ACIT, CHENNAI vs. CHETTINAD STRUCTURAL & ENGINEERING LTD., CHENNAI

आदेश / O R D E R PER CHANDRA POOJARI, ACCOUNTANT MEMBER

This appeal of the Revenue is directed against the order of

the Commissioner of Income-tax (Appeals)-1, Chennai dated

20.09.2016 pertaining to assessment year 2006-07.

ITA No.3443/Mds./16 :- 2 -:

re-opening of assessment u/s.147 of the Act.

income for assessment year 2006-07 on 29.11.2006. As per the

statement of facts furnished by the assessee before us, the

assessment was completed u/s.143(3) of the Act on 26.12.2008

accepting the total income of assessee at `2,61,22,804/-. The AO

found that the assessee had sold 5,22,050 sq.ft. of land for a

residential project and out of which 2,10,405/- sq.ft. was considered

as non-saleable area and that the assessee had included the cost of

land of 2,10,405 sq.ft. in the computation of capital gains. Therefore,

the AO reopened the assessment u/s.147 by issue of notice u/s.148

dated 26.03.2013 and the assessment u/s.143(3) r.w.s. 147 of the Act

was completed on 31.03.2014 determining total income at

`2,95,05,500/- with certain additions. Reasons recorded for re-opening

of assessment u/s.147 of the Act is communicated to assessee vide

letter dated 08.05.2013 by the AO as follow:-

“Assessee has sold 5,22,050 sq.ft. of land with residential project out of which 21,405 sq. ft. was considered non- saleable. The transfer of title of the non-saleable area has not been disclosed fully. However, in the computation of capital gains, the assessee has excluded the cost of land of 21,405 sq.ft.. To that extent there is an understatement of income.

ITA No.3443/Mds./16 :- 3 -:

Hence, there is a reason to believe that the income has escaped assessment.”

While computing the assessment u/s.143(3), the AO made the

following disallowances:-

Disallowance u/s.40(a)(ia) 14,55,500

Profit on sale of assets 19,26,712

Aggrieved by the order of ld. Assessing Officer, the assessee carried

the appeal before the Ld.CIT(A). On appeal, the Ld.CIT(A) quashed

the re-assessment order. Thereafter, CIT(A) deleted the addition

also. Against the order of Ld.CIT(A), now the Revenue is in appeal

before us.

complete disclosure of the facts regarding the land gifted to

Tiruchirappali Corporation vide gift deed 1573/2005 and the

proportionate cost of the land gifted cannot be debited to P&L A/c. So,

there is no change of opinion on this issue of reopening of assessment

and the re-opening of assessment is to be considered as valid.

Further, ld.D.R submitted that re-opening was not violative of proviso

to Sec.147 for the reason that the assessee was fully aware of the

nature of transactions and had not furnished full facts during the

ITA No.3443/Mds./16 :- 4 -:

original assessment proceedings for treating the share transactions as

investment transactions. He relied in the judgment of Bombay High

Court in the case of Export Credit Corporation of India Ltd in 30

Taxmann.com 211 (2013) wherein it was held that the failure of the

AO to apply his mind during original assessment proceedings to points

on which the assessment is sought to be reopened would form

tangible material and reasons to believe that income has escaped

assessment , is very much relevant to the facts of this case.

the assessment after expiry of 4 years from the end of the relevant

assessment year and also mere change of opinion is bad in law.

Further, ld.A.R submitted that the power to reopen an assessment is

conditional on the formation of a reason to believe that income

chargeable to tax has escaped assessment . The power is not akin to a

review. Ld.A.R pleaded that the AO had discussed and verified the

total income of assessee and accepted it as it is in the original

assessment . Thus, he had applied his mind when passing original

assessment order for assessment year 2006-07. Further, ld.A.R relied

on the letter dated 24.12.2008 filed before AO which contains the

details of the plot sold and expenses wherein the computation of cost

of the lands sold were furnished. Cost of lands sold interalia include

ITA No.3443/Mds./16 :- 5 -:

cost of lands (Non-saleable) gifted to Tiruchirappali Corporation while

obtaining approval for layouts. Further, he raised to the objection to

the ground No.2.3 raised by the AO that the assessee had not

furnished full facts for treating the shares transactions as investment

transactions during assessment proceedings as there were no such

transactions entered into by the assessee and facts stated by AO is

totally not connected the assessee’s case.

record. The main contention of ld.A.R is that in this case the original

assessment was completed u/s.143(3) of the Act. The assessee has

furnished all details to the AO at the time of filing of return of income

and according to the A.R, there was no failure on the part of the

assessee to disclose all material facts necessary for the purpose of

assessment. He submitted that the reopening vide notice u/s.148 of

the Act dated 26.03.2013, it is only a change of opinion. He submitted

that the AO going through the same documents, which were already

on record, wanted to re-open the assessment, which is nothing but

review of the earlier opinion, which is not possible u/s.147 of the Act.

In this case, the assessment was reopened after recording the reasons

that there was an escapement of income with reference to non-

disclose of transfer of non-saleable area of land, while computing

capital gains.

ITA No.3443/Mds./16 :- 6 -:

7.1 Admittedly in this case, there was original assessment

u/s.143(3) of the Act was completed on 26.12.2008. It is a settled

law that on the basis of material, prima facie, available before the

Assessing Officer, opined that income chargeable to tax has escaped

assessment can be formed. The word ‘reason’ in the phrase ‘reason to

believe’ would mean cause or justification. In case the Assessing

Officer has a cause or justification to know or suppose that income has

escaped assessment, action u/s 148 can be taken. But obviously, there

should be relevant material on which a reasonable man could have

formed a requisite belief. Whether this material(s) would conclusively

prove the escapement of income is not the concern at that particular

stage. So what is required is the subjective satisfaction of the

Assessing Officer based on objective material evidence. The reason

was recorded as discussed above. The argument of the ld.AR is that

where there was no fresh tangible material to reopen the assessment

u/s 147, no action could be taken after the expiry of four years from

the end of the relevant assessment year unless the assessee has

disclosed fully and truly all material facts necessary for the assessment

for that assessment year, inter alia.

ITA No.3443/Mds./16 :- 7 -:

7.2 As seen from the assessment order, it gives a clear picture

that the Assessing Officer has got material evidence to form his

opinion for taking recourse to section 147 r.w.s 148 of the Act. There

cannot be two opinions. At the point of time when the reasons are

recorded, forming opinion of ‘escapement of income’ is only relevant.

Hence, this plea of the ld.AR is not tenable in the eyes of law. It is true

that u/s 147, the Assessing Officer can either assess or re-assess but

for taking action there under, he has to record reasons that income

chargeable to tax has escaped assessment . It is also mandated by

section 148(2) to record reasons in writing. The reassessment

proceedings u/s 147 are further subject to sections

148,149,150,151,152 and 153. But in the present case, we are

required to decide the limited issue regarding the validity of

proceedings undertaken after four years of the assessment year in

question. The Assessing Officer is required to see if the conditions laid

in Explanation 2(c) are satisfied because in this case no assessment

was completed u/s 143(3) of the Act. In case, (i) income chargeable

to tax has been under assessed; or (ii) such income has been assessed

at too low rate; or (iii) such income has been made the subjective of

excess relief under this Act; or (iv)excessive loss or depreciation

allowance or any other allowance under this Act has been computed,

then the Assessing Officer would have valid cognizance u/s 147 of the

ITA No.3443/Mds./16 :- 8 -:

Act. The reasons recorded by the Assessing Officer clearly speak for

the under assessment of tax hence, the conditions laid above stand

fulfilled in so far as re-assessment proceedings are concerned. In so

far as the reasons recorded, extracted in the earlier portion of this

order, we are satisfied that the Assessing Officer has ‘reason to

believe’ that income has escaped assessment. This fact confers

jurisdiction on him to reopen the assessment. The power to re-assess

post 1st April, 1989 are much wider than these used to be before. But

still the schematic interpretation of the words ‘reason to believe’ failing

which section 147 would give arbitrarily powers to the Assessing

Officer to reopen the assessment on the basis of mere change of

opinion, which cannot be, per se a reason to reopen the case. The Act

has not given power to the Assessing Officer to review but has only

given power to re-assess. There is a conceptual difference between

the two aspects as the Assessing Officer has no power at all to review

the assessment. The reassessment, as stated above, has to be based

on fulfillment of certain pre-conditions but the concept ‘change of

opinion’ has to be taken into consideration otherwise it may give

unbridled power to an Assessing Officer to reopen any and every

assessment order which would simply amount to a review. The

concept ‘change of opinion’ is an in-built test to check the abuse of

power by the Assessing Officer. So, now only when the Assessing

ITA No.3443/Mds./16 :- 9 -:

Officer has a tangible material to base his conclusion that there is an

escapement of income from assessment and the reasons recorded

have a link with the formation of his belief, he has the power u/s 147

of the Act.

7.3 In the present case, the assessee has not shown transfer

of non-saleable area measuring 2,10,405 sq.ft. As per Explanation 2

of Section147, it is very clear that due to non-disclosure of this by the

assessee, the income chargeable to tax had escaped assessment. The

assessee has not produced anything before the Commissioner of

Income Tax (Appeals) to show as to how there is no incidence of tax

in this assessment year. Hence, the action of Commissioner of Income

Tax (Appeals) and that of Assessing Officer is fully covered by the

provisions of Explanation 1 to Section 147 of the Act is not correct.

The said provision reads as under:

‘’Production before the Assessing Officer of accounts books or other evidence from which material evidence could with due diligence have been discovered by the Assessing Officer will not necessarily amount to disclosure within the meaning of the foregoing proviso’’.

It is possible that with due diligence of the Assessing Officer would

have ascertained this fact at the time of assessment, if any also, but in

view of the explanation (1) it does not mean that there was no default

on the part of the assessee. Hence, reopening u/s.147 is held to be

ITA No.3443/Mds./16 :- 10 -:

valid. The assessee has tried to take shelter under the exception

provided in that section. But as stated above, when the assessee has

not disclosed fully and truly the facts necessary for the assessment

and there is no assessment u/s.143(3) of the Act, this proviso will not

come to its rescue. Consequently, we hold that the entire

reassessment proceeding in this case is valid and therefore, the action

of the Assessing Officer is upheld. This ground of Revenue is allowed.

cost of the gifted land was required to be included in the cost of

acquisition while arriving at the profit of saleable lands.

8.1 The facts of the issue are that the assessee had sold

5,22,050 sq.ft. of land for a residential project and out of which

2,10,405/- sq.ft. was considered as non-saleable area and that the

assessee had included the cost of land of 2,10,405 sq.ft. in the

computation of capital gains. When the AO asked the assessee whey

the cost of acquisition of 2,10,405 sq. ft. should not be excluded in the

computation of capital gains. In response, the assessee replied that

the said lands had been treated as stock-in-trade in the books and not

as fixed assets. Hence, the profit on sale of such lands had been

offered as “business income” and not as “income from capital gains”.

The AO rejected the assessee’s contention and had mentioned the

ITA No.3443/Mds./16 :- 11 -:

income as profit on sale of land as capital gains. The total profit on

sale of plots was arrived at by the AO as under:-

Total area 5,22,050 sft Non-saleable area 2,10,405 sft Salebale area 3,11,645 sft Total cost as per assessee’s working Rs.98,75,029 Cost per sq.ft. (4/1) Rs.18.92 Area of land sold during the year 1,50,880 sft Cost of land ( 5 x 6) 28,54,650 Selling rate as per assessee Rs.70 sft Cost per sq.f.t (5) Rs.18.92 Profit per sq.ft. (8-9) Rs.51.08 Total profit on sale of 1,50,880 sq.ft Rs.77,06,950

The difference of Rs.19,26,712/- ( Rs.77,06,950/- -Rs.57,80,238/-

(considered by the assessee in P&L A/c ) was added by the AO to the

total income of assessee. Aggrieved by the order of ld. Assessing

Officer, the assessee carried the appeal before the Ld.CIT(A).

8.2 On appeal, Ld.CIT(A) observed that there is no dispute that

the assessee surrendered 2,10,405 sq. ft. to the local authorities

towards public utility as a part of approved layout for residential

purpose. Further, Ld.CIT(A) observer that the gift of land without

which the project could not be completed had to be charged to the

profits of the assessee. Hence, the cost of the said surrendered area

was absorbed as cost of saleable portion of the land as per the

generally accepted accounting principles and recognized

ITA No.3443/Mds./16 :- 12 -:

proportionately in the year of sale. According to Ld.CIT(A), surrender

of land to Tiruchirappali Corporation is mandatory before the assessee

could proceed with developing the housing sites. Therefore, the

Ld.CIT(A) came to a conclusion that gifting of land is sine qua non for

getting DTCP approval for selling plots in the form and as per lay out

and set aside the order of AO. Against the order of Ld.CIT(A), now the

Revenue is in appeal before us.

record. The Ld.CIT(A) observed that there is a pre-condition by

Tiruchirappali Corporation to gift the land measuring 2,10,405 sq. ft so

as to get DTCP approval for selling plots as per lay out. The assessee

has not brought on record any material to suggest such gifting of land

to Tiruchirappali Corporation. The Ld.CIT(A) had not mentioned on the

basis of which he came to the conclusion that there is a condition by

Tiruchirappali Corporation regarding surrendering of 2,10,405 sq. ft.

Being so, it is appropriate to remit the issue to the file of AO to

examine the condition laid down by the Tiruchirappali Corporation

before sanctioning the approval of the residential lay out. Once there is

a pre-condition from the Tiruchirappali Corporation, then only the

claim of assessee could be allowed. With this observation, we remit

the issue to the file of ld. Assessing Officer for fresh consideration.

ITA No.3443/Mds./16 :- 13 -:

` 14,55,500/- u/s.40(a)(ia) of the Act.

disbursed an amount of `14,55,500/- to sub-contractors Shri Algari

and 6 others after the stipulated time u/s.200(1) of the Act.

Therefore, the AO disallowed the same on the reason that the tax has

been remitted to the government much after the prescribed time limit

u/s.200(1) of the Act. Aggrieved by the order of ld. Assessing Officer,

the assessee carried the appeal before the Ld.CIT(A). On appeal, the

Ld.CIT(A) observed that TDS on a sum of `14,55,500/- disbursed to

sub-contractors was deposited beyond the due date but before filing of

the return. Ld.CIT(A) placing reliance in the case of I.T.O. Vs.

M/s.Susira engg. Industries P Ltd. in ITA No.1594/Mds./2012 for

assessment year 2009-10 dated 30.10.2012, deleted the disallowance.

Against the order of Ld.CIT(A), now the Revenue is in appeal before

us.

TDS amount before the time limit specified u/s.200(1) r.w.Rule 30.

Further, ld.D.R submitted that the amendment to Sec.40(a)(ia)

specifying that disallowance u/s.40(a)(ia) need not be made if

ITA No.3443/Mds./16 :- 14 -:

remittance of TDS amounts are made before the filing of return of

income, was subsequently through Finance Act 2010 and therefore is

not applicable to the assessment year 2006-07.

contemplated disallowance, only when tax had not been deducted or

deducted but not paid within due date u/s.200(1) of the Act.

Sec.220(1) r.w.Rule 30 as it stood then, provides a time limit only in

respect of tax deducted at source. Thus, the date of payment reckoned

from the date of deduction is all well within the time and hence

disallowance cannot be made. Further, ld.A.R submitted that the

amendment to Sec.40(a)(ia) by Finance Act 2010 whereby no

disallowance would be made if after deduction of tax during the

previous year, the same has been paid on or before the due date of

filing of return u/s.139(1). Thus, the provision is made applicable

effective assessment year 2010-11 and subsequent years, the

amendments being curative in nature, its effect need to be read

retrospectively in operation.

record. Accordingly, if the assessee did not deduct TDS and remit to

the Central Government account, then AO could invoke the provisions

of the section 40(a)(ia) of the Act and expenditure could be

ITA No.3443/Mds./16 :- 15 -:

disallowed. This view is also fortified by the Supreme Court decision in the case of Palm Gas Securities Vs. CIT in Civil Appeal No.5512 to 5517 dated 03.05.2017. However, the argument of the ld.A.R is that it is duly remitted by the assessee before due date of filing of return of income. Accordingly, we remit the issue to the file of AO to examine whether the assessee is actually remitted the TDs before the due date of filing of return of income. At this stage, this issue is remitted to the file of AO for fresh consideration.

Order pronounced on 12th July, 2017, at Chennai.

Sd/- Sd/- (धु�वु� आर.एल रे�डी) (चं� पूजार�) (DUVVURU RL REDDY)) (CHANDRA POOJARI) �या�यक सद�य/JUDICIAL MEMBER लेखा सद�य /ACCOUNTANT MEMBER चे�नई/Chennai �दनांक/Dated: 12th July, 2017. K S Sundaram

आदेश क� ��त�ल�प अ�े�षत/Copy to: 1. अपीलाथ�/Appellant 3. आयकर आयु�त (अपील)/CIT(A) 5. �वभागीय ��त�न�ध/DR 2. ��यथ�/Respondent 4. आयकर आयु�त/CIT 6. गाड� फाईल/GF