that income chargeable to tax has escaped assessment and has proceeded to issue a notice under section 148, it is open to him to assess or reassess income in respect of any other issue though the reasons for such issue had not been included in the reasons recorded under section 148(2).
The second line of precedent is reflected in a judgment of the Rajasthan High Court in CIT v. Shri Ram Singh [2008] 306 ITR 343 . The Rajasthan High Court construed the words used by Parliament in section 147 particularly the words that the Assessing Officer 'may assess or reassess such income and also any other income chargeable to tax which has escaped assessment and which comes to his notice subsequently in the course of the proceedings' under section 147. The Rajasthan High Court held as follows : ". . . if is only when, in proceedings under section 147 the Assessing Officer, assesses or reassesses any income chargeable to tax, which has escaped assessment for any assessment year, with respect to which he had "reason to believe" to be so, then, only in addition, he can also put to tax, the other income, chargeable to tax, which has escaped assessment, and which has come to his notice subsequently, in the course of proceedings under section 147. To clarify it further, or to put it in other words, in our opinion, if in the course of proceedings under section 147, the Assessing Officer were to come to the conclusion, that any income chargeable to tax, which, according to his "reason to believe", had escaped Page | 18 Damji J. Gala ;A. Y.2010-11 assessment for any assessment year, did not escape assessment, then, the mere fact that the Assessing Officer entertained a reason to believe, albeit even a genuine reason to believe, would not continue to vest him with the jurisdiction, to subject to tax, any other income, chargeable to tax, which the Assessing Officer may find to have escaped assessment, and which may come to his notice subsequently, in the course of proceedings under section 147."
Parliament, when it enacted the Explanation (3) to section 147 by the Finance (No. 2) Act, 2009 clearly had before it both the lines of precedent on the subject. The precedent dealt with two separate questions. When it effected the amendment by bringing in Explanation 3 to section 147, Parliament stepped in to correct what it regarded as an interpretational error in the view which was taken by certain courts that the Assessing Officer has to restrict the assessment or reassessment proceedings only to the issues in respect of which reasons were recorded for reopening the assessment. The corrective exercise embarked upon by "Parliament in the form of Explanation 3 consequently provides that the Assessing Officer may assess or reassess the income in respect of any issue which comes to his notice subsequently in the course of the proceedings though the reasons for such issue were not included in the notice under section 148(2). The decisions of the Kerala High Court in Travancore Cements Ltd.'s case (supra) and of the Punjab & Haryana High Court in Vipan Khanna's case (supra) would, therefore, no longer hold the field. However, insofar as the second line of authority is concerned, which is reflected in the judgment of the Rajasthan High Court in Shri Ram Singh's case (supra), Explanation 3 as inserted by Parliament would not take away the basis of that decision. The view which was taken by the Rajasthan High Court was also taken in another judgment of the Punjab & Haryana High Court in CIT v. Atlas Cycle Industries [1989] 180 ITR 3191. The decision in Atlas Cycle Industries' case (supra) held that the Assessing Officer did not have jurisdiction to proceed with the reassessment, once he found that the two grounds mentioned in the notice under section 148 were incorrect or non- existent. The decisions of the Punjab & Haryana High Court in Atlas Cycle Industries' case (supra) and of the Rajasthan High Court in Shri Ram Singh's case (supra) would not be affected by the amendment brought in by the insertion of Explanation 3 to section 147.
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 Page | 19 Damji J. Gala ;A. Y.2010-11 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.” 5.1. The above decision was rendered for assessment years prior to the amendment by the Finance Act (No. 2) of 2009, clearly drawing distinction between pre and post 2009 provisions. The present facts before us pertain to assessment year 2010-11. 5.2. Admittedly, the assessee did not file original return of income under section 139(1) of the Act for the year under consideration. It is also an admitted position that even for the immediately preceding assessment year the assessee did not file return for the reason that, there was no taxable income. The case of the assessee, thus clearly falls under section 147(a), because there was no full and true disclosure of all the primary facts necessary for assessment. 5.2.1. Under section 147(a) of the Act, the assessing officer may, subject to the provisions of ss. 148 to 153, assess or reassess such income or recomputed the loss or the depreciation allowance, as the case may be, for the assessment year concerned, if the assessing Damji J. Gala ;A. Y.2010-11 officer has reason to believe that income chargeable to tax has escaped assessment for that assessment year by reason of the omission or failure on the part of an assessee to make a return under section 139 of the act for that assessment year. The assessee is thus legally bound to disclose fully and truly all material facts necessary for its assessment. In other words, if the assessee does not discloses all the primary facts necessary for its assessment and the assessing officer subsequently draws inferences some other facts come to his knowledge, such a case attract section 147(a). Similarly, if the primary facts are fully and truly disclosed and the authority draws some inferences therefrom, then the same authority or the successor cannot change its inferences from the same set of primary facts by changing its earlier opinion and resort to s. 147(a) 5.3. In present facts of the case notice under section 148 was issued to the assessee on 29/03/2017, beyond 4 years. At the time of issuance of the notice under section 148 of the Act, there need not be conclusive evidence for reopening the assessment. Mere reason to believe that income has escaped assessment confers jurisdiction on the Ld.AO to reopen the assessment. It does not mean that there should be an ascertainment of fact by any evidence or conclusion. Be that as it may, in the present facts, as the assessee had not filed any return of income for the year under consideration or the preceding assessment year, it was not possible to ascertain any facts of the transaction that came to the knowledge of the Ld.AO from the information received from investigation wing. Page | 21 Damji J. Gala ;A. Y.2010-11 The mere fact that the assessee registered a document of sale of immovable property during the financial year relevant to the assessment year under consideration was sufficient to form a belief that income has escaped assessment. 5.4. The objections raised by the assessee for reopening of the assessment is on the merits of the addition. And the order disposing off the objections passed by the Ld.AO, categorically dismissed the contentions of the assessee on the first principles of law. We are therefore of the opinion that the decisions relied by the Ld.AR in the paper book and in the written submission placed in the paper book are factually distinguishable. Accordingly Grounds 1-6 raised by the assessee stands dismissed.
Grounds 7-15 are on merits of the addition. The Ld.AR argued that the assessee received entire consideration in the preceding assessment year and only registration of the Deed of Transfer took place in financial year relevant to the assessment year under consideration. He thus submitted that, transfer of the property took place in AY 2009 -10. In support he relied on the decision of Hon’ble Bombay High Court in case of Chaturbhuj Dwarakadas Kapadia Vs.CIT reported in 260 ITR 491. The Ld.AR thus contended that, the capital gains cannot be held taxable in the hands of the assessee for the year under consideration.
Damji J. Gala ;A. Y.2010-11 6.1. On the contrary the Ld.DR submitted that, facts in present case is different with that of the decision of Hon’ble Bombay High Court in case of Chaturbhuj Dwarakadas Kapadia Vs.CIT (supra). He thus relied on the observations of the Ld.CIT(A). He submitted that in the facts before Hon'ble Bombay High Court, were that of the Joint Development of Land and BMC issued commencement certificate permitting construction of the building upto plinth level. Hon'ble court held that merely because plan was subsequently amended, the year of taxability will not shift to the subsequent year, because the builder was found to be in possession of the property in the year when BMC issued commencement certificate. The Ld.DR thus submitted that there is nothing in the present facts to show that the purchasers were in possession of the immovable property sold by the assessee except for the receipt relied by the Ld.AR placed at page 48 and the statement signed by the purchasers dated 31/03/2009 which is an afterthought. We have perused the submission advanced by both sides in light of records placed before us.
Admittedly, the immovable property was registered by the assessee in the name of the purchaser vide agreement dated 27/05/2009 placed at page 29 to 47 of the paper book. Page 48 receipt of the consideration received by the assessee has been given with an endorsement by the purchasers of having received the vacant and exclusive possession of the shop from the assessee on Damji J. Gala ;A. Y.2010-11 31/03/2009. Be that as it may, the purchasers would be able to transfer the property in their names with the local authorities for electricity meter, property tax etc., only after the Deed of Transfer was registered. 7.1. The importance of the word "transfer" is due to the reason that under the charging section 45, the capital gain is taxable on "transfer of a capital asset". This section prescribes that "any profits or gains arising from the transfer of a capital asset effected in the previous year shall be chargeable to income-tax under the head capital gains and shall be deemed to be the income of the previous year in which the transfer took place". Thus, the fundamental features which determine the taxability of capital gain are that the gain ought to be from the “transfer” of the capital asset. 7.2. When the capital asset is an immovable property by reason of the provisions contained in the Transfer of Property Act, read with the Registration Act, transfer of an immovable property of the nature dealt with herein requires an instrument which is also required to be registered. In accordance with the provisions of the Income-tax Act, read with the various instructions/ clarifications/directions issued by CBDT from time-to-time, transfer will take effect in a situation as provided in section 53A of the Transfer of Property Act, namely, when there is an agreement to transfer and, in part performance thereof, the transferee is in possession of the immovable property agreed to be transferred.
Damji J. Gala ;A. Y.2010-11 Thus, if the contract read as a whole, indicates passing of or transferring of complete control over the property in favour of the purchasers, then the date of contract would be relevant to decide the year of chargeability. 7.3. In the instant case, there was no conveyance or any kind of agreement by the assessee in favour of the purchasers, nor there was any agreement between the assessee and the purchasers to support the contention of that pursuant to payment of total consideration, and, the alledged immovable property will be in possession of the purchasers. Even the Deed of Transfer registered, is silent about such intention. The receipt of the payments forms part of the registered document at page 40. Further there is a condition stipulated in the Deed of Transfer dated 25/09/2009 that, the assessee will cause the Trust at his own cost to execute requisite deeds, documents and papers in favour of the Purchasers for transferring and vesting such undivided share in the asset sold in favour of the purchasers. 7.4. In our view, based on the above factual position, transfer of alledged property by the assessee as per section 2(47) of the act, r.w. section 53A of the Transfer of Property Act, took place only upon execution of the Deed of Transfer dated 25/09/2007. The decisions relied by the Ld.AR in the grounds of appeal and those relied in the written submissions filed in the paper book are therefore distinguishable on facts. Those decision are rendered on Damji J. Gala ;A. Y.2010-11 facts, where there is an interest, right to title transfer due to part performance created by a purchaser/ developer as the case may be, in an under construction property or in a case of Development Agreement. Such decision cannot be applicable to the present facts of the case. We are, therefore, of the view that there is no reason to interfere with the view taken by the Ld.CIT(A) in this regards.