ACIT, NEW DELHI vs. SH ARVIND KHANNA, NEW DELHI

PER SUDHANSHU SRIVASTAVA, J.M.

ITA No. 1702/Del/2012 has been preferred by the Department

against the order dated 31/01/2012 passed by the ld. Commissioner of

Income Tax (Appeals)-XXXI, New Delhi for AY 2007-08. ITA No.

1703/Del/2012 has been preferred by the Department against the order

dated 31/01/2012 passed by the ld. Commissioner of Income Tax

(Appeals)-XXXI, New Delhi for AY 2004-05, whereas the CO No.

205/Del/2012 has been preferred by the assessee in AY 2004-05. Since

all these appeals were heard together they are being disposed of through

this common order.

Original return for AY 2004-05 was filed on 01/11/2004 declaring net

income of Rs. 2,637,860/-. Subsequently, a notice u/s 148 was issued

on 11/12/2006 and the income was assessed at Rs. 18,102,210/- after

making an addition on account of gifts received amounting to Rs. ITA Nos. 1702, 1703/D/12 & CO 205/D/12 Page 2 of 12

15,464,351/- from Shri Vipin Khanna as unexplained investment.

Aggrieved, the assessee challenged the additions before the ld. CIT

(Appeals) on merits and also challenged the validity of the initiation of

reassessment proceedings. The ld. CIT (Appeals) dismissed the

assessee’s plea on the legal issue of the validity of reassessment

proceedings but deleted the addition on merits. On further appeal by

the department before the ITAT, the ITAT upheld the action of the ld.

CIT (Appeals). On still further appeal by the department before the

Hon’ble Delhi High Court, the matter was remitted back to the Ld. CIT

(Appeals) vide order dated 15/04/2015 for the limited purpose of

examining/verifying the documents relied upon by the assessee to prove

the validity of the gifts received.

the following reasons:

“2. On perusal of records, it is observed that Sh. Arvind Khanna has received Rs. 4,71,56,251/- as gift from his father Sh. Vipin Khanna in his Standard Charted Bank SB account no. 52210021264 from abroad. But, in the assessment order u/s 148/143(3) dated 31.12.2007 there is addition of Rs. ITA Nos. 1702, 1703/D/12 & CO 205/D/12 Page 3 of 12

1,54,64,351/- was made on account of unexplained gifts received. The balance amount of Rs. 3,16,91,900/- remained unexplained and same had to be added in the assessed income, which has escaped assessment. 3. Further, during the assessment for the A.Y. 2006-07, it is noticed that the assessee filed a declaration that “the entire consideration of Rs. 8,24,83,333/- for purchase of 83987 equity share of M/s Trojan Developers P. Ltd. was provided by me as gift to my wife Mrs. Shagun Khanna” and he further filed the payment schedule of the payments made to Gyan Enterprises P. Ltd., Asha Burman and Amit Burman as sale consideration for purchasing the shares of Trojan Developer P. Ltd.

To determine the correct value of the Property which was the only owned asset of the M/s Trojan Developers P. Ltd, a reference was sent to the Valuation Officer u/s 55A of the I T. Act, subsequent to the issue of the notice u/s 148 dt. 24.09.2007. An order u/s 55A of the IT. Act, 1961 read with, section 16A(5) of the wealth Tax Act, 1957 was received which indicated that the fair market value on the date of the transfer (i.e. 30.10.2003) was determined at Rs: 9,87,08,000/-. Therefore it became apparent that a concern that had assets worth net asset value at Rs. 9,87,08,000/- would not be transferred for any sum below this amount and this gave rise to the belief that besides the amount shown as paid by the purchase party, a sum of Rs. 1,62,08,000/- was also paid as on money, over and above the declared value of the shares.

ITA Nos. 1702, 1703/D/12 & CO 205/D/12 Page 4 of 12

Therefore, the difference between sale price disclosed and price determined by valuer is added to the income of the assessee in the proportion of payment made as per payment schedule. The assessee made payment in different F.Y. as below: - F.Y. Amount 2003-04 40,00,000/- 2004-05 1,00,00,000/- 2005-06 4,74,83,333/- 2006-07 2.10,00,000/- 8,24,83,333/- The ratio of payment made by the assessee during different F.Ys is worked out as 40:100:475:210 = 8:20:95:42 as per this ratio the undisclosed amount of investment for the A.Y. 2004-05 comes to Rs. 9,87,08,000—Rs. 8,25,00,000= 1,62,08,000 x 8/165=Rs.7,85,842. Therefore, as already mentioned that Sh. Arvind Khanna paid the total sale consideration on behalf of Smt. Shagun Khanna for purchase of M/s Trojan Developers P Ltd. therefore, an amount of Rs. 7,85,8421/- is escaped income of Shri Arvind Khanna for A.Y. 04-05 and which was not earlier brought to tax.”

ITA Nos. 1702, 1703/D/12 & CO 205/D/12 Page 5 of 12

challenging the legality of the reassessment proceedings as well as on merits.

The ld. CIT (Appeals) dismissed the assessee’s legal ground challenging the

initiation of reassessment proceedings. However, on merits the additions were

deleted. Now the department has challenged the impugned action of the ld.

CIT (Appeals) in deleting the addition of Rs. 31,691,000/- and Rs. 785,842/-

and the assessee has challenged the upholding of initiation of reassessment

proceedings u/s 147/148 of the Act through the CO. As the outcome of the CO

will determine the outcome of the Departmental appeal also, we first proceed to

adjudicate on the CO of the assessee.

to entitle him with the jurisdiction to re-open the assessment for a second time.

It was submitted that all facts in relation to receipt of Rs. 47,156,521/- as gifts

received was on record at the time of the original assessment proceedings and

had been duly considered in the assessment itself. No new facts or material had

come into possession of the department subsequent to the passing of the

original assessment order. It was submitted that the AO had, after considering

the material on record, made an addition of Rs. 15,464,251/- in the original

assessment proceedings and, therefore, proceeding to reassess the balance

ITA Nos. 1702, 1703/D/12 & CO 205/D/12 Page 6 of 12

amount of gifts in a second round of re-assessment was not legally tenable. It

was further underlined that the addition of Rs. 15,464,251/ -was subsequently

deleted by the Ld. CIT (A) on merits. The Ld. AR also submitted that

objections raised by the assessee against the reassessment proceedings were

also not disposed of by the AO through a speaking order and hence the

reassessment proceedings deserve to be quashed. It was further submitted that

the second addition of Rs. 785,842/- made on the basis of valuation report has

been deleted by the Ld. CIT (A) in AY 06-07 and this order of the Ld. CIT (A)

has been upheld by the ITAT.

reassessment proceedings had been initiated rightly.

perusal of the reasons recorded by the AO clearly shows that the assessment

originally completed u/s 143(3) of the Act were reopened by him without any

new material or information which could be said to have come into his

possession after the completion of the original assessment. It is very much

clear that the assessment was reopened on the basis of fresh application of

mind to the same material which was available even at the time of original

ITA Nos. 1702, 1703/D/12 & CO 205/D/12 Page 7 of 12

assessment. It is amply clear on the facts of the case that the initiation of

reassessment proceedings was based on a mere change of opinion of the AO

which is not permissible in law. When a regular assessment is passed in terms

of provisions of section 143(3), presumption can be raised that such an order

has been passed on application of mind by the AO and subsequent to that there

lies nothing in the mouth of the AO to say that such an order was passed

without application of mind and thus to confer jurisdiction upon him to reopen

the proceedings. It is a well settled law that power u/s 147 of the Act cannot be

used to review an earlier order. The Hon’ble Delhi High Court in the case of

CIT vs. Kelvinator of India Ltd., 256 ITR 1 has held as under:

“When a regular assessment is passed in terms of sub-section (3) of sec. 143, a presumption can be raised that such an order has been passed on application of mind. Such a presumption can be raised in terms of clause (e) of sec. 114 of the Indian Evidence Act, 1872 that such an Act has been regularly performed. If it be held that an order which has been passed purportedly without application of mind would itself confirm jurisdiction upon the AO to reopen the proceedings without anything further, the same would amount to giving a premium to an authority exercising quasi judicial function to take benefit of its own working. Hence it is clear that sec. 147 of the Act does not postulate conferment of power upon the AO to reinitiate reassessment proceedings upon a mere change of opinion which is not permissible.”

ITA Nos. 1702, 1703/D/12 & CO 205/D/12 Page 8 of 12

High Court in the case of Kelvinator of India Ltd. (supra) in its decision in CIT

vs. Kelvinator of India Ltd., 320 ITR 561 (SC). The Hon’ble Apex Court held

as under: “However, one needs to give schematic interpretation to the words reason to belief failing which, we are afraid, section 147 would give arbitrary powers to the Assessing Officer through reopening assessments on the basis of mere change of opinion, which cannot be per se reason to reopen. We must also keep in mind the conceptual difference between power to review and power to reassess. The AO has no power to review; he has the power to reassess. But reassessment has to be based on fulfillment of pre-conditions and if the concept of change of opinion is removed, as contended on behalf of the department, then, in the garb of reopening of assessment, review would take place. One must beat the concept of change of opinion as an inbuilt test to check abuse of power by the AO”.

437 (SC) laid down the following principles: a) “The powers of the AO to reopen an assessment, though wide, are not plenary;

b) The words of the statute are reason to believe and not reason to suspect;

c) The reopening of an assessment after the lapse of many years is a serious matter. Since the finality of a judicial or quasi judicial proceedings are sought to be disturbed, it is essential that before taking ITA Nos. 1702, 1703/D/12 & CO 205/D/12 Page 9 of 12

action of reopen the assessment, the requirements of the law should be satisfied;

d) The reasons to believe must have a material bearing on the question on escapement of income. It does not mean a purely subjective satisfaction of the assessing authorities; the reason be held in good faith and cannot merely be a pretence;

e) The reasons to believe must have a rational connection with or relevant bearing on the formation of the belief. Rational connection postulates that there must be a direct nexus or live link between the material giving to the notice of the AO and the formation is believed regarding escapement of income.

f) The fact that the words definite information which were there in sec. 34 of the Act 1922 before 1948, are not there in sec. 147 of the1961 Act, would not lead to the conclusion that action can now be taken for reopening an assessment even if the information is wholly vague, indefinite, farfetched or remote”.

as the judicial pronouncements as discussed aforesaid, we have no hesitation in

holding that from the reasons recorded it is very much clear that there was no

fresh material available with the AO when he reopened the assessment which

was originally completed u/s 143(3). It is very much a change of opinion by

the AO and his action is not legally tenable. The issue of gifts was considered

by the AO at length and an addition was made which was subsequently deleted

by the Ld. CIT (A). Thereafter, the AO again proceeded to reassess the gifted

ITA Nos. 1702, 1703/D/12 & CO 205/D/12 Page 10 of 12

amount on the same set of facts and records which were already before him. As

far as the addition on account of difference in valuation is concerned, it is seen

that the AO proceeded to issue the notice for reassessment without having any

proof whatsoever on record to establish that some amount over and above the

disclosed amount was paid by the assessee for purchase of shares. Thus, the

AO proceeded only on a reason to suspect rather than on a reason to believe.

Hence, we have no hesitation in holding that the reassessment proceedings

cannot be sustained and we quash the same.

1703/Del/2013 is not maintainable and the same is dismissed.

Department is dismissed.

In this appeal, the Department has agitated the deletion of addition made u/s

69A for Rs. 26,476,472/- by the Ld. CIT (A) vide order dated 31.01.2012 for

AY 2007-08.

ITA Nos. 1702, 1703/D/12 & CO 205/D/12 Page 11 of 12

Order pronounced in the open court on 05/08/2016 Sd/- Sd/- (G.D. AGRAWAL) (SUDHANSHU SRIVASTAVA) VICE PRESIDENT JUDICIAL MEMBER Dated: 05/08/2016 *Kavita Arora