DEPUTY COMMISSIONER OF INCOME TAX, JAIPUR vs. M/S MAN PRAKASH TALKIES PVT. LTD., JAIPUR

“2 Whereas looking to the demand for showroom and offices in multistoried buildings situated at good location, Owner herein decided to develop a multistoried commercial complex on the said plot of land in accordance with the rules, regulation and building bye laws of the local authorities, and the State Government" The above clause clearly shows that the intent of the assessee was to develop its property into a commercial complex to harvest 'the demand for showrooms and offices in multistoried buildings situated at good location' (reference clause 2 supra).

Thus, a conscious decision to change the use of land from 'cinema hall' to commercial' was taken and prior to the date of signing the Development Agreement on 12 December 2001, the land had was done as part of a deliberate, preplanned move to enter into an adventure in the nature of trade in respect of the land situated at good location. Since the assessee's intention was to develop its land into a commercial complex and earn profit by selling shops & offices at the complex, it is apparent that when it got the land use changed from 'cinema hall to commercial, the said land got converted to stock in trade. Hence, the provisions of section 45(2) get invoked. Now, the quantification of income from business and profession as per section 45(2) needs to be done.

Ld. AO further noted that the terms of Development Agreement, the assessee received half share of constructed complex (50086.73 sq. feet built up area, Portion A of Golcha Trade Centre, the building constructed on land on which the erstwhile cinema hall stood) in lieu of half portion of land (Le the stock in trade) sold or otherwise transferred by it to the developer in May, 2007. Hence, for the purpose of section 45(2), the said 'stock in trade was sold or otherwise transferred in the FY 2007-08, relevant to AY 2008-09.

The valuation of the assessee's portion of the constructed building (and not the land on which it was constructed) was got value was determined at Rs. 18,49,76,342/-. This value, thus, constitutes the 'transfer consideration for commercial land (i.e. stock in trade) which is required to be considered for computation as 'Income from Business and Profession'. Out of this consideration, the Fair Market Value of the asset on the date of conversion shall be deducted. In this case, the conversion took place in the 2001-02, as recorded in the Development Agreement dated 12.12.2001. Thus, adopting the DLC rate of Rs.66,500/- per sq metre for the year 2001, FMV of the asset on the date of conversion comes to Rs. 16,06,14,125/-, which shall be reduced from the aforementioned consideration for computing the profit and gain from business and profession in terms of section 45(2) read with section 48.

Thus, the income u/s 45(2) on this issue comes to Rs.

2,43,62,217/- which is added back to live assessee's income under the head business and profession. As against capital gain of Rs. 2,01,69,487/- shown by the assessee.

11. Ld. AO further observed that the assessee sold a shop no. GF 8A for a sum of Rs.36,25,870/- and has declared shown short term capital gain of Rs. 10,12,630/-, as per computation of income not make any expenditure for construction of its portion A of Golcha Trade Centre, because as per Development Agreement, whole expenditure to develop the building was to be incurred by the developer company. Thus, purchase price of the shop for the assessee company was Nil. Further, since the said property is a commercial complex, profit arising out of sale of shops situated in the complex should have been declared as business income rather than Short Term Capital Gain. Hence, the business income that would arise from selling the shop will be Rs.36,25,870/- not Rs. 10,12,630/- as shown by the assessee, and this income should be treated as business income and not income from short term capital gain as claimed by the assessee.

12. As the assessee got converted the land use of its cinema house land from 'cinema' to 'commercial' in the year 2001.

However, the long term capital gain will be charged in the year in which sale consideration thereof was received in the shape of built- up commercial complex. The full value of consideration for the purpose of section 48 read with section 45(2) shall be the Fair Market Value (FMV) on the date of conversion (2001), as computed at Rs.16,06,14,125/-, Further, the cost of acquisition will Index on the date of conversion (2001). The assessee had got its 'Land Only' valued through Registered Valuer, Sh.Govind Singh Bapna on 13.04.2009. According to this valuation Report, the entire land i.e. 4830.50 sq.meters) has been valued as on 1.4.1981 at Rs. 2,99,10,456/-, adopting the Sub-Registrar rate of Rs.6192/-

per sq. meter. Thus, the value as on 1.4.1981, of the half portion of the entire land i.e. 2415.25 sq.meters [which was transferred to (or otherwise rights thereof surrendered to) the developer for constructing their portion of the commercial complex] comes to Rs.

Accordingly, as against the return of income of Rs.

2,00,29,764/-, assessed income was determined at Rs. 11,91,43,500/-. the assessee filed an appeal before the ld. CIT(A). Apropos to the grounds so raised by the assessee the relevant finding of the ld. CIT(A) is reiterated here in below:

Finding of ld. CIT(A) on the ground of re-opening of the assessment 3.1.2 Determination: (i) I have duly considered the submissions of the appellant, assessment order and the material placed on record. In this case, the appellant has filed its return of income on 29.03.2010 declaring total income at Rs. 2,00,29,760/- having income from interest, dividend, long term and short term capital gain on shares, capital gain on sale of shops etc. It would not be out of place to mention here that in its computation of income, for the year under consideration, the appellant has shown long term capital gains at Rs. 2,01,69,487/- and short term capital gains at Rs. 10,12,630/- as per the following details:

(ii) Further, during the original assessment proceedings, vide letter dated 13.10.2010, it was submitted by the appellant that: "3. That the company owned leasehold land admeasuring 5720 Sq. yds. Company decided that the complex to be constructed on the said land and & 407/JP/2018 & CO Nos.11 & 12/JP/2018 DCIT vs. M/s Man Prakash Talikies Pvt. Ltd. entered developers agreement with Golecha Build Tech P. Ltd. Photo copy of the same has already been filed. Full land was handed over to them for development. As per developers agreement we get half portion of constructed shops from them on 15.04.2007/02.05.2007 marked 'A' rest half portion remains with them marked 'B' complete plan and measurement of each shop floorwise are enclosed. The total constructed cost of our half portion is taken for Rs. 184976342/- as per valuers report. Photo copy enclosed.

4. Calculation of Long Term Capital gain on land as under: - (Amount in Rs.)

(iii) The original assessment was completed u/s 143(3) of the Act on 03.12.2010 at the returned income. Subsequently, the AO has initiated proceedings u/s 147 of the Act and has issued notice dated 31.03.2015 �/� 148 of the Act after recording the reasons for initiation of proceedings u/s 147 of the Act as reproduced hereunder: "(a) The assessee M/s Manprakash Talkies Pvt. Ltd. was earning Income from Cinema Hall in the past assessment years and had shown its Income under the head Business & Profession. It got "the land use changed from cinema- hall' to 'commercial complex' after which on 12 December 2001 it entered into a development agreement with M/s Golcha Buildtech Pvt Ltd' (developer) for construction of commercial complex. Between FY 2001-02 and FY 2007-08, the developer demolished the Cinema Hall and constructed a commercial complex (over the land earlier held as Cinema Hall) and in May, 2007 it transferred 50% share of the constructed portion of the commercial building named Golcha Business Centre (GTC) to the assessee company in lieu of half portion of land (on which the Cinema Hall existed earlier). As per Development Agreement, all the expenses regarding approvals from competent authorities etc were to be borne by the developer from the time of signing of agreement upto handing over of assessee's portion of commercial complex. If the assessee company had sold the entire land of cinema hall as such, then the & 407/JP/2018 & CO Nos.11 & 12/JP/2018 DCIT vs. M/s Man Prakash Talikies Pvt. Ltd. assessee company could be said to have earned income • from capital gain. In the present case, it got the land use changed from 'cinema hall' to 'commercial' with a deliberate intent to enjoy the benefits of the said land through construction and subsequent sale of shops and showrooms thereon. Clause 2 of the Development Agreement dated 12 December, 2001 states as follows:

2. Whereas looking to the demand for showroom and offices in multistoried buildings situated at good location, Owner herein decided to develop a multistoried commercial complex on the said plot of land in accordance with the rules, regulation and building bye laws of the local authorities, and the State Government"

The above clause clearly shows that the intent of the assessee (i.e. the owner) was to develop its property into a commercial complex to harvest 'the demand for showrooms and offices In multistoried buildings situated at good location'. Thus, the decision to change the use of land from 'cinema hall' to commercial was taken and prior to the date of signing Development Agreement on 12 December 2001, the land had been cleared for commercial use. Thus, the change of land use was done as part of the assessee's deliberate, preplanned move to enter into an adventure in the nature of trade in respect of the land 'situated at good location'. Since the intention of the assessee was to develop its land into a commercial complex and earn profit by selling shops & offices at the complex, so the Income from this activity should have been treated as income from business & profession. As per the terms of Development Agreement, the assessee (i.e. the owner) received its half share of constructed complex in lieu of half portion of land surrendered to the developer. This, in effect, was the first instance of reaping the harvest of its 'adventure in the nature of trade' with respect to the prime land it owned and got converted to commercial land. The valuation of assessee's portion of the constructed building (and not the land on which it was constructed) was got done and the value was determined at Rs. 18,49,76,342/-. This value constitutes the 'transfer consideration for commercial land which should have been declared as 'Income from Business and Profession rather than Long Term Capital Gain as declared by the lessee. The assessee has computed Long Term Capital Gain at Rs.2.01,69,487/- after deducting indexed cost of land (which in itself has been computed by the Valuer on a rough estimate basis by taking DLC rate of 1973 and notionally increasing it by 20% for each year upto 1981). Thus, it is seen that income amounting to Rs. 16,48,06,855/- has escaped assessment.

(b) On perusal of computation of income it is observed that the assessee had sold a shop no. GF 8A and had shown short term capital gain of Rs. 10,12,630/-. The assessee company had been handed over the constructed commercial complex including the aforesaid shop by M/s Golcha Buildtech Pvt. Ltd. (developer). It did not make any expenditure on its own because as per development agreement whole expenditure to develop the building was to & 407/JP/2018 & CO Nos.11 & 12/JP/2018 DCIT vs. M/s Man Prakash Talikies Pvt. Ltd. be incurred by the developer company. Thus, purchase price of the shop for the assessee company was Nil. Further, since the said property is a commercial complex, profit arising out of sale of shops situated in the complex should have been declared as business income rather than Short Term Capital Gain. Hence, the business income that would arises from selling the shop will be Rs. 36,25,870/- not Rs. 10,12.630/- as shown by the assessee, and this income would be treated as business income and not income from short term capital gain as claimed by the assessee. Hence, I have reason to believe that income of Rs. 16,48,06,855/- + Rs.36,25,870/- Rs. 16,84,32,725/- has escaped assessment. Thus it is a fit case for issue of notice u/s 148 of the Act."

(iv) Before proceeding further, it would be appropriate to reproduce hereunder the provisions of section 147 of the Act as under: "147. If the Assessing Officer has reason to believe that any income chargeable to tax has escaped assessment for any assessment year, he may, subject to the provisions of sections 148 to 153, 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 this section, or recompute the loss or the depreciation allowance or any other allowance, as the case may be, for the assessment year concerned (hereafter in this section and in sections 148 to 153 referred to as the relevant assessment year): Provided that where an assessment under sub-section (3) of section 143 or this section has been made for the relevant assessment year, no action shall be taken under this section after the expiry of four years from the end of the relevant assessment year, unless any income chargeable to tax has escaped assessment for such assessment year by reason of the failure on the part of the assessee to make a return under section 139 or in response to a notice issued under sub-section (1) of section 142 or section 148 or to disclose fully and truly all material facts necessary for his assessment, for that assessment year:

Provided further that nothing contained in the first proviso shall apply in a case where any income in relation to any asset (including financial interest in any entity) located outside India, chargeable to tax, has escaped assessment for any assessment year Provided also that the Assessing Officer may assess or reassess such income, other than the income involving matters which are the subject matters of any appeal, reference or revision, which is chargeable to tax and has escaped assessment."

(v) It is noted from the reasons recorded by the AO for initiating proceedings u/s 147 of the Act that the AO has relied heavily on clause 2 of the development agreement dated 12.12.2001 which is reproduced as under:

& 407/JP/2018 & CO Nos.11 & 12/JP/2018 DCIT vs. M/s Man Prakash Talikies Pvt. Ltd. "2. Whereas looking to the demand for showroom and offices in multistoried buildings situated at good location, Owner herein decided to develop a multistoried commercial complex on the said plot of land in accordance with the rules, regulation and building bye laws of the local authorities, and the State Government"

(vi) On the basis of the above clause, the AO has come to the conclusion that it was the intention of the appellant (i.e. the owner) to develop its property into a commercial complex to harvest 'the demand for showrooms and offices in multistoried buildings situated at good location'. Thus, the decision to change the use of land from 'cinema hall' to commercial' was done as part of the appellant's deliberate, preplanned move to enter into an adventure in the nature of trade in respect of the land 'situated at good location' and thus, the Income from this activity should have been treated as income from business and profession.

(vii) It was the contention of the appellant that the reopening was based on the change of opinion. It is noted that in its computation of income, the appellant has shown long term capital gain at Rs. 2,01,69,487/- and short term capital gain on sale of shop at Rs. 10,12,630/-. It is noted that vide notice dated 23.09.2010 issued u/s142(1) of the Act, the AO has required the appellant to file various details relating to long/short term capital gain in relation to sale of immovable properties, copy of agreement with Golcha Build Tech P Ltd for development of property, details of advances received for booking of shops etc. The details, including the copy of development agreement dated 12.12.2001 with M/s Golcha Build Tech P Ltd, were submitted by the appellant vide letters dated 17.03.2010, 08.10.2010 and 13.10.2010. Thus, all the material facts were before the AO, at the time of original assessment proceedings and no adverse inference was drawn by the AO thereof and the returned income was accepted in the assessment order. Therefore, on the basis of re-appreciation of the facts already on record, the AO has initiated proceedings u/s 147 of the Act, which tantamount to change of opinion, which is not permissible in the eyes of law. Reliance is being placed on the following judicial pronouncements:

(a) In the case of Amrit Corp. Ltd. Vs Addl. CIT 2014] 46 taxmann.com 32 (Allahabad), the similar facts were there and it was held by the Hon'ble High Court of Allahabad that: x x x x & 407/JP/2018 & CO Nos.11 & 12/JP/2018 DCIT vs. M/s Man Prakash Talikies Pvt. Ltd. (b) In the case of CIT Vs Kelvinator of India Ltd. [2002] 123 Taxman 433 (Delhi) (FB), it was held by the Full Bench of Hon'ble High Court of Delhi that an order of assessment can be passed either in terms of sub- section (1) of section 143 or sub-section (3) of section 143. When a regular order of assessment is passed in terms of the said sub- section (3) of section 143, a presumption can be raised that such an order has been passed on application of mind. It is well-known that a presumption can also be raised to the effect that in terms of clause (e) of section 114 of the Indian Evidence Act the judicial and official acts have been regularly performed. If it be held that an order which has been passed purportedly without application of mind would itself confer jurisdiction upon the Assessing Officer to reopen the proceeding without anything further, the same would amount to giving premium to an authority exercising quasi-judicial function to take benefit of its own wrong.

(c) The above judgement of Full Bench of Hon'ble High Court of Delhi has been affirmed by the Hon'ble Apex Court in the case of CIT Vs Kelvinator of India Ltd. [2010] 187 Taxman 312 (SC), wherein it was held by the Hon'ble Apex Court that: x x x x (d) On the similar issue, in the case of CIT vs. Chaitanya Properties (P.) Ltd. [2016] 67 taxmann.com 201 (Karnataka), it was held by the Hon’ble High Court (head note) that: x x x x (e) In the case of Spunpipe and Construction Co. vs. ACIT [2014] 44 taxmann.com 409 (Gujarat), it was held by the Hon’ble High Court that: x x x x (f) In the case of CIT vs. Usha International Ltd. [2002] 25 taxmann.com 200 (Delhi) (FB), it has been held by the Full Bench of Hon’ble High Court of Delhi that: x x x x (g) In the case of Manan Exports (P.) Ltd. vs. ITO [2017] 78 taxmann.com 225 (Gujarat), it was held by the Hon’ble High Court that: x x x x (h) In the case of ACIT vs. ICICI Securities Primary Dealership Ltd. [2012] 24 taxmann.com 310 (SC), it was held by the Hon’ble Apex Court that: x x x x (i) In the case of CIT vs. Hindustan Zinc Ltd. [2016] 70 taxmann.com 262 (Rajasthan), it has been held by the Hon’ble jurisdictional High Court of Rajasthan that: x x x x & 407/JP/2018 & CO Nos.11 & 12/JP/2018 DCIT vs. M/s Man Prakash Talikies Pvt. Ltd. (j) In the case of CIT vs. Vaishali Avenue [2014] 48 taxmann.com 289 (Rajasthan), it has been held by the Hon’ble jurisdictional High Court of Rajasthan that: x x x x (k) In the case of ACIT vs. Mangalam Cement Ltd. [2017] 78 taxmann.com 334 (Jaipur-Trib), it was held by the Hon’ble ITAT, Jaipur that (head note): x x x x (viii) In the instant case under consideration, the assessment was re- opened on 31.03.2015 i.e. after a period of four years from the end of relevant assessment year i.e. 2008-09. Therefore, the first proviso to section 147 of the Act is also applicable, according to which, an action u/s 147 of the Act can be taken only if the income has escaped assessment on account of the failure on the part of the assessee to disclose fully and truly all material facts necessary for his assessment, for that assessment year. It was the contention of the appellant that there was no failure on its part to disclose fully and truly all material facts necessary for its assessment. In its remand report, as reproduced earlier, it was stated by the AO that: "In this regard, the A/R has completely misunderstood the concept of "disclosing truly and fully relevant particulars of income in the Return of Income". As such, the assessee only disclosed LTCG on land and STCG on sale of shops in his return of income but as per accounting standards and provisions of Income Tax Act, the act of converting capital asset into stock in trade clearly instruct to show business income and LTCG in the Return of Income which was actually not reflected by assessee at all." (ix) Vide this office letter dated 21.12.2017, the AO was again required to submit its comments on this contention of the appellant. The relevant extracts of the above referred letter are reproduced as under: "Vide the above referred letter, you were required to submit your comments on four issues including the issue 'there was no evidence on record to show failure or omission on the part of the appellant to disclose truly and fully relevant particulars of income in the return of income." (x) However, vide its letter dated 22.12.2017, the AO has submitted a copy of the reasons recorded by the AO for initiating proceedings u/s 147 of the Act but chose not to comment on the contention of the appellant that there was no failure on its part to disclose fully and truly all material facts necessary for its assessment for the year under consideration.

(xi) It is evident from the reasons recorded by the AO that there was neither any whisper that the appellant has not disclosed all the material facts, fully and truly for its assessment nor the same is discernible from & 407/JP/2018 & CO Nos.11 & 12/JP/2018 DCIT vs. M/s Man Prakash Talikies Pvt. Ltd. these reasons. In fact, the AO has not stated anything in the reasons recorded for initiating proceedings u/s 147 of the Act that the appellant has not disclosed any particular fact truly or fully for the purpose of its assessment. In fact, there was no such allegation in the reasons recorded and it has not been stated by the AO, what material facts were not disclosed truly and fully by the appellant at the time of original assessment proceedings concluded u/s 143(3) of the Act. It would be appropriate to discuss some of the judicial pronouncement as under:- (a) In the case of CIT vs. Manish Ajmera [2011] 13 taxmann.com 132 (Rajasthan), it was held by the Hon’ble jurisdictional High Court of Rajasthan that: x x x x (b) In the case of PCIT vs. Light Carts (P) Ltd. [2017] 85 taxmann.com 331 (Allahabad), it was held by the Hon’ble High Court of Allahabad that: x x x x (c) In the case of Madras Suspensions Ltd. vs. DCIT [2017] 88 taxmann.com 256 (Madras), it was held by the Hon’ble High Court of Madras that: x x x x (d) In the case of Cadila Healthcare Ltd. vs. ACIT [2017] 85 taxmann.com 257 (Gujarat), it was held by the Hon’ble High Court of Gujarat that: x x x x (e) In the case of Oracle India (P.) Ltd. vs. ACIT [2017] 83 taxmann.com 368 (Delhi), it was held by the Hon’ble High Court of Delhi that: x x x x (f) In the case of CIT vs. Hindustan Zinc Ltd. [2016] 70 taxmann.com 262 (Rajasthan), it was held by the Hon’ble High Court of Rajasthan that: x x x x (g) In a recent decision dated 13.12.2017, in the case of Shri Navrattan Kothari vs. ACIT in it was held by the Hon’ble ITAT, Jaipur that: (xii) Therefore, in view of the above discussion and looking to the totality of facts and circumstances of the case, it is held that the initiation of proceedings u/s 147 of the Act by the AO for the year under consideration was not in conformity with the provisions of section 147 of the Act. Further, the assessment was reopened after 4 years from the end of the relevant assessment year, which was earlier completed u/s 143(3) of the Act, therefore, proviso to the section 147 of the Act is clearly applicable to the facts of the instant case under consideration.

& 407/JP/2018 & CO Nos.11 & 12/JP/2018 DCIT vs. M/s Man Prakash Talikies Pvt. Ltd. The AO has neither stated that there was default on the part of the appellant to disclose material facts truly and fully, which are necessary for its assessment nor it is discernible from the reasons recorded by the AO. Further, the AO has not stated in the reasons recorded for reopening the case of the appellant, what material facts were not disclosed by the appellant at the time of original assessment proceedings.

(xiii) Therefore, it could be concluded that the reassessment proceedings under consideration were initiated on the basis of re- appreciation of the same set of facts available on record and is nothing but merely change of opinion which could not be allowed in view of the various judicial pronouncements as discussed earlier in this order. Further, since original assessment was completed u/s 143(3) of the Act and the reassessment proceedings were initiated after four years from the end of the relevant assessment year, the proviso to Section 147 of the Act is also applicable. Further, there was no failure on the part of the appellant to disclose, truly and fully all material facts, which are necessary, for its assessment for the year under consideration at the time of original assessment proceedings, it is held that the conditions required for initiation of reassessment proceedings, as stipulated in the proviso to section 147 of the Act were not satisfied. Hence, in view of the above discussion, looking to the facts and circumstances of the case, it is held that the reassessment proceedings initiated by the AO under consideration were bad in law and consequently, the assessment order based on such bad initiation cannot be allowed to be sustained and thus, hereby quashed.

Finding of ld. CIT(A) on other technical ground such as service of notice, no opportunity, re-opening based on audit objections etc.

Finding of ld. CIT(A) 3.2.2 Determination

It has already been held in the earlier ground of appeal that the reassessment proceedings were bad in law. Therefore, these legal issues became academic in nature and hence, are not adjudicated.

Finding of ld. CIT(A) on the merits of the disputes i.e. whether the assets was converted into stock in trade or not 3.3.2 Determination & 407/JP/2018 & CO Nos.11 & 12/JP/2018 DCIT vs. M/s Man Prakash Talikies Pvt. Ltd. (i) I have duly considered the submission of the appellant, assessment order and the material placed on record. The appellant was engaged in the business of exhibiting films in the cinema hall known as “Man Prakash”. In the F.Y 1999-2000, it has decided to dismantle the cinema hall building and to build up commercial complex on the said land and for the purpose, necessary permission was sought from JDA. The appellant company for the development of commercial complex has entered into a development agreement with M/s Golcha Build Tech (P) Ltd. (the Developer) on 12.12.2001. As per this agreement, the building was to be constructed by the Developer and the built up portion was to be divided between the appellant and the developer in equal ratio. The Developer had to bear all the cost of construction and other expenses in relation to the construction of the commercial complex. The value of construction of the appellant portion was considered as consideration in lieu of right of the land underneath the constructed portion of the Developer i.e. there was exchange of assets and consequently, transfer u/s 2(47) of the Act. In the year under consideration, the office complex was completed and in its audited balance sheet for the year under consideration, the value of the constructed area apportioned to the appellant was shown as an "Investment". In its return of income, the appellant has shown long term capital gain of Rs. 2,01,69,487/- after taking sale consideration at Rs. 18,49,76,342/- and indexed cost of acquisition at Rs. 16,48,06,855/- in respect of area of the land beneath the constructed area given to the developer in the commercial complex and short term capital gain of Rs. 10,12,630/- on account of sale of one shop thereof. (ii) However, on the basis of clause 2 of the development agreement and change of use land from "Cinema Hall" to "Commercial", it has been concluded by the AO that the Fixed Asset i.e. capital asset’ has been converted into stock in Trade being Commercial use. The AO has invoked the provisions of section 45(2) of the Act and has computed the total capital gains at Rs. 9,59,33,469/- and business income at Rs. 2,79,88,087/- consisting of profit on account of sale of half potion of the plot (Rs. 2,43,62,271) (stock in trade) and on sale of shop (Rs. 36,25,870) as per the following details:

(iii) Before proceeding further, it would be appropriate to mention here, as observed from the development agreement dated 12.12.2001 that the lease for 5720 square yards of land upon which the cinema hall known as "Man Prakash" was built was allotted to Late Seth Shri Radha Krishan Chamaria on 20.01.1935 by the Jaipur Darbar for a lease of 99 years. During the life time of Shri Chamaria, the cinema house was constructed and after the death of Shri Chamaria, the lease was transferred in favour of the appellant company on 23.01.1995. Subsequently, the land use was changed from "cinema Hall" to "Commercial" and the above referred development agreement was executed by the appellant. It would be appropriate to reproduce some of the relevant clauses of the said agreement as under: "2. Whereas looking to the demand for showroom and offices in multistoried buildings situated at good location, owner herein decided to develop a multistoried commercial complex on the said plot of land in accordance with the rules, regulation and building by laws of the local authorities, and the State Government.

1. That it has been agreed to by and between both the parties that the owner and developer shall build a multistoried commercial complex in accordance with the permission given by the local authorities on the aforesaid plot of land described in the schedule hereunder written popularly known as Manprakash Cinema.

2. That the developer has agreed to keep with the owner a sum of Rs. 2.50 crores (Rupees Two Crores and Fifty Lacs) by way of interest free security deposit towards proper commencement and timely completion and development of the plot as per the stipulation made in the agreement and to secure due performance of the developer's obligations under this agreement. The security deposit shall be refunded on completion of the new building and making over of the owner's allocation to the owner in habitable condition in the new building and making over of the owner's allocation to the owner in habitable condition in the new building or builder will adjust this security amount of Rs. 2.50 crores by way of buy back of the part of the owner's allocation in the property at the rate mutually settled between parties. Developers has also agreed to pay to owner a sum of Rs. 2.00 crores (Rupees Two Crores Only) as consideration money (Non adjustable, no Refundable).

& 407/JP/2018 & CO Nos.11 & 12/JP/2018 DCIT vs. M/s Man Prakash Talikies Pvt. Ltd. 5. That the owner shall provide access to the developers to the said plot to carry out survey work to demarcate the necessary lay out, to mark the necessary points and to carry out such other incidental work for getting the building plans prepared and to get the building plans approved by the concerned authorities. The owner shall provide office space to the developer for the above said act in the premises.

6. That building plan shall be prepared by the developer in consultation with the owner and the plan will be submitted to the Municipal Corporation, Jaipur after obtaining signature of the owner on the each copy of the said plan and shall be got approved by the Developer on behalf of the owner.

8. That the charges for preparation of plans, architect fees, fees for submission of plans before the local authority/ municipal Corporation Jaipur, processing fees of plans, release money fees, other demands for release for approved plans like development charges, conversion charges, security money of all types shall be borne by the developer.

9. That after release of duly sanctioned plans by the Local Authorities / Municipal Corporation, the Developer will be free to raise construction in accordance with approved plan and all costs for construction and completion of new building in habitable condition including construction cost, demolition cost of existing structures, digging of earth etc. shall be borne and paid by the developer and day to day expenses during the period of construction and all cost and expenses of litigation, legal expenses and unforeseen expenses shall be borne by the Developer. 11. That the owner and developer will share built up area in the new building and car/ two wheeler parking space and space for putting up hoardings, bill boards etc. floor wise, including the roof and other areas, in the ratio of 50:50 respectively. The Left half of the building will be earmarked for and belong to owners (owner's allocation) and Right half of the building will be for and belong to the Developer (developer's allocation). However, when the final plans are approved by the concerned authorities actual areas will be demarcated according to the above theme by different colours in the approved building plans i.e. owner's allocation shall be marked in Red colour and the developer's allocation shall be marked in Green colour.

13. That all technical persons and / or professionals like architect, engineers, contractors, supervisors brokers shall be appointed by the Developer at its own cost.

14. That Developers shall get all necessary permissions sanctions and building plans and designs approved by the concerned authorities using its own resources and at its own costs and expenses. The building plans and designs on being duly prepared shall be treated as a part and parcel to this agreement and the developer shall act strictly in accordance with the approved building plans and in conformity with all statutory laws, regulations, rules, by laws etc. The development and construction shall be done of "A" class and entire responsibility in this respect shall be that of Developer who shall keep the owners indemnified in all respects in the matter of development of property in & 407/JP/2018 & CO Nos.11 & 12/JP/2018 DCIT vs. M/s Man Prakash Talikies Pvt. Ltd. accordance with approved building plans and statutory requirements. The constituted attorney of owner, however shall assist the Developer as and when so required by filing affidavits signing requisite forms/ giving statements and providing the legal documents as are required for construction and completion of new building in connection with the development work.

27. That if during the course of construction the building is damaged or destroyed by earthquake, natural calamity, Act of God or Terrorist activity or otherwise, then the Developer shall be responsible to repair or rebuild as the case may be at its own cost.

28. That the Developer agrees to get insurance of proposed construction at its own costs against earthquake, floods, fire and natural calamity and riots, etc. before the construction starts. It should adequately cover the construction cost as per "A" class standard.

29. That the developer shall demolish the existing construction over the said plot at its own cost. However, the owner will have the right to remove all furniture, and fixtures & fittings equipments etc. e.g. chairs, furniture and fixture, electric projector, fittings/ accessories, fans, coolers, air conditioners, doors, windows, ducts, tubes, wooden panels, items and other moveable items, cinema equipment, sound system, iron safes, almirahs, racks, etc. at its own cost before making available the said plot of land to the developer for demolition of existing structures and construction of new building as stated hereinbefore.

31. That it is further clarified that the developer shall be solely and fully responsible for the construction and the quality thereof as well as the quality of material used therein. The Developer shall build the building exactly as per the building plan structural and architectural designs approved and there shall not be any deviation from the same. Even in future if it is ever found that the construction of the building is deficient in quality or otherwise and any objections raised by the Government or authority, responsibility of the same shall be of the Developer along with structural and architectural designer shall be answerable thereof. The developer hereby imdemnifies and undertake to keep the owner saved harmless and indemnified in this regard.

38. The owner and Developer have entered into this agreement on principal to principal basis only and nothing contained herein shall be deemed or constructed as constituting a service contract or partnership or sale between the owner and the Developer nor shall the owner and the developer in any manner constitute and association of persons. Each shall be strictly responsible for its own income tax liabilities, if any and shall keep the other party indemnified from the against the same at all times.

(iv) Thus, it is evident from the above referred terms of the development agreement that it is the responsibility of the developer to demolish the existing cinema hall, get the plans sanctioned from the appropriate authority, to construct the building with its own funds and be responsible for all the acts relating to the construction of the commercial complex. The appellant has just got converted its land use from "Cinema Hall" to "Commercial" and executed the development agreement with the developer. In the assessment order, in view of the change of land use from "Cinema Hall" to "Commercial" and in view of clause 2 of the development agreement, it was observed by the AO that: "the change of land use was done as part of your deliberate, preplanned issue to enter into an adventure in the nature of trade in respect of the land " situated at good location". Since your intention was to develop its land into a commercial complex and earn profit by selling shops and offices at the complex, it is apparent that when you got the land use changed from" Cinema Hall" to commercial, the said land got converted to "stock in trade" in terms of Sec. 45(2)."

(v) It would be appropriate to reproduce hereunder the provisions of section 45(2) of the Act as under:

"45(2) Notwithstanding anything contained in sub-section (1), the profits or gains arising from the transfer by way of conversion by the owner of a capital asset into, or its treatment by him as stock-in- trade of a business carried on by him shall be chargeable to income-tax as his income of the previous year in which such stock- in-trade is sold or otherwise transferred by him and, for the purposes of section 48, the fair market value of the asset on the date of such conversion or treatment shall be deemed to be the full value of the consideration received or accruing as a result of the transfer of the capital asset." (vi) Thus, for invoking the provisions of section 45(2) of the Act, it has to be shown that: • the appellant has converted capital asset into stock in trade; or • the appellant has treated such capital assets as stock in trade for the purpose of business carried on by the appellant.

(vii) There is no evidence on record which may establish that the land under consideration was converted into stock in trade. In fact, in the Balance Sheet of the appellant relating to FY 2007-08, the shops and offices were shown under the head "Investments". Thus, the appellant has not converted its capital asset into stock in trade.

(viii) Now, the question comes, whether the appellant has treated such capital asset as stock in trade for the purposes of its business? It is to be noted that there is no evidence on record which may indicate that & 407/JP/2018 & CO Nos.11 & 12/JP/2018 DCIT vs. M/s Man Prakash Talikies Pvt. Ltd. the appellant was in the business of real estate and in fact, as noted from the submission of the appellant for AY 2009-10, that to deal in real estate business was not in the objects clause of the Memorandum of Association of the appellant. It would be appropriate to reproduce hereunder the main objects of the appellant company, as stated in its Memorandum of Association as under:

"(A) The main objects to be pursued by the company on its incorporation.

1. To carry on the business of film manufacturers, film apparatus manufacturers cinematograph film producers, financiers, exhibitors and distributors, both sound and silent, theatrical performances, circus plays, open air theatres, dancers, musical and other entertainments of all kinds, games and sports, both indoor and outdoor and dramatic and other performances of all kinds whatsoever.

2. To carry on the business of exhibiting cinematograph films and of organising the production, management and performances of plays, dramas, comedies, operas, operettas, burlesques, pantomimes, musical and other pieces, ballets, shows, radio and television entertainments, sunet lu cmiere, and other amusements and entertainments of every kind and of organising, managing and holding concerts, recording sessions and dances.

3. To carry on the business of proprietors, managers and renters of cinema halls, theatres, picture places, concert halls, music halls, dance halls, discotheques, picture places, studios or other machinery, apparatus, buildings or structures for purposes of use, exhibition, display of films, dramatic or theatrical performances, concerts or other entertainments or amusements or objects allied to or of similar kind as that of the company and to provide for the production, direction, exhibition, representation, display whether by mechanical means or otherwise of plays, open air or other theatrical performances, operattas, burlesque, vaudevils, ballets, pantomimes, jugglery, mesmeric, yogic, hypnotic, spectacular pieces, mushairas, symposiums and other musical and dramatic, athletic and similar performances for amusement or entertainment.

4. To carry on any business involving the manufacture, marketing, sale, distribution, use or exploitation of every form of pictorial and sound recording and programme and pre- programme recordings and apparatus for making the same and to participate in such manner as the company shall deem appropriate in the development and use for commercial purposes of television broadcasting.

5. To carry on business as distributors of, buyers, sellers, merchants and dealers in cinematograph films, records, tapes, and all other apparatus for recording events by means of sight and sound and all rights to produce, distribute or exhibit any show, entertainment or event by means of films, records or such other apparatus as aforesaid." Thus, it is evident from the above that the appellant was not allowed to engaged itself in real estate activities.

& 407/JP/2018 & CO Nos.11 & 12/JP/2018 DCIT vs. M/s Man Prakash Talikies Pvt. Ltd. (ix) It is also to be noted that it was the responsibility of the Developer to construct commercial complex right from the submitting of the building plans to the concerned authority, demolition of the cinema hall etc. as is evident from the terms of the development agreement as reproduced earlier in this order. There is no evidence that the appellant has performed any positive act which may indicate that the appellant has treated its capital asset as stock in trade. The change in use of land from Cinema Hall to Commercial Complex does not tantamount to conversion of land or fixed asset into stock in trade. Further, maximizing the profit from the sale of capital asset after its development, in isolation, cannot be treated as adventure in the nature of trade, as held by the AO in the assessment order. The AO has taken the FY 2001-02 as the year in which, according to the AO, the appellant has converted its capital asset into stock in trade, but, there is no evidence on record, which may establish that the appellant has treated its Cinema Building or its land thereof as its stock in trade. It would be relevant to discuss some of the judicial pronouncement as under:- (a) In the case of PCIT vs. Rungta Properties (P) Ltd. [2017] 83 taxmann.com 106 (Calcutta), the similar issue was before the Hon’ble High Court of Calcutta, the relevant extracts of the said judgment are being reproduced as under:- x x x x (b) In the case of Amrit Corp Ltd. vs. Addl. CIT [2017] 88 taxmann.com 255 (Delhi-Trib.), it was held by the Hon’ble ITAT, Delhi that: x x x x (c) In the case of CIT vs. Sohan Khan & Mohan Khan [2008] 304 ITR 194 (Rajasthan), it was held by the Hon’ble jurisdictional High Court of Rajasthan that: x x x x (d) It may be mentioned that in a recent judgment dated 20.12.2017 in the case of Vikash Solvextracts Pvt. Ltd., the Hon’ble ITAT, Kolkata in to 1929/Kol/2014 has considered the similar issue and has held that: x x x x (e) It may be mentioned that in the case of Shanti Banerjee (deceased) by LRs vs. DCIT in ITA No. 299/2003, vide its order dated 17.11.2015, it was held by the Hon’ble High Court of Delhi that: x x x x (x) In view of the above discussion, it is held that the provisions of section 45(2) of the Act are not applicable to the facts of the instant case under consideration as the appellant has neither converted its fixed asset i.e. land as stock in trade in the financial year 2001-02 nor has performed any positive act which may establish that the appellant has treated its fixed asset i.e. land under consideration as stock in trade during that year. Further, the sale of shops in the commercial complex over a period of time cannot be considered as adventure in the nature of trade as there is no evidence on record which may establish that the land was acquired with an intention to sell the same at profit or convert the same as stock in trade. In fact, the land was acquired long ago and & 407/JP/2018 & CO Nos.11 & 12/JP/2018 DCIT vs. M/s Man Prakash Talikies Pvt. Ltd. earlier a cinema hall was running there. Hence, the additions made by the AO on account of short term capital gain, long term capital gain and business income cannot be sustained, thus hereby deleted.”

14. From the above order of the ld. CIT(A), revenue preferred the appeal before the tribunal, whereas the assessee filed a cross objection against that filing of an appeal by the revenue.

15. The revenue in support of the appeal so filed has raised additional ground as discussed herein above. Ld. DR vehemently argued that the contention raised by the ld. AO are detailed discussion along with the reasons so as to compute the correct income in the hands of the assessee and has also justified the re- opening of the assessment in this case. In support of the contention raised in the assessment order ld. DR also filed a detailed written submission in support of the grounds so raised vide submission dated 20.06.2024 filed the ground wise submission and decision relied was submitted on 15.07.2024. Subsequently ld. DR submitted a consolidated and revised submission dated 24.07.2024, the written submission reads as follows;

2. In this connection, the submission (ground wise) in respect of AY 2008-09 is as follows: 2.1 “Ground No. 1 : Whether on the facts and circumstances of the case and in law the ld. CIT(A) has erred in quashing the re- & 407/JP/2018 & CO Nos.11 & 12/JP/2018 DCIT vs. M/s Man Prakash Talikies Pvt. Ltd. assessment proceedings without appreciating the facts that mere omission of some words does not quash the entire proceedings.

Ground No 2: Whether on the facts and in the circumstances of the case and in law the ld. CIT(A) has erred in appreciating the law laid down by the Hon'ble Supreme Court in the case of M.V. 'Vali Pero'' vs Fernandeo Lopex, AIR 1989 (SC) 2206 wherein it has been held that the outcome and fairness of the procedure have been forwarded, there is no reason to discard the result simply because certain details which have not prejudicially affected the result have been inadvertently omitted in a particular case.

Additional Ground No 4: Whether on the facts and circumstances of the case and in law the ld. CIT(A) has erred in not appreciating that ommission to disclose material facts in Income Tax Return, Tax Audit or during the course of assessment proceedings confers jurisdiction of the Assessing Officer to re-open the assessment as the assessee only disclosed LTCG on land and STCG on sale of shops in his Return of Income but as per accounting standards and provisions of Income Tax Act, the act of coverting capital asset into stock in trade clearly required assessee to declare business income and LTCG in the Return of Income, which was actually not done by assessee.

Additional Ground No 5: Whether on the facts and circumstances of the case and in law the ld. ciT(A) has erred in holding that reopening of the case u/s 148 is merely change of opinion, which is contrary to the facts as in quantum proceedings, AO has not formed any opinion on this issue, as the issue under consideration was not discussed in the order u/s 143(3) passed on 03.12.2010.

Additional Ground No 6: "Whether on the facts and circumstances of the case, the Ld. CIT(A) is right in quashing the reopening proceedings of A0 ignoring the fact that provision for reassessment was incorporated in the scheme of the Act so as to empower the Assessing Officer to reassess any income on a ground which was not brought on record during the original proceedings and escaped his Knowledge? “

2.2 The aforesaid grounds of the Revenue are regarding reopening of the assessment which was quashed by ld. CIT(A) citing the following reasons: • All material facts were there before the Assessing officer at the time of original assessment proceedings. • On the basis of reappreciation of facts already on record, the Assessing officer has initiated proceedings u/s 147 of the Act which tantamount to change of opinion which is not permissible. • In the reasons recorded by the Assessing Officer there is no whisper that the assessee has not disclosed all the material facts for the purpose of assessment & 407/JP/2018 & CO Nos.11 & 12/JP/2018 DCIT vs. M/s Man Prakash Talikies Pvt. Ltd. • In the reason recorded the Assessing Officer has not stated what material facts were not disclosed truly and fully by the assessee at the time of original assessment order.

2.3 The assessee is Private Limited Company and was earlier engaged in the business of exhibiting films in the Cinema Hall known as ''Man Prakash. In the F.Y. 1999-2000, the assessee decided to dismantle the cinema hall building and to develop a commercial complex on the land. The assessee also obtained the permission from Jaipur Development Authority (for short ''JDA'') for change of use of the land from Cinema Hall to Multistoried Commercial Complex comprising of shops, showrooms and other commercial space. The assessee entered into a Development Agreement dated 12-12-2001 with M/s. Golcha Buildtech Pvt. Ltd. (for short ''GBT''). As per terms and conditions of the said agreement, the assessee has contributed the land to the project whereas the Developer has agreed to bear all the costs of constructions including obtaining the necessary approvals and permissions from the local authorities. The parties have agreed to have 50% - 50% shares in the constructed commercial complex and were free to sell the same. The assessee also received inter alia a sum of Rs. 2.00 crores as on the date of agreement which is non-refundable. The commercial complex was completed during the year under consideration and there was sale of shops and showrooms by the assessee. The assessee filed its return of income on 29-03-2010 as belated return u/s 139 of the Act and declared the total income at Rs. 2,00,29,760/-. The assessment was completed u/s 143(3) of the Act on 3-12-2010 whereby the AO accepted the returned income of the assessee.

Thereafter the AO reopened the assessment by issuing notice u/s 148 of the Act on 31-03-2015. In response, the assessee submitted that return of income filed on 29- 03-2010 should be treated as returned income filed in response to notice issued u/s 148 of the Act. The AO completed the reassessment on 30-03- 2016 whereby addition on account of Long Term Capital Gain of Rs. 9,69,04,854/- u/s 45(2) of the Act was made to the total income of the assessee. The AO has also assessed the business income of the assessee at Rs. 2,32,10,026/- as against business income declared by the assessee at loss (-) of Rs. 1,80,968/-. The assessee challenged the action of the AO before the ld. CIT(A) and also raised the objection against the validity of the reopening of the assessment. The ld. CIT(A) decided the issue of reopening of the assessment in favour of the assessee and quashed the reopening of the assessment. The ld. CIT(A) also decided the issue of assessment of Long Term Capital Gain u/s 45(2) of the Act in favour of the assessee by holding that there was no conversion of capital asset into stock in trade by virtue of demolition of Cinema Hall Building and conversion of land use as well as entering into Development Agreement dated 12-12-2001 with GBT. Since reopening of the assessment was quashed by the ld. CIT(A), therefore, other & 407/JP/2018 & CO Nos.11 & 12/JP/2018 DCIT vs. M/s Man Prakash Talikies Pvt. Ltd. grounds raised by the assessee against the validity of the reassessment order on the ground of proper service of notice u/s 148 of the Act was not adjudicated upon by the ld. CIT(A). Thus aggrieved by the order of the ld. CIT(A), the Revenue has filed this appeal and the assessee has filed the C.O. on the issue of validity of service of notice u/s 148 of the Act.

2.4 Comment:

2.4.1 It is submitted that the ld. CIT(A) has quashed the reassessment by holding that the same is hit by the proviso to Section 147 of the Act without considering the relevant facts which were subsequently detected by the Department as well as by the AO by conducting an enquiry and on the basis of outcome of such enquiry and the facts pointed out by the Audit Team/ Department, the AO has formed belief that income assessable to tax being Long Term Capital Gain in pursuance of conversion of capital asset into stock in trade, has escaped assessment. It is pointed out that there was detailed enquiry conducted by the audit team and audit objection, pointing out the fact that the assessee has actually converted its capital asset into stock in trade by converting the land use after demolition of Cinema Hall Building and entered into a Development Agreement for construction of multistoried commercial complex. Therefore, the provisions of section 45(2) are clearly applicable in the case of the assessee. After receipt of audit objections , the AO has also conduced the enquiry by issuing notices / letters dated 01-09-2014 as well as 25-09-2014 u/s 133(6) of the Act . Thus the information gathered by the AO from the audit objection as well as through enquiry conducted, constitutes the tangible material to form the belief that income assessable to tax has escaped assessment. It is contended that the ld. CIT(A) has failed to appreciate these facts while arriving to the conclusion that reopening of the assessment is based on same facts and material already available in the assessment record. Thus it is submitted that order passed by the ld. CIT(A) ignoring the relevant material facts is not sustainable in law. It is evident from the reasons recorded by the AO as well as the audit objection that there was a tangible material which came to the knowledge of the AO to show that the assessee had converted the capital asset into stock in trade and thereby the income assessable to tax has escaped assessment.

2.4.2 Hon’ble Supreme Court in Owners & Parties Interested in M.V. "Vali Pero" v. Fernandeo Lopex, AIR 1989 (SC) 2206 (Para 18) observed that Rules of procedure are tools to achieve justice and are not hurdles to obstruct the pathway to justice. Where the outcome and fairness of the procedure have been followed, there is no reason to discard the result simply because certain details which have not prejudicially affected the result have been inadvertently omitted in a particular case, In the instant case, fairness of procedure for re- assessment proceedings has been followed by taking prior approval & 407/JP/2018 & CO Nos.11 & 12/JP/2018 DCIT vs. M/s Man Prakash Talikies Pvt. Ltd. from the PCIT-1, Jaipur. Further, as an outcome of procedure followed proper notice u/s 148 was issued to the assessee. However, inadvertently it was omitted to mention that the assessee has failed to disclose material facts truly and fully during the original assessment proceedings. As per Hon'ble Supreme Court order(supra) the Rules of procedure should never become an instrument of oppression or abuse or a means in the process of the Court to subvert justice. The similar view have been laid down in plethora of Supreme Court orders víz. Temple of Thakurji v. State of Rajasthan, AIR 1998 Raj. 85(88), Jai Ram Manohar Lal v. National Building Material Supply, Gurgaon, AIR 1969 (SC) 1267, M/s Ganesh Trading Co. V. Moji Ram, AIR 1978 2 (SC) 484: 1978 UJ (SC) 162: 1978 LS (SC) 53: 1978 Rev LR 275: (1978) 2 SC 98. In Collector, Land Acquisition v. Mst. Kattiji, AIR 1987 (SC) 1353: 1987 (1) JT 537: 1987 (1) Scale 413: 1987 (2) SCR 387: 1987 (2) UJ 29: (1987) 2 SCC 107 SC: 1988 (19) ECR 565, wherein the Apex Court mainly observed as under: 'When sustained justice and technical consideration are pitted against each other, cause of substantial justice deserves to be preferred for the other side cannot claim to have vested right in injustice being done due to some technical omission’

2.4.3 The Assessee has failed to disclose exact material facts truly and fully before the AO during the original assessment proceedings. As such, the assessee only disclosed LTCG on land and STCG on sale of shops in his return of income but as per accounting standards and provisions of Income Tax Act, the act of converting capital asset into stock in trade clearly instruct to show business income and LTCG in the Return of Income which was actually not reflected by assessee at all.

2.4.4 The observation of the Ld. CIT(A) that "there was no failure on the part of the appellant to disclose, truly and fully all material facts, which are necessary for its assessment for the year under consideration at the time of original assessment proceedings" cannot be accepted due to the reason that, the term 'failure' on the part of the assessee is not restricted only to the return or tax audit report but also covers the stage of assessment proceedings. In the instant case assessee only disclosed LTCG on land and STCG on sale of shops in its return of income but as per Accounting Standards and provisions of Income Tax Act, the act of converting capital assets into stock in trade clearly instruct to show business income and LTCG in the return of income, however, at this stage assessee failed in disclose fully and truly all material facts necessary for its income. It is relevant to mention that omission to disclose material facts in income tax return, tax audit or during the course of assessment proceedings confers jurisdiction on the Assessing Officer to re- open the assessment u/s 148. Reliance is placed on Honda Siel Power Products Ltd. Vs DCIT & Arr. (Del) 340 ITR 53 upheld in 340 ITR 64 (SC)

& 407/JP/2018 & CO Nos.11 & 12/JP/2018 DCIT vs. M/s Man Prakash Talikies Pvt. Ltd. 2.4.5 The Ld. CIT(A) has also recorded a factually incorrect observation by stating that "Further, the AO has not stated in the reason recorded for reopening the case of the appellant, what material facts were not disclosed by the appellant at the time of the original assessment proceedings." Whereas, in fact not only in the reason recorded failure to disclose fully and truly all material facts on the part of the assessee was discussed but also in the remand report the same issue was highlighted again. Further, in the case of I.P. Patel & Co. Vs DCIT (Guj) 54 DTR 291 it has been held that there is no requirement in law that in the reasons, failure of the assessee should be expressly stated in view of the proviso to sec.

2.4.6 It is pertinent to note that the AO while passing the original assessment u/s 143(3) of the Act on 3-12-2010 has taken up the issue in the scrutiny only regarding the interest income from the business of loans and advances. Therefore, the bare reading of the assessment order dated 3-12-2010 does not reveal that any enquiry was conducted by the AO on the issue of nature of income arising from the arrangement of development of commercial complex after demolition of Cinema Hall Building on the land in question.

For ready reference, the assessment order dated 3-12-2010 passed u/s 143(3) is hereby reproduced as under:-

''The assessee e-filed return of income without digital signatures for assessment year 2008-09 on 29.03.2010, which was subsequently physically filed with 'the department on 06.04.2010 declaring income of Rs. 2,00,29,760.00.The return of income was processed u/s 143 (1) and was picked up for scrutiny by issuing notice u/s 143 (2) of the I.T. Act,1961. The jurisdiction over this case has been assigned from the Asstt. Commissioner of Income-tax, Circle-2, Jaipur to the, undersigned (Asstt. Commissioner of Income-tax (OSD), under the administrative central of Addl. CIT, Range-2, Jaipur) by the Commissioner of Income- tax, Jaipur-I in exercise of power conferred by sub-section (1) of section 127 of the Income-tax Act, 1961 vide his order NO. CIT-I / ITO (Hors) / JPR / U/s 127 (1) / 2010-11 / 302 dated 15/10/2010. In compliance to the statutory notices Shri. R. C. Verma, C. A. & A. R. attended the proceedings from time to time and filed necessary details / information / documents etc. as required and produced books of accounts which were examined on test on the basis and the case was discussed with him. The assessee is a Private Limited Company having income from interest, dividend, long term and short term capital gain on shares, capital gain on sale of shops etc.

& 407/JP/2018 & CO Nos.11 & 12/JP/2018 DCIT vs. M/s Man Prakash Talikies Pvt. Ltd. During the course of scrutiny it was revealed that the assessee is doing the business of advancing loans to parties and yielding interest income thereon. During the year under, consideration the assessee had earned an interest income of Rs. 57,48,187.57 which is duly reflected in the profit and loss account of the assessee. As such the turnover of the assessee got exceeded the limit prescribed by the section 44AB of Income Tax Act, 1961. The assessee had not furnished the tax audit report as required by section 44AB of the Income Tax Act, 1961. As such I am satisfied that the penalty provisions under section 271B of Income Tax Act, 1961 are applicable against the assessee. Penalty proceedings u/s. 271B of the Income Tax Act, 1961 are initiated separately. It was further noticed during the course of scrutiny that the assessee had filed its return of income on 29.03.2010 and was having a taxable income for the relevant assessment year. By virtue to third proviso to section 139(1) of Income Tax Act, 1961 the assessee was required to file its return of income on or before 30 th September, 2008 but the assessee had filed return belatedly. Therefore I am satisfied that the penalty provisions under section 271F of Income Tax Act, 1961 are applicable against the assessee. Penalty proceedings u/s. 271F of the Income Tax Act, 1961 are initiated separately. After discussion returned income is accepted. Assessed at Rs. 2,00,29,760.00. Issue demand notice and challan. Issue necessary forms. ITNS 150 is part of this order. Penalty proceedings under section 271B and 271F are being initiated separately. Sd/- (K.C. Gupta) Asstt. Commissioner of Income Tax (OSD),Jaipur

On perusal of the above scrutiny assessment order dated 3-12- 2010, it is clear that the AO has taken up only two issues of not furnishing tax audit report as required u/s 44AB of the Act and filing belated return of income and consequently initiated penalty proceedings u/s 271B and 271F of the Act respectively. Apart from these two issues, the AO has not made any reference to any reply filed by the assessee. Thus it is evident from the said assessment order that the AO has not conducted the bare minimum enquiry on the issue of conversion of capital asset into stock in trade. It is clear that the Assessing Officer has not taken up the issue of conversion of capital asset into stock in trade and thereby, resulting the income of Long Term Capital Gain for the scrutiny assessment or applied his mind on the issue. Thus the said order does not exhibit any thought process of the AO on the issue.

& 407/JP/2018 & CO Nos.11 & 12/JP/2018 DCIT vs. M/s Man Prakash Talikies Pvt. Ltd. 2.4.7 The observation of the Ld. CIT(A) that "reassessment proceedings under consideration were initiated on the basis of re- appreciation of the same set of facts available on record and is nothing but merely change of opinion " is not acceptable. The principle that a mere change of opinion cannot be a basis for reopening completed assessments would be applicable only to situations where the Assessing Officer has applied his mind and taken a conscious decision on a particular matter in issue. However, in the instant case the issue under consideration was not discussed in the order u/s 143(3) passed on 03.12.2010. Therefore, the observation of CIT(A) that reopening of the case u/s 148 is merely a change of opinion is contrary to the facts that in quantum proceedings AO has not formed any opinion on this issue. Reliance is placed on (i) Commissioner of Income Tax versus H.P. Sharma, 1980 (122) ITR 675 (Del.) (ii) Consolidated Photo and Finvest Limited versus Assistant Commissioner of Income Tax, (2006) 281 ITR 394(Del.) and (iii) Yuvraj v. Union of India (2009) 315 ITR 84. (Bom.). 2.4.8 The ld. CIT(A) has decided this issue by presuming the fact that no new facts were brought to the knowledge of the AO after completing the scrutiny assessment u/s 143(3) of the Act. The relevant concluding para's Nos. (xii) and (xiii) of ld. CIT(A)'s order on this issue are as under:- (xii) Therefore, in view of the above discussion and looking to the totality of facts and circumstances of the case, it is held that the initiation of proceedings u/s 147 of the Act by the AO for the year under consideration was not in conformity with the provisions of section 147 of the Act. Further, the assessment was reopened after 4 years from the end of the relevant assessment year, which was earlier completed u/s 143(3) of the Act, therefore, proviso to the section 147 of the Act is clearly applicable to the facts of the instant case under consideration. The AO has neither stated that there was default on the part of the appellant to disclose material facts truly and fully, which are necessary for its assessment nor it is discernible from the reasons recorded by the AO. Further, the AO has not stated in the reasons recorded for reopening the case of the appellant, what material facts were not disclosed by the appellant at the time of original assessment proceedings. (xiii) Therefore, it could be concluded that the reassessment proceedings under consideration were initiated on the basis of re- appreciation of the same set of facts available on record and is nothing but merely change of opinion which could not be allowed in view of the various judicial pronouncements as discussed earlier in this order. Further, since original assessment was completed u/s 143(3) of the Act and the reassessment proceedings were initiated after four years from the end of the relevant assessment year, the proviso to section 147 of the Act is also applicable. Further, there was no failure on the part of the appellant to disclose, truly and fully all material facts, which are & 407/JP/2018 & CO Nos.11 & 12/JP/2018 DCIT vs. M/s Man Prakash Talikies Pvt. Ltd. necessary, for its assessment for the year under consideration at the time of original assessment proceedings, it is held that the conditions required for initiation of reassessment proceedings, as stipulated in the provisio to section 147 of the Act were not satisfied. Hence, in view of above discussions, looking to the facts and circumstances of the case, it is held that the reassessment proceedings initiated by the AO under consideration were bad in law and consequently, the assessment order based on such bad initiation cannot be allowed to be sustained and thus, hereby quashed.” The ld. CIT(A) has decided this issue by presuming the fact that reassessment proceedings were initiated on the basis of re- appreciation of the same set of facts available on record and is nothing but merely change of opinion. The facts regarding the audit objections pointing out certain facts based on the enquiry as well as the enquiry conducted by the AO by issuing notices u/s 133(6) of the Act subsequent to the assessment proceedings were not considered by the ld. CIT(A). 2.5 “Ground No. 3- Whether on the facts and in the circumstances of the case and in law the ld. CIT(A) has erred without appreciating that the assessee made transfer as per Section 2(47) of the Act while making treatment of its capital asset i.e. land of Cinema Hall into stock in trade of the business of selling of shops u/s 45(2) of the Act.

Additional Ground No 7: Whether on the facts and circumnstances of the case, the Ld. CIT(A) is right in quashing the reopening proceedings of AO ignoring the fact that the assessee has converted its capital reopening proceedings of AO ignoring the fact that the assessee has converted its capital asset into stock in trade by converting the land use after demolition of Cinema Hall building and entered into a Development Agreement for construction of multistoried commercial complex, therefore, the provisions of Section 45(2) of the I.T. Act are applicable and the income ought to be taxed as Business Income. and not a Capital Gains?”

These grounds of the Revenue are regarding the addition made by the AO u/s 45(2) of the Act on account of conversion of capital asset into stock in trade which was deleted by the ld. CIT(A).

2.6 Comment:

2.6.1 It is submitted that when the assessee was having the business assets in the form of Cinema Hall and was engaged in exhibiting the films then the decision taken by the assessee to discontinue the earlier business by dismantling the cinema hall building and converting the land use for development of commercial complex amounts to conversion of capital asset into stock in trade. It is further contended that in the year 2000-01, the assessee had entered into an agreement dated 12-12- 2001 which was a clear decision of cessation of capital & 407/JP/2018 & CO Nos.11 & 12/JP/2018 DCIT vs. M/s Man Prakash Talikies Pvt. Ltd. asset and converting the same to stock in trade in the form of commercial complex to be sold by the assessee. It is further submitted that even at the time of entering into the agreement, the assessee has received the consideration which is non-refundable and therefore, the intention of the parties to use the land in question as stock in trade is manifest from the terms and conditions of the Development Agreement. The order of the AO is relied upon and is hereby submitted that all these undisputed facts establish the conversion of capital asset into stock in trade and therefore, as per provisions of section 45(2) of the Act when the assessee has finally sold the shops and showrooms in the commercial complex then the profit from said transactions of sale shall have two components, one is capital gain in respect of conversion of land from capital asset into stock in trade and another is business income by sale of the stock in trade. Therefore, the AO has rightly assessed the income of the assessee under two heads, one is Long Term Capital Gain and another is business from sale of shops as well as other commercial space. The ld. CIT(A) has given the findings ignoring all these facts emerging from the record that the assessee has decided to stop the business of exhibiting the films and decided to demolish the cinema hall building and thereby converted the capital asset into stock in trade to earn the profit from the activities of development of commercial complex and sale of the same which is nothing but enduring in nature.

2.6.2 The assessee made transfer as per section 2(47) of the Act while making treatment of its capital asset i.e. land of Cinema Hall into stock in trade of business of selling of shops u/s 45(2) of the Act. Section 45(2) of the Act also covers the treatment of capital asset as stock in trade in any business whether carried on by assessee before such treatment or a new business. In the instant case, the old business of assessee was to exhibit films in the cinema hall. Afterwards, the assessee made agreement with Golcha Group who constructed two big Malls. One Mall was given to assessee in lieu of its land. At present, the assessee is doing business of selling of shops which were given to it in lieu of its land. It is very much clear that the assessee has made conversion/treatment of its land followed by agreement with Golcha Group thereby changing the land to stock in trade of its new business of selling of shops.

2.6.3 There is no dispute that business of exhibiting films in the cinema hall ceased to exist when the assessee decided to demolish the building and converted the land use for development of commercial complex. In order to develop the commercial complex on the land, the assessee entered into a Development Agreement dated 12-12-2001 with GBT. The assessee also obtained the permission to change the land use from cinema hall to commercial complex which establishes the intention of the assessee not to use the land in question for its erstwhile business of exhibiting films. To ascertain the true and real intentions of the parties to the Development Agreement dated 12-12- & 407/JP/2018 & CO Nos.11 & 12/JP/2018 DCIT vs. M/s Man Prakash Talikies Pvt. Ltd. 2001, it is essential to consider various clauses of the said agreement. The purpose and object of the conversion of land use for development of multistoried commercial complex is stated in clause 2 of the agreement as under:-

''2. WHEREAS looking to the demand for showroom and offices in multistoried buildings situated at a good location, Owner herein decided to develop a multistoried commercial complex on the said plot of land in accordance with the rules, regulation and building bye laws of the local authorities, and the State Government.'' 2.6.4 Thus, the assessee decided to develop the multistoried commercial complex on the said plot of land to cater the demand of offices/ showrooms in the multistoried building at good location. The clause 2 of the terms and conditions of the said agreement describes the consideration to be paid or received by the parties. For ready reference, the clause 2 of the said agreement is reproduced as under:- ''2. That the developer has agreed to keep with the owner a sum of Rs. 2.50 crores (Rupees Two Crores and Fifty Lacs) by way of interest free security deposit towards proper commencement and timely completion and development of the plot as per the stipulation made in the agreement and to secure due performance of the Developer's obligations under this agreement. The security deposit shall be refunded on completion of the new building and making over of the owner's allocation to the owner inhabitable condition in the new building or builder will adjust this security amount of Rs. 2.50 crores by way of buy-back of the part of the owner's allocation in the property at the rate mutually settled between parties. Developer has also agreed to pay to Owner a sum of Rs. 2.00 Crores (Rupees Two Crores only) as consideration money (Non adjustable , Non Refundable).'' 2.6.5 The Developer has given a sum of Rs. 2.50 crores to the assessee by way of interest free security deposit as performance security/ guarantee. However, the said security was to be refunded on completion of the project/ complex. Apart from the said security, a sum of Rs. 2.00 crores was also paid by the Developer to the assessee towards the consideration of transfer of land in question in favour of the Developer. As per clause 11 of the agreement, the parties were to share the constructed area in the manner specified therein which is reproduced as under' ''11. That the owner and developer will share built up area in the new building and car/two wheeler parking space and space for putting up hoardings, bill boards etc. floorwise, including the roof and other areas, in the ratio of 50:50 respectively. The left half of the building will be earmarked for and belong to Owners (Owner's allocation) and Right hall of the building will be for and belong to the Developer (Developer's allocation). However, when the final plans are approved by the concerned authorities actual areas will be demarcated according to the & 407/JP/2018 & CO Nos.11 & 12/JP/2018 DCIT vs. M/s Man Prakash Talikies Pvt. Ltd. above theme by different colours in the approved building plans i.e. Owner's allocation shall be marked in Red Colour and the Developer's allocation shall be marked in Green Colour.

However, it is further made clear that before completion of the structure, no sale deed will be executed of the Developers share.''

2.6.6 Thus, the clause 11 of the agreement set out the manner in which the constructed commercial complex will be divided between the assessee and the Developer. The share of each party was also proposed to be marked in different colour of Red and Green. Apart from the constructed area, the assessee also received Rs. 2.00 crores as consideration. As per clause 12 of the said agreement, the assessee was free to sell / transfer its share in the built up area of new building including the parking space and space for hoardings, bill boards etc. Similarly, the developer was also free to sell or transfer its share of 50% in the built up area including parking space, space for hoarding, bill boards etc. Therefore, it is not an agreement of mere development of the land owned by the assessee but the assessee and developer entered into this venture of development and sale of developed space in the shape of shops/ offices and other commercial space including parking and space of hoarding, bill boards etc. The intention of the parties is apparent and clear from the terms and conditions of the agreement that commercial complex was developed only for sale / resale purposes. There is no dispute that the said complex was stock in trade in the hands of the Developer. Similarly, the assessee once decided to discontinue the business of exhibiting the films and converted the land use for development of commercial complex and sale the space in the complex then said land was no more remained as business asset or capital asset to be used for business of the assessee or as investment of the assessee. It is not a case of exploitation of the capital asset for carrying out the business but it is a case of selling of the property in question itself after developing it and then selling the shops/offices and other space individually as an independent unit and not the entire share of the assessee in commercial complex as one unit. Therefore, the entire arrangement and exercise of converting the land use for development of commercial complex and sale of the same is nothing but activity in the nature of trade and business involving risks and rewards to be borne by the assessee, as a result of such exercise. Thus entering into such venture of developing commercial complex is enduring in nature and therefore, it cannot be regarded as investment on the part of the assessee. The assessee and the Developer were having their own exclusive and independent right to sell each and every shops/offices as well as other commercial space. Hence, the intention of the assessee is established that the assessee decided to sell the land in question not as a capital asset but by converting the same into stock in trade in the shape of developing a commercial complex comprising of shops/offices and each shops/ offices was to be sold independently. Thus the entire & 407/JP/2018 & CO Nos.11 & 12/JP/2018 DCIT vs. M/s Man Prakash Talikies Pvt. Ltd. sequence of development of the land in question as carved out by the parties under the development agreement manifest the substantial and material facts of doing the activity of adventure and therefore, it was never the intention of the assessee to keep the commercial complex so developed with itself or to exploit the same by maintaining or use as an apparatus for earning the income. Even it was not the intention of the assessee to sell the commercial complex as the capital asset under the development agreement. The parties were to sell each and every shop/ office as well as other space as a separate unit. The exercise of development of multistoried commercial complex was a well pre- planned venture of the assessee and developer which shows the adventurous act on the part of the assessee except the activity of development and selling of shops/ offices and other space of commercial complex, there was no other business activity of the assessee. Therefore, all these undisputed facts of conversion of land use, demolition of cinema hall building and discontinue of business of exhibiting films and development of commercial complex for the purpose of sale of shops/ offices and other commercial complex establishes the fact that the assessee had converted the capital asset into stock in trade with the motive to earn the maximum profit out of the said venture. Thus entering into Development Agreement and selling of constructed shops/ offices of the multistoried commercial complex constitutes the business activity of the assessee. The assessee also executed the Power of Attorney in favour of the Developer authorizing him to execute the sale deed and other acts in this regard to the extent of 50% of shares in the said commercial complex. Therefore, all these facts clearly establish the intention of the assessee of not keeping the said land and commercial complex as capital asset but the very purpose of development of the land right from the beginning was to sell the same as there was a demand of shops/ offices at such good location. In view of the above facts and circumstances of the case, it is certain that it was a case of conversion of business asset into stock in trade and thereby the profit on sale of the said land and shops / offices contains two components of income i.e. one is capital gain on account of conversion of capital asset into stock in trade u/s 45(2) of the Act and another is business income on account of sale of stock in trade. The computation of capital gain would be based on the consideration being fair market price as on the date of conversion being in the year 2001 though the same will be assessed to tax in the year under consideration when the assessee has finally sold the stock in trade. Therefore, the said finding of the ld. CIT(A) is contrary to the undisputed material facts of discontinuing the existing business of exhibiting films in the cinema hall, demolition of cinema hall building and conversion of land use to commercial complex for sale constitute a positive act on the part of the assessee to establish the conversion of capital asset into stock in trade.

2.7 Grounds of C.O. No. 11/JP/2018 for AY 2008-09:

& 407/JP/2018 & CO Nos.11 & 12/JP/2018 DCIT vs. M/s Man Prakash Talikies Pvt. Ltd. ''(1) Because the Departmental appeal is bad in law as well as on facts and is liable to be dismissed. (2) Because the ld. CIT(A) erred in not deciding the Ground No. 6 relating to the service of notice u/s 148 and ld. CIT(A) erred in para 3.2.2. page74 that it is an academic in nature. (3) Because the ld. CIT(A) erred in not deciding the Ground No. 3 relating to not providing the copy of the reasons recorded by AO before issue of notice u/s 148 in spite of the request.''

Through the CO, the assessee has raised the issue of validity of service of notice u/s 148 of the Act as well as the copy of the reasons was not supplied to the assessee.

2.8 Comment: (1) In this regard, it is submitted that the Income Tax Act in section 149 provides that notice u/s 148 must be issued upon the assessee in the time limit prescribed. In the instant case of assessee, the time limit as prescribed u/s 149 of the Act was 31.03.2015. It is pertinent to state that the notice u/s 148 was issued on 31.03.2015 and the same was sent through speed post No. B RR 1447990261N on 31.03.2015 itself. Further, in recent judgment of Hon'ble Gujrat High Court in the case of Kanubhai M Patel HUF vs Hiren Bhatt in Special Civil Application No. 5295/2010, the Hon'ble High Court has held that "the date of issue would be the date on which the same were handed over for service to the proper officer, which in fact of the present case would be the date on which the said notices were actually handed over to the post office for the purpose of booking for the purpose of effecting service on the assessee" Here in the instant case of assessee, the notice u/s 148 was delivered to the postal authorities on 31.03.2015 i.e. within the time limit. Hence, contention of Ld. A/R is not tenable in the eyes of law. Moreover, the notice was duly served upon the assessee by affixture on 31.03.2015 itself.

(2) Further, the assessee was issued a notice u/s 143(2) on 29.09.2015 which was duly served upon the assessee through affixture along with notice u/s 142(1) and copy of reasons recorded. It is pertinent to state that the assessee filled reply in response to above notices vide letter dated 11.03.2016.

(3) The contention of the assessee does not hold any ground because there is no such mechanism to provide copy of reasons recorded before issuance of notice u/s 148 or filling of return. The assessee has complied with the notice u/s 148 by fumishing the reply dated nil received on 18-05-2015 by submitting that return filed on 29-03-2010 should be treated as retum of income. Further cognizance of notice u/s 142(1) dated 29.09.2015 may also be taken in respect of service of notice u/s 148 and furnishing of reasons recorded u/s 147 to the assessee.

3.1 “Ground No. 1 : Whether on the facts and in the circumstances of the case and in law the ld. CIT(A) has erred in deleting the addition made by the AO without appreciating that the assessee made transfer as per section 2(47) of the Act while making treatment of its capital asset i.e. land of Cinema Hall into stock in trade of the business for selling of shops u/s 45(2) of the Act.

Ground No. 2: Whether on the facts and in the circumstances of the case and in law the ld. CIT(A) has erred in deleting the addition of Rs. 2,06,71,225/- on account of business income and Rs. 66,76,744/- on account of Long Term Capital Gain without deciding it on merit.''

The only issue raised by the Revenue in this appeal is regarding the assessment on Long Term Capital Gain u/s 45(2) of the Act which was deleted by the ld. CIT(A) and the assessment of business income was accepted by the ld. CIT(A) as capital gain. This issue is common to the issue raised by the Revenue in Ground No. 3 of the appeal for the Assessment Year 2008-09. Therefore, our submission on this issue for the Assessment Year 2008-09 may kindly be considered.

3.2 Grounds of C.O. No. 12/JP/2018 for AY 2009-10:

'' (1) Because the Departmental appeal is bad in law as well as on facts and is liable to be dismissed.''

It is clear that the assessee has not raised any independent issue but simply supported the order of the ld. CIT(A) hence, the C.O. of the assessee is required to be dismissed. The assessee has not produced any facts or quoted any legal principle or precedent in support of the cross objection, and hence the CO is not maintainable and is required to be quashed.

3.3 Additional Ground no. 2 in CO No. 12/JP/2018 for AY 2009-10:

''That the impugned notice dated 31.03.2016 issued u/s. 148 of the Act was granted sanction by the sanctioning authority mechanically, without application of mind and thus entire reassessment proceedings are vitiated, is bad in law, is void-ab-initio, a nullify and the same deserves to be quashed and set-aside. ''

It is submitted that notice dated 31.03.2016 u/s 148 of the Act was issued after following the due procedure as per law. The assessee has not produced anything on record to support his assertion that the sanction was granted mechanically. Hence the aforesaid additional ground is not maintainable and is required to be dismissed.

1. OWNERS AND PARTIES INTERESTED IN M.V. "VALIPERO" ETC.ETC Vs. FERNANDEO LOPEZ & ORS on 19 September, 1989 2. Temple Of Thakurji vs State Of Rajasthan And Ors. on 30 September, 1997 3. Jai Jai Ram Manohar Lal vs National Building Material Supply, on 17 March, 1969

4. Ganesh Trading Co vs Moji Ram on 25 January, 1978 5. Collector Land Acquisition, Anantnag vs Mst. Katiji & Ors on 19 February, 1987 6. [1980] 4 Taxman 83 (Delhi) HIGH COURT OF DELHI Commissioner of Income-tax v. H.P. Sharma S. RANGANATHAN AND D.R. KHANNA, JJ 7. [2006] 151 Taxman 41 (Delhi) HIGH COURT OF DELHI Consolidated Photo & Finvest Ltd. v. Assistant Commissioner of Income-tax 8. [2009] 315 ITR 84 (Bombay) HIGH COURT OF BOMBAY Yuvraj v. Union of India 9. [2011] 197 Taxman 415 (Delhi) HIGH COURT OF DELHI Honda Siel Power Products Ltd. v. Deputy Commissioner of Income-tax 10. Shri Pravinchandra R Patel, Vadodara vs Dcit, Central Circle-2, Vadodara on 13 January, 2022 11. [2011] 12 taxmann.com 198 (Gujarat) HIGH COURT OF GUJARAT KanubhaiM. Patel (HUF) v. Hiren Bhatt or His Successors to Office 12. [1999] 236 ITR 34 (SC) SUPREME COURT OF INDIA Raymond Woollen Mills Ltd. v. Income-tax Officer 13 [2023] 148 taxmann.com 446 (Delhi) HIGH COURT OF DELHI Saif II Mauritius Company Ltd. v. Assistant Commissioner of Income-tax 14 [1999] 103 TAXMAN 562 (PAT.) HIGH COURT OF PATNA P.K. Haldar & Co. v. Commissioner of Income-tax 15 [2002] 123 Taxman 756 (Calcutta) HIGH COURT OF CALCUTTA Ispat Industries Ltd. v. Deputy Commissioner of Income-tax 16 [2023] 153 taxmann.com 25 (Gujarat) HIGH COURT OF GUJARAT Akshat Pramodkumar Chaudhary v. Deputy Commissioner of Income-tax 17 [2022] 139 taxmann.com 198 (Gujarat) HIGH COURT OF GUJARAT Amar Jewellers Ltd. v.Assistant Commissioner of Income-tax 18 [2018] 94 taxmann.com 393 (Gujarat) HIGH COURT OF GUJARAT Amit Polyprints (P.) Ltd.v.Deputy Commissioner of Income-tax 19 [2018] 91 taxmann.com 119 (Gujarat) HIGH COURT OF GUJARAT Aradhna Estate (P.) Ltd.v.Deputy Commissioner of Income-tax, Circle-1(1) 20 [2023] 152 taxmann.com 573 (SC) SUPREME COURT OF INDIA Ajay Gupta v. Income-tax Officer 21 [2019] 101 taxmann.com 231 (Madhya Pradesh) HIGH COURT OF MADHYA PRADESH Etiam Emedia Ltd.v. Income-tax Officer-2(2) 22 [2020] 115 taxmann.com 338 (Delhi) HIGH COURT OF DELHI Experion Developers (P.) Ltd. v.Assistant Commissioner of Income-tax 23 [2018] 91 taxmann.com 181 (Gujarat) HIGH COURT OF GUJARAT Jayant Security & Finance Ltd.v.Assistant Commissioner of Income-tax, officer Circle 1(1) 24 [2012] 18 taxmann.com 83 (Delhi) IN THE ITAT DELHI BENCH Ms. Rainee Singh v.Income-tax Officer 25 [1995] 83 TAXMAN 194 (MAD.)HIGH COURT OF MADRAS Panchugurumurthy v. Commissioner of Income-tax & 407/JP/2018 & CO Nos.11 & 12/JP/2018 DCIT vs. M/s Man Prakash Talikies Pvt. Ltd. 26 [2016] 72 taxmann.com 302 (Gujarat) HIGH COURT OF GUJARAT Peass Industrial Engineers (P.) Ltd. v. Deputy Commissioner of Income-tax 27 [2020] 114 taxmann.com 718 (Gujarat) HIGH COURT OF GUJARAT Purnima Komalkant Sharma v. Deputy Commissioner of Income-tax, Circle 1 28 [2022] 139 taxmann.com 409 (Gujarat) HIGH COURT OF GUJARAT Pushpa Uttamchand Mehta v. Income-tax Officer 29 [2023] 153 taxmann.com 282 (Kolkata - Trib.) IN THE ITAT KOLKATA BENCH 'A' Tarasafe International (P.) Ltd. v.Deputy Commissioner of Income-tax 30 [2021] 128 taxmann.com 229 (Gujarat) HIGH COURT OF GUJARAT Bhanuben Mansukhlal Khimashia v.Income Tax Officer Ward 3(1) 31 [2021] 129 taxmann.com 48 (Gujarat) HIGH COURT OF GUJARAT Kaushaliya Sampatlal Dudani v.Income-tax Officer, Ward 1(3) 32 [2021] 129 taxmann.com 119 (Gujarat) HIGH COURT OF GUJARAT Nishant Vilaskumar Parekh v.Income-tax Officer, Ward 1(3) 33 [2022] 138 taxmann.com 50 (Gujarat) HIGH COURT OF GUJARAT Nishant Vilaskumar Parekh v.Income-tax Officer 34 [2021] 131 taxmann.com 42 (Gujarat) HIGH COURT OF GUJARAT Sameer Gulabchand Shah HUF v. Income-tax Officer, Ward 1(3) 35 [2021] 127 taxmann.com 679 (Gujarat) HIGH COURT OF GUJARAT Silverdale Inn (P.) Ltd. v. Income Tax Officer 36 [2021] 129 taxmann.com 68 (Gujarat) HIGH COURT OF GUJARAT Vilas Vrajlal Parekh HUF v.Income-tax Officer, Ward(1)3 37 [2021] 133 taxmann.com 397 (Gujarat) HIGH COURT OF GUJARAT Zaveri & Company (P.) Ltd.v.Deputy Commissioner of Income-tax

16. As is evident from the cross objections filed that the grounds which are of the technical in nature was not decided by the ld. CIT(A). Therefore, assessee filed cross objections. So far as the appeal filed by the revenue, ld. AR of the assessee heavily relied upon the finding recorded in the order of the ld. CIT(A). The ld. AR in support of the cross objection and to support the order of the ld. CIT(A) has relied upon the following written submission:

“The humble Assessee-Respondent above named MOST RESPECTFULLY SHEWETH:

1. That the brief facts of the case as emerging from the records are as under:

1.1. That the assessee is a Private Limited Company and was earlier engaged in the business of exhibiting films in the Cinema Hall known & 407/JP/2018 & CO Nos.11 & 12/JP/2018 DCIT vs. M/s Man Prakash Talikies Pvt. Ltd. as “Man Prakash” and the assessee was owning a plot of land admeasuring 5720 sq. yards situated at Plot adjoining Yadgar, M.I. Road, Jaipur.

1.2. That the assessee entered into a Development Agreement dated 12.12.2001 [PB 31-56] with M/s. Golcha Buildtech Pvt. Ltd. (hereinafter called as the Developer) which was duly notarized whereby as per terms and conditions of the said agreement, the assessee has contributed the land to the project whereas the Developer has agreed to bear all the costs of constructions including obtaining the necessary approvals and permissions from the local authorities. The assessee were to receive a total sum of Rs. 2.50 crores as interest free refundable security deposit and the assessee were also to receive non- refundable security deposit of Rs. 2.00 crores on the date of Mahurat/Bhumi Pujan of the project. The Developer was required to get the building plans approved. The Developer was also required to get the existing building demolished. The parties have agreed to have 50% share each in the constructed commercial complex. The Developer was not permitted to the execute sale deed before completion of construction. However, due to certain litigations over the Plot including filing of Public Interest Litigation before the Hon’ble Court, the parties decided to modify the terms with relation to security deposit by way of deed for modification dated 15.05.2004 [PB 71-75] by which it was decided that the assessee were to receive a total sum of Rs. 1.68 crores as interest free refundable security deposit instead of earlier agreed Rs. 2.50 crores as interest free refundable security deposit and Rs. 2.00 crores as non-refundable security deposit.

2. That between Financial Year 2001-02 and FY 2007-08, the developer demolished the Cinema Hall and constructed a commercial complex. During the financial year 2007-2008, i.e., assessment year 2008-2009 the commercial complex was completed and assessee’s share was handed over to it on 14.04.2007. The assessee got the cost of shops & offices from registered valuer who valued it at Rs. 18,49,76,342/- and the same was shown under the head Investment in the Balance Sheet and also in the subsequent years it has been shown under the head Investment only. Real estate business is not part of the object clause of the assessee company. The shops were never shown as stock-in-trade by the assessee in its books of accounts. The indexed gain arrived at was shown as Long Term Capital Gains. There was sale of shops by the assessee and subsequent gain earned on sale of shops was shown as Short Term Capital Gains. The assessee after getting its books of accounts audited filed its return of income on 29.03.2010 and declared therein total income at Rs. 2,00,29,760/- wherein primary income from Long Term Capital Gains was shown and on which due income-tax was also paid. Copy of Income Tax Return [PB 12], Computation of Income [PB 13-15] & Final Accounts as at 31.03.2008 [PB 16-24].

& 407/JP/2018 & CO Nos.11 & 12/JP/2018 DCIT vs. M/s Man Prakash Talikies Pvt. Ltd. 2.1. That the Assessing Officer selected the case for detailed scrutiny and issued query notice dated 23.09.2010 [PB 25, 26-28] to which the assessee replied from time to time vide letters dated 04.10.2010 [PB 29-30], 08.10.2010 [PB 57], 13.10.2010 [PB 58-61] & 18.11.2010 [PB 62] and submitted relevant documents in support thereto.

2.2. That the Assessing Officer after being satisfied & after due verification of submissions made vide assessment order dated 03.12.2010 passed u/s. 143(3) accepted the returned income [PB 63- 64].

3. That subsequently the Audit Wing of the department, carried out Audit of the scrutiny assessment and pointed out the fact that the assessee has actually converted its capital asset into stock in trade by converting the land use after demolition of Cinema Hall Building and entered into a Development Agreement for construction of multistoried commercial complex, therefore, the provisions of section 45(2) are clearly applicable and that the income ought to be taxed as Business Income and not as Capital Gains [PB 65-67]. Response of the assessee was sought by the Assessing Officer and the assessee submitted a response to the Audit Memo and filed its objection thereto [PB 68]. The Audit Objection nowhere alleges non-disclosure of correct facts by the assessee during the course of assessment.

3.1. That the Assessing Officer also issued notice dated 25.09.2014 u/s 133(6) of the Act in relation to the assessment year 2010-2011 [PB 69], to which the assessee also replied vide letter dated 07.10.2014 and submitted relevant documents in support thereto [PB 70].

4. That the Assessing Officer after passage of 4 years & after carrying out scrutiny assessment assumed jurisdiction to again reassess the assessee and issued a notice dated 31.03.2015 u/s. 148 of the Act for the assessment year 2008-2009 by taking sanction of the PCIT, Jaipur 1, Jaipur. However, no such notice was received by the assessee. Vide letter dated 20.04.2015, the Assessing Officer enclosed the notice dated 31.03.2015 [PB 76-77]. The assessee in response to the notice dated 20.04.2015 vide letter dated 18.05.2015 [PB 78] intimated that no such notice dated 31.03.2015 was served upon it and further requested that the return of income filed by the assessee earlier on 29.03.2010 be treated as return in response to reassessment notice. The assessee also sought reasons for initiating reassessment proceedings. The reasons recorded were never conveyed to the assessee though in the remand report to CIT(A) it is stated to have been issued by the Assessing Officer vide its notice dated 29.09.2015 and was served through Affixture (copy of affixture report was never provided to the assessee). Interestingly notice issued u/s.143(2) was also never received by the assessee though in the assessment order it is stated to have been issued by the Assessing Officer on 29.09.2015 & 407/JP/2018 & CO Nos.11 & 12/JP/2018 DCIT vs. M/s Man Prakash Talikies Pvt. Ltd. and was served through Affixture (copy of affixture report was never provided to the assessee). The Assessing Officer issued show cause notice dated 08.03.2016 [PB 79-82] to the assessee on which the assessee filed objections vide letter dated 11.03.2016 [PB 83] and again highlighted that notice dated 31.03.2015 was not served upon the assessee. The Assessing Officer vide letter dated 14.03.2016 [PB 84-86] intimated that notice dated 31.03.2015 was served through affixture and through postal department and provided copy of report of affixture dated 31.03.2015. The assessee filed an application dated 21.03.2016 u/s. 144A of the Act with the ld. JCIT [PB 87-91]. The assessee filed furnished the reply on merits vide letter dated 22.03.2016 [PB 92-95].

5. That the Assessing Officer ultimately passed re-assessment order dated 30.03.2016 whereby he has treated the conversion of capital asset into stock in trade at the time of entering into Development Agreement by the assessee with the Builder by invoking the provisions of section 45(2) of the Act. It held that where assessee has finally sold the shops and showrooms in the commercial complex then the profit from said transactions of sale shall have two components, one is capital gain in respect of conversion of land from capital asset into stock in trade and another is business income by sale of the stock in trade.

6. That against the impugned reassessment order dated 30.03.2016 passed by Assessing Officer, the assessee preferred appeal before the ld. CIT(A) and filed written submissions [PB 96-102, 103-108 & 109-112].

6.1. That the ld. CIT(A) by its order dated 25.01.2018 allowed the appeal of the assessee. The ld. CIT(A) has reproduced the reasons recorded by the Assessing Officer for initiating reassessment proceedings [Page 17 CIT(A), Para 3.1.2. (iii)].

6.2. That the ld. CIT(A) vide his letter dated 12.09.2017 called for remand report from the Assessing Officer which was responded by the Assessing Officer vide its report dated 21.09.2017 [Page 6, 7-10 CIT(A)].

6.3. That the ld. CIT(A) vide his letter dated 21.12.2017 again called for remand report from the Assessing Officer and the Assessing Officer vide its letter dated 22.12.2017 chose not to respond to the query and simply furnished the copy of reasons recorded earlier [Page 41 CIT(A), para 3.1.2. (ix), (x)].

6.4. The ld. CIT(A) decided the issue of reopening of the assessment in favour of the assessee and quashed the reopening of the assessment for the following reasons:

& 407/JP/2018 & CO Nos.11 & 12/JP/2018 DCIT vs. M/s Man Prakash Talikies Pvt. Ltd. � All material facts were there before the Assessing Officer at the time of original assessment proceedings and no adverse inference was drawn by the Assessing Officer thereof. Therefore on the basis of reappreciation of facts already on record, the Assessing Officer has initiated proceedings u/s. 147 of the Act which tantamounts to change of opinion which is not permissible in eyes of law [Page 22 CIT(A) para 3.1.2. (vii), Page 67 CIT(A) para 3.1.2. (xiii)]; � Since assessment was reopened after a period of 4 years and the assessment was carried out u/s. 143(3), the 1st proviso to section 147 is triggered and in the reasons recorded by the Assessing Officer there is no whisper that the assessee has not disclosed all the material facts for the purpose of assessment. The Assessing Officer has not stated what material facts were not disclosed truly and fully by the assessee at the time of original assessment [Page 40 CIT(A) para 3.1.2. (viii), Page 41 CIT(A) para 3.1.2. (xi), Page 66 CIT(A) para 3.1.2. (xii)]. 6.5. Since reopening of the assessment was quashed by the ld. CIT(A) on merits, therefore, other grounds raised by the assessee against the validity of the reassessment order on the ground of proper service of notice u/s 148 & 143(2), reasons not provided, etc., etc., were not adjudicated upon by the ld. CIT(A). 6.6. That the ld. CIT(A) also decided the issue of assessment of Long Term Capital Gain u/s 45(2) of the Act in favour of the assessee by holding that there was no conversion of capital asset into stock in trade by virtue of demolition of Cinema Hall Building and conversion of land use as well as entering into Development Agreement dated 12.12.2001 with the Developer on the following grounds: � There is no evidence that land under consideration was converted into stock in trade. In fact the shops were shown under the head “Investments”. [Page

88. CIT(A) para 3.3.2. (vii)]; � The assessee has not converted its capital asset into stock in trade. [Page

88. CIT(A) para 3.3.2. (vii)]; � There is no evidence that assessee was under the business of real estate. In fact ‘to deal in real estate’ is not part of object clause of the assessee. [Page

88. CIT(A) para 3.3.2. (viii)]; � Entire responsibility to construct was of the Developer. [Page

88. CIT(A) para 3.3.2. (ix)]; � There is no positive act which indicates that assessee has treated capital asset as stock-in-trade. [Page

88. CIT(A) para 3.3.2. (ix)]; � There change on land use from Cinema Hall to Commercial Complex does not tantamount to conversion of capital asset into stock- in-trade. [Page

88. CIT(A) para 3.3.2. (ix)]; � The Assessing Officer has deemed the date of entering into Development Agreement to be change of capital asset into stock-in- trade, which does not emanate from record. [Page

88. CIT(A) para 3.3.2. (ix)];

GROUND NO. (i) & (ii) OF THE REVENUE 7. For ready reference the grounds of appeal raised by the Revenue is reproduced as hereunder: (i) Whether on the facts and circumstances of the case and in law the ld. CIT(A) has erred in quashing the reassessment proceedings without appreciating the facts that mere omission of some words does not quash the entire proceedings. (ii) Whether on the facts and in the circumstances of the case and in law the ld. CIT(A) has erred in appreciating the law laid down by the Hon'ble Supreme Court in the case of M.V. “Vali Pero’’ vs Fernandeo Lopex, AIR 1989 (SC) 2206 wherein it has been held that the outcome and fairness of the procedure have been followed, there is no reason to discard the result simply because certain details which have not prejudicially affected the result have been inadvertently omitted in a particular case.

8. That on perusal of order dated 25.01.2018 passed by the ld. CIT(A) it is discernible that the reasons on which the reassessment order dated 30.03.2016 was quashed by him was: � All material facts were there before the Assessing Officer at the time of original assessment proceedings; � On the basis of reappreciation of facts already on record, the Assessing Officer has initiated proceedings u/s. 147 of the Act which tantamounts to change of opinion which is not permissible; � In the reasons recorded by the Assessing Officer there is no whisper that the assessee has not disclosed all the material facts for the purpose of assessment; � In the reasons recorded the Assessing Officer has not stated what material facts were not disclosed truly and fully by the assessee at the time of original assessment.

9. That none of the aforesaid ground no. (i) & (ii) raised by the revenue remotely arise from the order passed by the CIT(A) and in fact the grounds on which the ld. CIT(A) has quashed the reassessment proceedings have not been challenged by the Revenue. The CIT(A) has not quashed the reassessment proceedings for mere omission of some words, in fact which words are omitted is not spelt out. The Assessing Officer does not dispute the fact that (i) All material facts were before the Assessing Officer at the time of original assessment proceedings, (ii) The Assessing Officer has initiated proceedings u/s. 147 of the Act which tantamounts to change of opinion since it is reappreciation of facts already available on record, (iii) The reasons recorded by the Assessing Officer do not allege that the assessee has not disclosed all the material facts & (iv) In the reasons recorded the Assessing Officer has not stated what material facts were not disclosed truly and fully by the assessee. Thus this appeal deserves to be dismissed in limine itself.

For ready reference 1st proviso to section 147 of the Act is 10. reproduced as hereunder: Income escaping assessment. 147. ……………………………………………………………………: Provided that where an assessment under sub-section (3) of section 143 or this section has been made for the relevant assessment year, no action shall be taken under this section after the expiry of four years from the end of the relevant assessment year, unless any income chargeable to tax has escaped assessment for such assessment year by reason of the failure on the part of the assessee to make a return under section 139 or in response to a notice issued under sub-section (1) of section 142 or section 148 or to disclose fully and truly all material facts necessary for his assessment, for that assessment year.

11. That it is settled law that proceedings u/s. 148 are not permissible on change of opinion & further where 1st proviso to section 147 applies then in absence of any allegation that the assessee has failed to disclose fully and truly all material facts necessary for his assessment. The assessee wishes to rely upon following authorities amongst others: � New Delhi Television Ltd. v. DCIT 2020 (4) TMI 133 (Supreme Court) � ACIT v. Nupower Renewables Pvt. Ltd. [SLP No. 19929/2019 dated 26.08.2019] confirming Nupower Renewables Pvt. Ltd. v. ACIT 2019 (3) TMI 1125 (Bombay) � ACIT v. Dhirendra Hansraj Singh [2018 (11) TMI 1499 (Supreme Court)] confirming Dhirendra Hansraj Singh v. ACIT [2018 (5) TMI 1386 (Gujarat High Court)] � ACIT v. CEAT Ltd. [2023 (1) TMI 73 (Supreme Court)] confirming CEAT Ltd. v. ACIT [2022 (2) TMI 298 (Bombay High Court)] � ITO v. Sanjeev Ghei [2019] 104 taxmann.com 81 (SC) confirming Sanjeev Ghei v. ITO [2019] 94 taxmann.com 80 (Delhi) � Rampal Samdani v. UOI 2023 (1) TMI 575 (Rajasthan High Court) � ACIT v. Marudhar Hotels Pvt. Ltd. 2019 (7) TMI 607 (Rajasthan High Court) � Asha Kala v. ACIT 2017 (8) TMI 195 (Rajasthan High Court) � CIT v. Hindustan Zinc Ltd. [2016] 70 taxmann.com 262 (Rajasthan) � CIT v. Vaishali Avenue 2014 (2) TMI 1220 (Rajasthan High Court) � CIT v. Manish Ajmera 2010 (11) TMI 686 (Rajasthan High Court) � Akum Drugs and Pharmaceuticals Ltd. v. DCIT 2024 (1) TMI 289 (Delhi High Court)

& 407/JP/2018 & CO Nos.11 & 12/JP/2018 DCIT vs. M/s Man Prakash Talikies Pvt. Ltd. � Bajaj Energy Ltd. v. ACIT 2024 (1) TMI 1139 (Bombay High Court) � Adani Enterprises Ltd. v. ACIT 2023 (10) TMI 136 (Gujarat High Court) � Amrit Corp. Ltd v. Addl. CIT 2014 (5) TMI 19 (Allahabad High Court) � PCIT v. Light Carts Pvt. Ltd. (2017) 85 taxmann.com 331 (Allahabad High Court) � Madras Suspensions Ltd. v. DCIT (2017) 88 taxmann.com 256 (Madras High Court) � Cadila Healthcare Ltd. v. ACIT (2017) 85 taxmann.com 257 (Gujarat High Court) � Oracle India Pvt. Ltd. v. ACIT (2017) 83 taxmann.com 368 (Delhi High Court) � Sitara Diamonds Pvt. Ltd. v. DCIT (345 ITR 91) (Bombay High Court) 12. That it is settled law that it is not necessary that reasons for accepting the return income have to be captured in the assessment order what is important is query raised. The assessee wishes to rely upon: � ACIT v. Marico Ltd. (2020) 6 TMI 436 (Supreme Court) � ITO v. Techspan India Pvt. Ltd. (2018) 4 TMI 1376 (Supreme Court) � JCIT v. Cognizant Technology Solutions India Pvt. Ltd. (2023) 1 TMI 1233 (Supreme Court) � Aroni Commercials Ltd. v. DCIT (2014) 2 TMI 659 (Bombay High Court) 13. That it is settled law that proceedings u/s. 148 are not permissible on Audit Objection. In fact Audit Objection is one of the permitted means of reassessment by Finance Act, 2022 by amendments made to Explanation 1(ii) to section 148 of the Act. The assessee wishes to rely upon: � CIT v. Rajan N. Aswani (2018) 403 ITR 30 (Bombay), � FIS Global Business Solutions India Pvt. Ltd. v. PCIT (2019) 102 taxmann.com 471 (Delhi) � Mobis India Ltd. v. DCIT (2022) 11 TMI 893 (Madras High Court) � Himachal Aluminum and Conductors v. State of Himachal Pradesh (2021) 2 TMI 481 (Himachal Pradesh High Court) � DCIT v. Poonia Wines (Rewari) (2023) 7 TMI 24 (ITAT-Jaipur Bench) In light of above, the present ground of appeal of the revenue deserves to be dismissed and the order passed by the ld. CIT(A) deserves to be sustained. GROUND NO. (iii) OF THE REVENUE & 407/JP/2018 & CO Nos.11 & 12/JP/2018 DCIT vs. M/s Man Prakash Talikies Pvt. Ltd.

14. For ready reference the grounds of appeal raised by the Revenue is reproduced as hereunder: Whether on the facts and in the circumstances of the case and in law the ld. CIT(A) has erred without appreciating that the assessee made transfer as per Section 2(47) of the Act while making treatment of its capital asset i.e. land of Cinema Hall into stock in trade of the business of selling of shops u/s 45(2) of the Act

15. For ready reference section 45(2) of the Act is reproduced as hereunder: Notwithstanding anything contained in sub-section (1), the profits or gains arising from the transfer by way of conversion by the owner of a capital asset into, or its treatment by him as stock-in-trade of a business carried on by him shall be chargeable to income-tax as his income of the previous year in which such stock-in-trade is sold or otherwise transferred by him and, for the purposes of section 48, the fair market value of the asset on the date of such conversion or treatment shall be deemed to be the full value of the consideration received or accruing as a result of the transfer of the capital asset.

16. It is undisputed fact that no financial entry was made in the books of accounts of the assessee from 2001 to 2008 reflecting transfer from capital asset to stock-in-trade. The shops have been consistently shown under the head ‘Investment’. There change on land use from Cinema Hall to Commercial Complex does not tantamount to conversion of capital asset into stock-in-trade. To maximize the Gains does not mean that the intention of the assessee is to carry out business. The intention is not the necessary criteria for invoking section 45(2) of the Act but entries in books of accounts is relevant. The object clause of the assessee has been referred by the CIT(A) in detail. The assessee was not in the business of real estate nor did it had any object clause for carrying out business of real estate. Entire responsibility of construction, demolition of existing structure, approval of maps, etc., etc. was of the Developer and that the assessee had simply handed over the Land owned by it for the purpose of construction of commercial complex. There is no positive act which indicates that assessee has treated capital asset as stock-in-trade. If the argument of the Assessing Officer were to be accepted then in all cases wherein Development Agreement is entered into by and between a LAND OWNER & DEVELOPER, the gains realized by the LAND OWNER on sale of developed property (whether commercial or residential) will always be treated as Business Income. Nature of income earned by the DEVELOPER will be BUSINESS income because it is carrying out construction, putting funds towards construction, seeking approvals, etc., etc. and that is its business objective.

17. The assessee wishes to place reliance upon:

& 407/JP/2018 & CO Nos.11 & 12/JP/2018 DCIT vs. M/s Man Prakash Talikies Pvt. Ltd. � Hon’ble Rajasthan High Court in the case of CIT v. Sohan Khan (2008) 304 ITR 194 (Raj.) wherein it was held: AO holding transaction of disposal of large extent of land under site plan, in nature of trade - nothing to show, that the land was purchased with intention to sale it at a profit, or with requisite intention, to bring it within the parameters of “stock in trade” - not shown, that assessee is a regular dealer in real estate – transaction was of capital asset only and not a transaction of any stock-in-trade - therefore, it is liable to be taxed only, as the capital gain – revenue appeal dismissed. � Hon’ble Rajasthan High Court in the case of CIT v. Hazari Lal Goyal (2017) 9 TMI 1696 against which SLP Dismissed (2018) 8 TMI 294 wherein it was held: Assessee filed his return wherein profit arising from sale of land was declared as capital gains - Assessing Officer noted that assessee divided said land into plots after providing space for infrastructural facilities i.e. parks, roads and schools etc. - According to Assessing Officer, assessee had intention to sell plots as a business proposition by treating said land as stock-in-trade - He thus held that profit earned on sale of land was taxable as business income - Tribunal, however, opined that Assessing Officer had not brought on record any permission by assessee from Municipal Authorities or any of Government Authorities to act as a colonizer - It was further opined that by developing infrastructural facilities to make land saleable would not change intention of assessee in absence of any material contrary to facts - Tribunal thus taking a view that assessee had no intention to convert land owned by him as stock-in-trade, accepted assessee's claim that profit in question was taxable as capital gain - Whether it is always prerogative of assessee to how to dispose of property - Held, yes - Whether, therefore, findings recorded by Tribunal being findings of fact based on material available on record, did not require any interference - Held, yes � Hon’ble Calcutta High Court in the case of CIT v. Surjeet Kaur (2018) 3 TMI 796 (Calcutta) wherein it was held: Sale of asset - Whether a particular transaction would constitute adventure in the nature of trade or would be the normal sale of assets attracting long term capital gain? - Held that:- No material from records to suggest that at the time of acquisition of the properties such acquisition was for the purpose of undertaking a business venture. What we are to look at now is as to whether there was a business venture simultaneously with the development agreement. Major portion of the developed building was to remain with the assessee after construction. Sale of one unit therefrom per se would not have constituted an adventure in the nature of trade. Materials available on record do not show that building construction formed part of normal activity of the Assessee. Determining factor in this appeal, as urged by Revenue, becomes the intervening arrangement of agreement for sale and its subsequent cancellation when the property fetched better price. Revenue’s stand is that pursuit of higher profit by itself would confer on the transaction the character of business venture. We are, however, unable to agree with this submission. It might be natural for a person, who is not undertaking & 407/JP/2018 & CO Nos.11 & 12/JP/2018 DCIT vs. M/s Man Prakash Talikies Pvt. Ltd. any business venture, to seek higher return from sale of his assets. That would be a rational pursuit and in our view reflects normal human behaviour and not a special attribute for a trader or a businessman. Just because for a particular unit, an intervening transaction is aborted for the reason that the property would fetch a better price, if sold to another person, grievance may be caused to the person with whom the earlier arrangement was entered into. But such an exercise would not transform the nature of activity from normal sale of capital asset to a business venture. There is substantial gap in time between the day of acquisition of the asset and its development and part-sale. The original assessee was not a property dealer but a member of the Indian Revenue Service, working with the Income Tax department itself. Only a portion of the property was sold. In these circumstances, the test laid down in the case of G. Venkataswami Naidu & Co. (1958 (11) TMI 5 - SUPREME Court) has to be decided in favour of the assessee. � Hon’ble Calcutta High Court in PCIT v. Rungta Properties Pvt. Ltd. (2017) 6 TMI 521 (Calcutta) wherein it was held: Whether development of immovable property is in the nature of trade - profit from sale of such property is treated as business income or capital gains - Held that:- This was gain from improvement of the assessee’s property which the assessee held since 1965 and had all along shown in its books as fixed assets - there was no finding on the part of the AO that the assessee was involved in the business of real estate at any point of time - the intention to hold the property was not an adventure in the nature of trade - hence the transaction could not come within the ambit of adventure in the nature of trade - also the gain from sale of such property cannot be held as business income - Decided in favor of assessee. � Hon’ble ITAT Jaipur Bench in DCIT v. Ravindra Mittal (2021) 3 TMI 819 has held: In the present case, there is nothing to show that the land was purchased with the intention to sell at a profit or with requisite intention to bring it within the para meters of “stock-in-trade”. As not shown that the assessee is a regular dealer in real estate. Rather, it appears that the land was not purchased by the assessee, but was inherited by him from his father and the development agreement was entered into even after lapse of around 12 years thereafter. As per the Development Agreement, the developer had all the obligation of execution of work. Even the assessee was debarred from interfering in the working of the developer. On the contrary, no funds of the assessee were deployed rather he received security deposit from the developer. Therefore, after considering the terms and conditions as contained in Development Agreement and following the decisions referred above, we are also of the view that the gains in the present case is to be chargeable to tax under the head “capital gains”. In the present case, it has no where been shown that the land was purchased by the assessee with the intention to sell at a profit or with requisite intention to bring it within the parameters of “stock-in-trade”. Therefore, after considering the factual position as enumerated hereinabove, we found that the ld. CIT(A) has rightly concluded that the gains are to be & 407/JP/2018 & CO Nos.11 & 12/JP/2018 DCIT vs. M/s Man Prakash Talikies Pvt. Ltd. charged to tax under the head “capital gains”. No new facts or circumstances have been brought before us by the ld. DR in order to controvert or rebut the findings so recorded by the ld. CIT(A), therefore, we find no reason to interfere into or deviate from the findings of the ld. CIT(A). Accordingly, we uphold the same.

In light of above, the present ground of appeal of the revenue deserves to be dismissed and the order passed by the ld. CIT(A) deserves to be sustained.

GROUND NO. (2) to (3) OF THE ASSESSEE (CROSS OBJECTION):

18. Since reopening of the assessment was quashed by the ld. CIT(A) on merits, therefore, other grounds raised by the assessee against the validity of the reassessment order on the ground of proper service of notice u/s 148, 143(2) not served, reasons not provided, etc., etc., were not adjudicated upon by the ld. CIT(A) which he ought to have adjudicated.”

16.1 To support the contention so raised in the written submission reliance was placed on the following evidence / records / decisions:

PAPER BOOK

Sno. Particulars Page No. From To 1 Copy of Written Submissions before Hon’ble ITAT 01 11 2 Copy of Income Tax Return, Computation of Income & 12 12 Final Accounts as at 31.03.2008 of the assessee for A.Y. 13 15 2008-2009 16 24 3 Copy of notice dated 23.09.2010 issued u/s. 143(2) & 25 25 142(1) issued by the Assessing Officer for A.Y. 2008-2009. 26 28 4 Copies of reply dated 04.10.2010, 08.10.2010, 13.10.2010 29 30 & 18.11.2010 filed by the assessee including Development 31 56 Agreement dated 12.12.2001 57 57 58 61 62 62 5 Copy of assessment order dated 03.12.2010 for A.Y. 2008- 63 64 2009 passed by the Assessing Officer u/s. 143(3) 6 Copy of Audit Memo & reply to Audit Memo filed by the 65 67 Assessee. 68 68 7 Copy of notice dated 25.09.2014 issued u/s. 133(6) for A.Y. 69 69 2010-2011 & reply dated 07.10.2014 filed by the assessee 70 70 including Modification Agreement dated 15.05.2004. 71 75 8 Copy of letter dated 20.04.2015 alongwith notice dated 76 76 & 407/JP/2018 & CO Nos.11 & 12/JP/2018 DCIT vs. M/s Man Prakash Talikies Pvt. Ltd. 31.03.2015 issued by the Assessing Officer. 77 77 9 Copy of letter dated 18.05.2015 filed by the assessee. 78 78 10 Copy of letter dated 08.03.2016 issued by the Assessing 79 82 Officer. 11 Copy of letter dated 11.03.2016 filed by the assessee. 83 83 12 Copy of letter dated 14.03.2016 issued by the Assessing 84 86 Officer. 13 Copy of letter dated 21.03.2016 filed by the assessee. 87 91 14 Copy of letter dated 22.03.2016 filed by the assessee. 92 95 15 Copy of written submissions filed before the CIT(A) for A.Y. 96 102 2008-2009. 103 108 109 112 Case laws relied upon:

COMPENDIUM INDEX SNo. DESCRIPTION PB PB

Reassessment proceedings on change of opinion & failure to disclose truly all material facts

2. ACIT v. Nupower Renewables Pvt. Ltd. 2019 (10) TMI 520 (Supreme 13 13 Court): Reopening of assessment u/s 147 - original assessment u/s 143(3) - unexplained investment made by a Mauritius based Company towards share allocation money in Compulsory Convertible Cumulative Preference Shares - genuineness and creditworthiness of the foreign entity - information received from the investigation wing - beyond limitation - no failure on the part of the assessee to declare fully and truly all material facts - no new or additional material - desire to carry out enquiries - HELD THAT:- SLP dismissed.

3. ACIT v. Dhirendra Hansraj Singh 2018 (11) TMI 1499 (Supreme Court): 14 14 Reopening of the assessment u/s 147 - as per AO income chargeable to tax had escaped the assessment - the assessee had already tabulated necessary details as were required by the Assessing Officer at the time of original assessment - there was no failure on the part of the assessee to disclose fully and truly any material facts which were necessary for assessment - Held that:- No reason to interfere in the matter. The special leave petition is, accordingly, dismissed.

4. ACIT v. CEAT Ltd. 2023 (1) TMI 73 (Supreme Court): Reopening of 15 15 assessment u/s 147 - Notice beyond four years - conditions precedent for reopening - HELD THAT:- Having gone through the reasons recorded for re- opening, we are of the opinion that the conditions precedent for reopening of the assessment beyond four years are not satisfied. The re-assessment was on change of opinion. There are no allegations of suppression of material fact. Under the circumstances, no error has been committed by the High Court in setting aside the re-opening notice under Section 148 - We are in complete agreement with the view taken by the High Court. The Special Leave Petition stands dismissed.

6. Rampal Samdani v. Union of India 2023 (1) TMI 575 (Rajasthan High 17 22 Court): Reopening of assessment u/s 147 - Reason to believe - change of opinion - reassessment proceedings after a period of 4 years - HELD THAT:- Reasoning assigned by the ITO for reopening the proceedings on the ground that the material facts were not fully and truly disclosed by the petitioner and thus, his income escaped assessment, is absolutely unfounded. A clear perusal of the proviso to Section 147 makes it clear that & 407/JP/2018 & CO Nos.11 & 12/JP/2018 DCIT vs. M/s Man Prakash Talikies Pvt. Ltd. reassessment proceedings after expiry of four years from the end of the relevant assessment year can only be initiated in case, there is tangible material with the AO to show that the assessee had failed to fully and truly disclose all material facts necessary for his assessment for that assessment year. This Court, after analysis of material facts available on record, is of a categoric opinion that the assessee disclosed all material facts truly and fully while furnishing the return for the Assessment Year 2013-14 and hence, there was no justification for invoking the proviso to Section 147 so as to initiate reassessment proceedings after a period of 4 years. Reassessment notice is definitely time barred. In addition thereto, the reassessment notice has been issued only on account of ‘change of opinion’, plain and simple, without any tangible fresh material being available to the ITO for reopening the assessment proceedings. Resultantly, the impugned notice is declared to time barred and cannot be saved by proviso to Section 147 of the Income Tax Act. In addition thereto, the reassessment is being resorted to only on account of ‘change of opinion’ of the Assessment Officer without there being any fresh tangible evidence for reopening the assessment proceedings. Hence also, the impugned notice u/s 148 runs foul of the Kelvinator of India Limited [2010 (1) TMI 11 - SUPREME COURT] and thus, the same cannot be sustained and is liable to be struck down.

7. ACIT v. Marudhar Hotels Pvt. Ltd. 2019 (7) TMI 607 (Rajasthan High Court): 23 24 A reading of the impugned order would show that the original assessment order was framed under Section 143 (3) i.e. after scrutiny of all the claim by the assessee. It is thus apparent that the declarations and claims made, received careful consideration by the A.O.. In terms of Calcutta Discount Ltd. Co. Vs. I.T.O., (1961) 41 ITR 191 (SC) the job of the A.O. essentially is to consider the claims in accordance with law and not in accordance with what an assessee states. Likewise, that an assessee might not claim a benefit would not deny it that relief, conversely, since the A.O is bound to administer the law in its correct interpretation. The impugned judgment took into account the binding decision of the Supreme Court in Commissioner of Income – Tax, Delhi Vs. Kelvinator of India Ltd., (2010) 187 Taxman 312 (SC) where the Court after reviewing the entire law, including the decision in Raymond Woolen held that for a valid reopening of an assessment completed under Section 143 (3), the revenue must be in possession of tangible material outside of the record. In other words, a second opinion or a review on the existing material is impermissible. Having considered the conspectus of the case, this Court is of the opinion that the learned Single Judge was justified in granting the relief to the assessee on both aspects, there was no allegation of suppression or mis-declaration by the assessee. The A.O. in the original assessment took into account all claims. The mere fact that he overlooked some provisions itself-in the absence of tangible material could have afforded opportunity of reassessment to the revenue.

8. Asha Kala v. ACIT 2017 (8) TMI 195 (Rajasthan High Court): Reopening of 25 35 assessment - Taking into consideration the main aspect that the earlier order has not been challenged and the basis for Section 148 was not sound, it ought to have been quashed in view of the decision reported in the case of CIT Vs. Kelvinator of India Ltd. [2010 (1) TMI 11 - SUPREME COURT] one needs to give a schematic interpretation to the words "reason to believe" failing which, we are afraid, Section 147 would give arbitrary powers to the Assessing Officer to & 407/JP/2018 & CO Nos.11 & 12/JP/2018 DCIT vs. M/s Man Prakash Talikies Pvt. Ltd. re-open assessments on the basis of "mere change of opinion", which cannot be per se reason to re-open - The Assessing Officer has no power to review; he has the power to re-assess. But re-assessment has to be based on fulfilment of certain pre-condition and if the concept of "change of opinion" is removed, as contended on behalf of the Department, then, in the garb of re-opening the assessment, review would take place - to reopen an assessment tangible material should be there. Meaning of the expression, `reason to believe' had been explained in a number of court rulings in the past and was well settled and its omission from Section 147 would give arbitrary powers to the Assessing Officer to reopen past assessments on mere change of opinion. To allay these fears, the Amending Act, 1989, has again amended Section 147 to reintroduce the expression `has reason to believe' in place of the words `for reasons to be recorded by him in writing, is of the opinion'. Other provisions of the new Section 147, however, remain the same.

9. CIT v. Hindustan Zinc Ltd. [2016] 70 taxmann.com 262 (Rajasthan): 36 41 Reopening of assessment - claim of additional depreciation and also in respect of claim for grant of deduction under Section 80 IA - Held that:- The assessee had made true and full disclosure of all relevant facts relating to the claim of additional depreciation and also in respect of claim for grant of deduction under Section 80 IA. A separate audit report in the prescribed form 10CCB in support of the claim for deduction under Section 80IA/80IB was also duly submitted. The assessee had also submitted reply pursuant to all queries made by AO during the assessment proceedings under Section 143(3) of the Act. In this view of the matter, the contention sought to be raised by the Revenue about non-disclosure on the basis of the failure on the part of the assessee in mentioned bifurcated amount of additional depreciation allowable in the depreciation chart is absolutely baseless. It is to be noticed that all that has been said by the AO is that after scrutiny assessment, it was observed that assessee has made incorrect claim of additional depreciation on CPP whereas, the claim for additional depreciation on CPP was allowed by the AO while framing the assessment under Section 143(3) after conscious consideration of the material on record. It is not even the case of the Revenue that the formation of the belief regarding the escapement of the assessment by the AO is based on any new material coming on record. Apparently, the formation of the belief by the AO regarding escapement of the assessment is based on re-appreciation of the material already available on record at the time of scrutiny assessment which amounts to mere change of opinion. Obviously, in the garb of purported exercise of the power to reassess, the AO cannot be permitted to review his own order or the order passed by his predecessor. Thus, the finding arrived at by the ITAT that the reassessment proceedings initiated by the AO by mere change of opinion is patently illegal, cannot be faulted with. The ITAT having arrived at the categorical finding that reopening of the completed assessment without any fresh material, merely on the basis of change of opinion of the AO, is without jurisdiction and erroneous, the appeal preferred by the Revenue has rightly been dismissed as having become infructuous.

10. CIT v. Vaishali Avenue 2014 (2) TMI 1220 (Rajasthan High Court): In the 42 44 present case, apparent it is that all the facts relating to the debited expenses of ₹ 87,35,400 on account of development expenses were stated in the P&L a/c wherein, a sum of ₹ 35,00,000 was taken to the balance-sheet as provision for project development. All the facts were definitely available before the AO at the time of framing of the original assessment order. A look at the reasons recorded by the AO for the purpose of reopening makes it clear that the observations were made as if the successor AO was sitting in appeal over the original assessment order dt. 19th Dec, 2008; and it was & 407/JP/2018 & CO Nos.11 & 12/JP/2018 DCIT vs. M/s Man Prakash Talikies Pvt. Ltd. sought to be suggested as to what was meant by a 'known liability' and as to whether the provision made on the basis of the quotations would qualify for liability or not. If was suggested that this amount, being not an expenditure, should have been added to the total income. It was further suggested that ₹ 33,48,915 was debited to the registration and stamp charges and sale of plot though registration charges are generally borne by the purchaser and not by the seller. Hence, according to the AO, these expenses were wrongly claimed by the assessee. Evidently, all the observations by the successor AO were only of the expression of another opinion on the same set of facts. In the given circumstances, the Tribunal cannot be faulted in finding that the reassessment was based only on change of opinion and hence, unsustainable.

11. CIT v. Manish Ajmera 2010 (11) TMI 686 (Rajasthan High Court): 45 46 Assessment u/s 143(3) read with section 148 of the Act - the assessment was reopened essentially not because of escapement of income, but because of change of opinion, which was not permissible even in the amended provisions under section 147 - The sole basis on which the assessment has been reopened is that while framing the original assessment order, the Assessing Officer has accepted the system of accounting adopted by the assessee as valid, whereas in the re-assessment made under section 147, the system of accounting adopted by the assessee has not been considered to be appropriate - It is therefore change of opinion on the basis of which re-assessment is made - The learned Tribunal has relied on the law laid down by the Supreme Court in CIT v. Foramer France ([2003 (1) TMI 101 - SUPREME Court] - to hold that reopening of assessment on mere change of opinion especially when there is no nondisclosure of material fact by assessee, is not permissible - Hence, the appeal is dismissed accordingly.

12. Akum Drugs and Pharmaceuticals Ltd. v. DCIT 2024 (1) TMI 289 (Delhi 47 50 High Court): AO while triggering the reassessment proceedings had not applied his mind independent of what the auditor had flagged. As a matter of fact, the AO did not even examine the reply given by his counterpart to the audit objection. Petitioner is right that this very aspect concerning claim of deduction under Section 80-IC of the Act was examined in the scrutiny proceedings and it was only when the AO was satisfied that the assessment order dated 30.01.2014 was framed. The logical sequitur of this assessment order was that the petitioner obviously had truly and fairly disclosed all material facts. There is not a whisper in the reasons to believe which would point in the direction that the petitioner had failed to disclose truly and fairly all material facts. Since the reassessment proceedings were triggered after four years, the AO ought to have indicated as to what were those material facts which the petitioner had failed to disclose. Thus, the impugned proceedings are flawed on various grounds, i.e., borrowed satisfaction, reasons to believe not adverting to the failure on the part of the petitioner to disclose truly and fairly all material facts, and also the change of opinion. Thus, for the foregoing reasons, we are inclined to allow the writ petition. Consequently, the impugned notice and the order whereby, the petitioner’s objections were rejected, are quashed.

& 407/JP/2018 & CO Nos.11 & 12/JP/2018 DCIT vs. M/s Man Prakash Talikies Pvt. Ltd.

13. Bajaj Energy Ltd. v. ACIT 2024 (1) TMI 1139 (Bombay High Court): 51 55 Petitioner, objects to the reopening of assessment essentially on the ground that Petitioner had provided information regarding all the queries raised by the AO and it is only after satisfying himself regarding all the information that the original assessment order was passed. He contends that there are no reasons to believe that income has escaped the assessment and the reopening is based on a mere change of opinion. It is settled law that reopening of assessment proceedings on the basis of escapement of income is not permissible on the ground of change of opinion of the AO. Once a query is raised during assessment proceedings and the assessee has replied to it, it follows that the query raised was a subject of consideration of the AO while completing the assessment. It is not necessary that an assessment order should contain reference and/or discussion to disclose its satisfaction in respect of the query itself. This Court in its decision in the matter of Aroni Commercials Limited [2014 (2) TMI 659 - BOMBAY HIGH COURT] has expounded the law in this regard. In the present case, the queries raised by the AO in the course of the original assessing proceedings followed by replies given by the Petitioner clearly show that the entire material was before the AO and applying his mind to the said material, the AO has passed the Assessment Order dated 20th July 2018. The statement of accounts regarding details of expenses and investment relating to earning of exempt income was accepted by the AO. The letter dated 4th August 2017 issued by Petitioner alongwith the financial statements, on record indicates that all queries raised by the AO by its letter dated 19th July 2017 were answered. In the Assessment Orders u/s 143(3) of the Income Tax Act, 1961 for AY 2012-13, AY 2013-14 & AY 2014-15 the returned income was accepted as assessed income and there were no disallowances. Thus the ‘reasons to believe’ forming part of Section 147 of the Act in this case, clearly points to the fact that the reopening of assessment was based on the information accessible by the AO. There is no tangible material available with the AO to justify reopening of assessment of income. Considering all no hesitation in holding that the reopening of assessment of Petitioner’s income by the AO is only on the basis of a change in his opinion, which is impermissible in law. Petition thus deserves to be allowed.

14. Adani Enterprises Ltd. v. ACIT 2023 (10) TMI 136 (Gujarat High Court): A 56 58 basis for issuance of notice was the fact that the requisite materials as noted in the reasons were embedded in such a manner that material evidence would not be discovered by the Assessing Officer and could have been discovered with due diligence and therefore, the provisions for Explanation-1 of Section 147 would attract. Having considered the submissions made by the learned counsels for the respective parties on reading the reasons recorded it is evident that it was for the Assessment Year 2014-15 and while recording the brief details of the assessment that fact is taken note of. Admittedly therefore, it is a case where the assessment or exercise of re-opening the assessment is beyond the period of four years and therefore, the petitioner would succeed only on this ground. Even otherwise, on the submission of the concept of “change of opinion” having considered the fact that for the very issue, when a notice under Section 142(1) of the Act, 1961 was given to the petitioner to which the petitioner responded on 13th November, 2017 and that very submission was the basis to have triggered the reassessment exercise, it is clearly an exercise which would tantamount to have undertaken on the basis of change of opinion.

& 407/JP/2018 & CO Nos.11 & 12/JP/2018 DCIT vs. M/s Man Prakash Talikies Pvt. Ltd. In light of the decision in case of Kelvinator of India Limited [2010 (1) TMI 11 - SUPREME COURT] the petition succeeds on this ground too.

Reassessment not permissible on the ground that reasons are not reflected in assessment order

18. ITO v. Techspan India Pvt. Ltd. (2018) 4 TMI 1376 (Supreme Court): Reopening 94 98 of assessment - deduction u/s 10A has been allowed in excess - change of opinion - Held that:- The very basis of issuing the show cause notice dated 09.03.2004 was that the assessee was not maintaining any separate books of account for the said two categories and the details filed do not reveal proportional allocation of common expenses be made to these categories. Even the said show cause notice suggested how proportional allocation should be done. All these things leads to an unavoidable conclusion that the question as to how and to what extent deduction should be allowed under Section 10A of the IT Act was well considered in the original assessment proceedings itself. Hence, initiation of the re-assessment proceedings under Section 147 by issuing a notice under Section 148 merely because of the fact that now the Assessing Officer is of the view that the deduction under Section 10A was allowed in excess, was based on nothing but a change of opinion on the same facts and circumstances which were already in his knowledge even during the original assessment proceedings.

19. JCIT v. Cognizant Technology Solutions India Pvt. Ltd. (2023) 1 TMI 1233 99 99 (Supreme Court): HC held assessment proceedings, having been done with the same set of facts which were available during the regular assessment, is to be held to be a clear case of change of opinion and reasons were not furnished to the assessee within a reasonable time - HELD THAT:- In view of the findings recorded by the High Court in re questions raised and answers given, before, the assessment order under Section 143(3) of the Income Tax Act, 1961 was passed, we are not inclined to issue notice in the present special leave petition. The assessee has no role to play and is not the author of the assessment order and hence the manner and contents of the assessment order as framed is not determinative whether or not it is a case of change of opinion. Recording the

20. Aroni Commercials Ltd. v. DCIT (2014) 2 TMI 659 (Bombay High Court): The 100 108 power to reassess cannot be exercised on the basis of mere change of opinion i.e. if all facts are available on record and a particular opinion is formed, then merely because there is change of opinion on the part of the Assessing Officer notice under Section 147/148 of the Act is not permissible - Once a query is raised during the assessment proceedings and the assessee has replied to it, it follows that the query raised was a subject of consideration of the Assessing Officer while completing the assessment -It is not necessary that an assessment order should contain reference and/or discussion to disclose its satisfaction in respect of the query raised - If an Assessing Officer has to record the consideration bestowed by him on all issues raised by him during the assessment proceeding even where he is satisfied then it would be impossible for the Assessing Officer to complete all the assessments which are required to be scrutinized by him under Section 143(3) of the Act. The notice dated 28 March2013 under Section 148 of the Act seeking to reopen the assessment for A.Y.2008-09 and the order dated 20 November 2013 rejecting the petitioner's objection to reopen the assessment for A.Y. 2008-09 are not sustainable in law- The entire proceeding for reopening the assessment for A.Y. 2008-09 had emanated only on account of change of opinion on the part of the Assessing Officer – thus, the assessment order set aside - there was no reason for the Assessing Officer to have had a reasonable belief that income chargeable to tax has escaped assessment –thus, the Notice issued u/s 148 of the Act also set aside.

Reassessment not permissible on Audit Objection

21. CIT v. Rajan N. Aswani (2018) 403 ITR 30 (Bombay): Time gap between the 109 112 AO's response to the audit objection contesting that any income chargeable to tax has escaped audit and his issuing the reopening notice - Held that:- There is no evidence of the same on record. In any event in such a case the least that is expected of the Assessing Officer is to record in his reasons that he had earlier opposed the objection of the audit and the reason for the change of view on his part. It cannot be that passage of time would alone by itself indicate that there has been a fresh application of mind to the order passed under Section 143 (3) of the Act leading to his reason to believe that the income chargeable to tax has escaped assessment. One more fact that must not be missed is that reasons recorded itself indicates that “it is noticed from the Assessment records that the Assessee….”. On being specifically asked, Mr. Chhotaray very fairly informed us that the audit objection would be a part of the assessment records. Therefore, there is evidence on record that the audit objection was considered while issuing the reopening notice and there is nothing on record to even remotely suggest that in view of the delay in issuing the notice, AO applied his mind afresh (without being influenced by audit objection) to come to the same view as indicated in the audit objection. Third grievance of the Revenue is that the impugned order is perverse in as much as it holds that the Assessing Officer did not apply his mind is without any basis. This we do not accept. The & 407/JP/2018 & CO Nos.11 & 12/JP/2018 DCIT vs. M/s Man Prakash Talikies Pvt. Ltd. impugned order records the fact that it had examined the Assessing Officer's letter to the audit objection in respect of grant of deduction under Section 80IB (4). The response of the Assessing Officer's as contained in letter dated 29 October 2007 was before the Tribunal as a part of the paper book and in that letter, it has been mentioned at length on the basis of case law as existing in the relevant time that in his understanding of law the Respondent was entitled to the deduction under Section 80 IB (4) in respect of duty drawback incentive. Further the impugned order of the Tribunal also reproduced the audit objections as well as the reasons recorded and on comparing the two comes to a view that in substance both of them are identical. In the above view, it cannot even be remotely suggested that the impugned order of the Tribunal is perverse. Thus there is no merit in this objection of the Revenue.

22. FIS Global Business Solutions India Pvt. Ltd. v. PCIT (2019) 102 taxmann.com 113 116 471 (Delhi): Reopening of assessment - reasons for reopening the case - reassessment notice is solely based on an audit opinion - Held that:- This Court is of the opinion that Carlton [2009 (8) TMI 57 - DELHI HIGH COURT] concludes the issue in the present case; the audit objection merely is an information. As reiterated in Kelvinator [2010 (1) TMI 11 - SUPREME COURT OF INDIA] by the Supreme Court, change of opinion is impermissible. The Revenue was clearly barred by provisions of Section 147/148 of the Act. In the present case, the reassessment notice is solely based on an audit opinion. Having regard to the fact that the assessee’s challenge to the previous year’s re-assessment orders was successful - in FIS Global Business Solutions India Pvt. Ltd. v. ACIT [2018 (11) TMI 601 – DELHI HIGH COURT] the reassessment proceedings are unsustainable - the impugned re-assessment notice dated 31.03.2018, cannot be sustained.

Treatment of capital asset u/s 45(2) of the Act

CIT v. Sohan Khan (2008) 304 ITR 194 (Raj.) (Rajasthan High Court): AO 26. 146 149 holding transaction of disposal of large extent of land under site plan, in nature of trade – nothing to show, that the land was purchased with intention to sale it at a profit, or with requisite intention, to bring it within the parameters of “stock in trade” – not shown, that assessee is a regular dealer in real estate – transaction was of capital asset only and not a transaction of any stock-in-trade – therefore, it is liable to be taxed only, as the capital gain – revenue appeal dismissed.

27. CIT v. Hazari Lal Goyal (2017) 9 TMI 1696 (Rajasthan High Court): Capital 150 163 gain computation - Value of sale consideration - Held that:- The assessee has sold the land to 32 persons as stated whereas the AO has mainly relied upon the statement of Smt. Mithlesh Gupta which has no evidentiary value. The assessee Shri LK. Gupta, Chartered Accountant had submitted the affidavits of 7persons which were admitted by the ld. CIT(A) as an additional evidence and the AO was required to verify the veracity of the same as per direction of the CIT(A). The remand report was submitted by the AO and counter comments by the assessee at PB 52. The AO in the remand proceedings has taken the statement of 5 persons except Shri Gauri Shankar and Shri Balwant Kumar whose statements were recorded later on and are on record. All the 7 persons have confirmed to have purchased the land ₹ 200/- per sq. yard and no defect in the same has been pointed out by any of the authorities below. We appreciate the submissions of the assessee Shri L.K. Gupta, that other purchasers of the land have not been examined by the AO and no step has been taken in this regard by any of the authorities below. Therefore, in such circumstances and facts of the case, the AO is not justified in taking the value of the land at ₹ 900/- per sq. yard. CIT(A) who has gone a step ahead to invoke the Provisions of Section 145(3) of the Act which was not even invoked by the AO and valuing the rate of sale of land at ₹ 600/- per sq. yard is without any material on record and purely on surmises and conjectures. Rate of sale of land adopted by the assessee is directed to be accepted. Therefore, capital gain as declared by the assessee is directed to be accepted.

& 407/JP/2018 & CO Nos.11 & 12/JP/2018 DCIT vs. M/s Man Prakash Talikies Pvt. Ltd.

28. CIT v. Surjeet Kaur (2018) 3 TMI 796 (Calcutta) (Calcutta High Court): Sale of 164 168 asset - Whether a particular transaction would constitute adventure in the nature of trade or would be the normal sale of assets attracting long term capital gain? - Held that:- No material from records to suggest that at the time of acquisition of the properties such acquisition was for the purpose of undertaking a business venture. What we are to look at now is as to whether there was a business venture simultaneously with the development agreement. Major portion of the developed building was to remain with the assessee after construction. Sale of one unit therefrom per se would not have constituted an adventure in the nature of trade. Materials available on record do not show that building construction formed part of normal activity of the Assessee. Determining factor in this appeal, as urged by Revenue, becomes the intervening arrangement of agreement for sale and its subsequent cancellation when the property fetched better price. Revenue’s stand is that pursuit of higher profit by itself would confer on the transaction the character of business venture. We are, however, unable to agree with this submission. It might be natural for a person, who is not undertaking any business venture, to seek higher return from sale of his assets. That would be a rational pursuit and in our view reflects normal human behaviour and not a special attribute for a trader or a businessman. Just because for a particular unit, an intervening transaction is aborted for the reason that the property would fetch a better price, if sold to another person, grievance may be caused to the person with whom the earlier arrangement was entered into. But such an exercise would not transform the nature of activity from normal sale of capital asset to a business venture. There is substantial gap in time between the day of acquisition of the asset and its development and part-sale. The original assessee was not a property dealer but a member of the Indian Revenue Service, working with the Income Tax department itself. Only a portion of the property was sold. In these circumstances, the test laid down in the case of G. Venkataswami Naidu & Co. (1958 (11) TMI 5 - SUPREME Court) has to be decided in favour of the assessee.

30. DCIT v. Ravindra Mittal (2021) 3 TMI 819 (ITAT-Jaipur Bench): Long Term 174 180 Capital Gain OR business income - value of 35% land area transferred to developer- HELD THAT:- In the present case, there is nothing to show that the land was purchased with the intention to sell at a profit or with requisite intention to bring it within the para meters of “stock-in-trade”. As not shown that the assessee is a regular dealer in real estate. Rather, it appears that the land was not purchased by the assessee, but was inherited by him from his father and the development agreement was entered into even after lapse of around 12 years thereafter. As per the Development Agreement, the developer had all the obligation of execution of work. Even the assessee was debarred from & 407/JP/2018 & CO Nos.11 & 12/JP/2018 DCIT vs. M/s Man Prakash Talikies Pvt. Ltd. interfering in the working of the developer. On the contrary, no funds of the assessee were deployed rather he received security deposit from the developer. Therefore, after considering the terms and conditions as contained in Development Agreement and following the decisions referred above, we are also of the view that the gains in the present case is to be chargeable to tax under the head “capital gains”. In the present case, it has nowhere been shown that the land was purchased by the assessee with the intention to sell at a profit or with requisite intention to bring it within the parameters of “stock-in-trade”. Therefore, after considering the factual position as enumerated hereinabove, we found that the ld. CIT(A) has rightly concluded that the gains are to be charged to tax under the head “capital gains”. No new facts or circumstances have been brought before us by the ld. DR in order to controvert or rebut the findings so recorded by the ld. CIT(A), therefore, we find no reason to interfere into or deviate from the findings of the ld. CIT(A). Accordingly, we uphold the same.

Mechanical Sanction by the Sanctioning Authority invalidates the reassessment

COMPENDIUM INDEX – II SNo. DESCRIPTION PB PB

Reassessment proceedings on change of opinion, no failure of assessee to disclose truly all material facts ACIT v. Durr India Pvt. Ltd. 2023 (12) TMI 465 (Supreme Court): Validity of 193 193 1. reopening of assessment - assumption of jurisdiction for reassessment - Period of limitation - Scope of extended period of six years - reassessment even after 194 202 the expiry of four years from the end of the relevant assessment year, but, within six years from the relevant assessment year - delay of 340 days in filing the special leave petition - As decided by HC [2022 (8) TMI 1340 - MADRAS HIGH COURT] failure on the part of the assessee to fully and truly disclose all material particulars in our view would constitute the "jurisdictional fact" for invoking extended period of limitation and failure to record the existence of the above jurisditional fact while invoking the extended period under the proviso to Section 147 of the Act, would vitiate the entire proceedings - failure to render a finding as to the existence of the above circumstance warranting invocation of the extended period in terms of the proviso to Section 147 of the Act would vitiate the entire proceedings. Thus the initiation of reassessment proceedings is in excess of jurisdiction. HELD THAT:- SLP dismissed both on the ground of delay as well as on merits.

4. STUMPP SCHUELE AND SOMAPPA Pvt. Ltd. v. ACIT (2023) 8 TMI 571 213 216 (Karnataka High Court): Reopening of assessment u/s 147 - change of opinion & 407/JP/2018 & CO Nos.11 & 12/JP/2018 DCIT vs. M/s Man Prakash Talikies Pvt. Ltd. - reassessment opened after four years - HELD THAT:- This Court must ask the question whether the allegation that there is failure to disclose material fact fully and truly should be stated in the exact words that are found in the statute, and then the answer is obvious. In law it is not mere repetition of the requirement in the exact words but a disclosure of the requirement as would be justified in the facts and circumstances of the case. It is obvious that the respondent alleges that the material facts are detected in scrutiny and survey proceedings under the relevant provisions of the I.T. Act. This Court must opine that the opening statement as extracted would satisfy the requirement of an allegation, and hence the petitioner cannot succeed on the ground that there is no allegation. As such, the petitioner is not granted any indulgence on the first ground.

CIT v. City Union Bank Ltd. (2019) 5 TMI 1206 (Madras High Court): 217 225 5. Reopening of assessment u/s 147 - Income escaping assessment - disallowance made u/s 14A - HELD THAT:- In this case, there is no failure on the part of the assessee. On the other hand, there appears to be a failure on the part of the assessing officer to make an appropriate determination of the amount of expenditure in terms of Section 14A. In such a case, the remedy for the Revenue is elsewhere and not in assuming jurisdiction under Section 147 of the Act. That would amount to exercising the power of review which the statute has not conferred on the authority. This is particularly because the attempt to reopen is made after the expiry of 4 years from the end of the assessment year and the original assessment was made under Section 143(3). The authority cannot take advantage of their own wrong. If they failed to perform their statutory duty, the consequence of default cannot fall on the assessee.

6. SESA Sterlite Ltd. v. ACIT (2019) 8 TMI 16 (Bombay High Court): 226 238 Reopening of assessment u/s 147 - validity of notice u/s 148 - Eligibility of reason to believe - HELD THAT:- As our Court in the case of Hindustan Lever Ltd. V/s. R.B. Wadkar [2004 (2) TMI 41 - BOMBAY HIGH COURT] has made it clear, the reasons, with a view to assess their reasonableness, are required to be read as they are recorded by the Assessing Officer; no substitution or deletion is permissible; no addition can be made to those reasons; and no inference can be allowed to be drawn based on these reasons which is not recorded. It is for the assessing officer to form an opinion as to whether there was escapement of income from assessment and whether such escapement occurred from failure on the part of the assessee to disclose fully and truly all material facts necessary for his assessment for the concerned assessment year; and it is for him to put his opinion on record in black and white. The reasons recorded must disclose his mind and they should be self explanatory. The reasons recorded cannot be supplemented by the time the matter reaches the Court by filing of any affidavit or making any oral submission. In the premises, it is not open to the revenue to seek to sustain the re-opening notice on a new reason, namely, dis-allowance of deduction of expenditure since the whole activity was illegal. In the premises, the impugned notice issued by the Assessing Officer under Section 148 of the Act cannot be sustained and must be set aside.

Reassessment not permissible on Audit Objection

7. Akum Drugs and Pharmaceuticals Ltd. v. DCIT (2024) 1 TMI 289 (Delhi High 239 243 Court): Reopening of assessment u/s 147 - reassessment proceedings against the petitioner had been triggered based on the audit objections - eligibility to & 407/JP/2018 & CO Nos.11 & 12/JP/2018 DCIT vs. M/s Man Prakash Talikies Pvt. Ltd. deduction u/s 80-IC - HELD THAT:- AO while triggering the reassessment proceedings had not applied his mind independent of what the auditor had flagged. As a matter of fact, the AO did not even examine the reply given by his counterpart to the audit objection. Petitioner is right that this very aspect concerning claim of deduction under Section 80-IC of the Act was examined in the scrutiny proceedings and it was only when the AO was satisfied that the assessment order dated 30.01.2014 was framed. The logical sequitur of this assessment order was that the petitioner obviously had truly and fairly disclosed all material facts. There is not a whisper in the reasons to believe which would point in the direction that the petitioner had failed to disclose truly and fairly all material facts. Since the reassessment proceedings were triggered after four years, the AO ought to have indicated as to what were those material facts which the petitioner had failed to disclose. Thus, the impugned proceedings are flawed on various grounds, i.e., borrowed satisfaction, reasons to believe not adverting to the failure on the part of the petitioner to disclose truly and fairly all material facts, and also the change of opinion. Thus, for the foregoing reasons, we are inclined to allow the writ petition. Consequently, the impugned notice and the order whereby, the petitioner’s objections were rejected, are quashed.

9. PCIT v. Samsung India Electronics Pvt. Ltd. (2024) 6 TMI 76 (Delhi High 250 257 Court):): Validity of reassessment proceedings - reason to believe - reassessment proceedings after a lapse of four years - whether there was any fresh tangible material which could have allowed the Revenue to proceed with the reopening of the assessment? - additions made by the AO on account of ‘prior expenses’, ‘receivables’ and ‘advertisement expenses’ HELD THAT:- Recently, while dealing with a challenge laid to the initiation of reassessment proceedings, this Court S.B. Packagings Ltd. [2024 (5) TMI 321 - DELHI HIGH COURT] has held that the authority to reassess income u/s 147 is circumscribed with a predominant condition that the AO must be in possession of reasons to believe that any income chargeable to tax has escaped assessment. A perusal of the reasons extracted above would evince that the AO had failed to make any specific reference to the circumstances which had triggered the Revenue to take a fresh view. The satisfaction note in the instant case finds a close resemblance with the factual matrix in Donaldson India [2015 (1) TMI 831 - DELHI HIGH COURT] as the reasons herein also vaguely refer to the expression “on perusal of records”, rather than disclosing the foundation of “reasons to believe”. A plain reading of the aforesaid extract of the order of the CIT(A), which has sustained the reopening of assessment on the basis of revenue audit report, in juxtaposition with the reasons to believe would manifest that there is apparently no live link between the reasons recorded and the formation of belief to take action u/s 147 of the Act. Interestingly, while deleting the additions on merits, CIT(A) has upheld the action of reassessment by the Revenue on the ground that the factum of giving away of 75 vehicles to dealers & 407/JP/2018 & CO Nos.11 & 12/JP/2018 DCIT vs. M/s Man Prakash Talikies Pvt. Ltd. for achieving sale targets under the guise of incentives was not disclosed in the original assessment proceedings. However, according to the CIT(A), the said fact came to the light only after the proceedings in this regard were initiated u/s 201/201 (1A) of the Act. Evidently, the proceedings u/s 201 of the Act, which have been the bedrock for reaching the conclusion that there was no full and true disclosure by the respondent-assessee, were initiated vide letter dated 09.02.2011. It is noteworthy that the notice u/s 148 which recorded the reasons for reassessment, was issued way back on 25.03.2009. Thus, by no prudent stretch of imagination, the alleged non-disclosure could have formed a part of the satisfaction which was recorded to issue notice under Section 148 of the Act. Put otherwise, the finding of the CIT(A) which had sustained the action solely on the basis of the aforesaid fact, is blatantly perverse. Undisputedly, the reassessment proceedings were initiated after passing of the period of four years from the relevant AY. An upshot of the above discussion would suggest that the Revenue did not have in its possession any fresh tangible material, which is otherwise sine qua non for initiating reassessment proceedings after a lapse of the said statutorily prescribed period. We find that the initiation of reassessment proceedings after a lapse of four years herein, is dehors the settled position of law as no new tangible material can be said to have been discovered by the Revenue which would warrant reopening the assessment for the AY in question. Thus, we do not find any reason to intermeddle with the order of the ITAT. Decided against revenue.

Mechanical Sanction by the Sanctioning Authority invalidates the reassessment

17. The ld. AR of the assessee also submitted a detailed distinguishing note on the judgment cited by the ld. DR which reads as under :

The assessee was to receive a total sum of Rs. 2.50 crores as interest free refundable security deposit and the assessee was also to receive non-refundable security deposit of Rs. 2.00 crores on the date of Mahurat/Bhumi Pujan of the project. The Developer was required to get the building plans approved. The Developer was also required to get the existing building demolished. The parties had agreed to have 50% share each in the constructed commercial complex. The Developer was not permitted to the execute sale litigations over the Plot including filing of Public Interest Litigation before the Hon’ble High Court, the parties decided to modify the terms with relation to security deposit by way of deed for modification dated 15.05.2004 by which it was decided that the assessee were to receive a total sum of Rs. 1.68 crores as interest free refundable security deposit instead of earlier agreed Rs. 2.50 crores as interest free refundable security deposit and Rs. 2.00 crores as non-refundable security deposit. Between Financial Year 2001-02 and FY 2007-08, the developer demolished the Cinema Hall and constructed a commercial complex thereon. During the financial year 2007-2008, i.e., assessment year 2008-2009 the commercial complex was completed, and assessee’s share was handed over to it on 14.04.2007. The assessee got the cost of shops & offices valued from registered valuer who valued it at Rs. 18,49,76,342/- and the same was shown under the head Investment in the Balance Sheet. The Gain earned on revaluation has been shown under the head Capital Reserve in the Balance Sheet. The indexed gain arrived at the time of receipt of constructed complex was shown as Long Term Capital Gains. shown as Short Term Capital Gains.

23. After a lapse of 4 years from the end of the assessment year and after scrutiny assessment order u/s. 143(3) was passed on 03.12.2010, a notice u/s. 148 dated 31.03.2015 for A.Y. 2008-2009 was issued by the ld. Assessing Officer. Subsequently reassessment order dated 30.03.2016 was passed by the ld. Assessing Officer. The ld. CIT(A) in its order dated 25.01.2016 has reproduced the reasons recorded by the ld. Assessing Officer for initiating the reassessment proceedings, which reads as follows:

“(a) The assessee M/s Manprakash Talkies Pvt. Ltd. was earning Income from Cinema Hall in the past assessment years and had shown its Income under the head Business & Profession. It got "the land use changed from cinema-hall' to 'commercial complex after which on 12 December 2001 it entered into a development agreement with M/s Golcha Buildtech Pvt Ltd (developer) for construction of commercial complex. Between FY 2001-02 and FY 2007-08, the developer demolished the Cinema Hall and constructed a commercial complex (over the land earlier held as Cinema Hall) and in May, 2007 it transferred 50% share of the constructed portion of the commercial building named Golcha Business Centre (GTC) to the assessee company in lieu of halt portion of land (on which the Cinema Hall & 407/JP/2018 & CO Nos.11 & 12/JP/2018 DCIT vs. M/s Man Prakash Talikies Pvt. Ltd. existed earlier). As per Development Agreement, all the expenses regarding approvals from competent authorities etc were to be borne by the developer from the time of signing of agreement upto handing over of assessee's portion of commercial complex. If the assessee company had sold the entire land of cinema hall as such, then the assessee company could be said to have earned income from capital gain. In the present case, it got the land use changed from 'cinema hall' to 'commercial' with a deliberate intent to enjoy the benefits of the said land through construction and subsequent sale of shops and showrooms thereon. Clause 2 of the Development Agreement dated 12 December, 2001 states as follows: 2. Whereas looking to the demand for showroom and offices in multistoried buildings situated at good location, Owner herein decided to develop a multistoried commercial complex on the said plot of land in accordance with the rules, regulation and building bye laws of the local authorities, and the State Government The above clause clearly shows that the intent of the assessee (i.e. the owner) was to develop its property into a commercial complex to harvest the demand for showrooms and offices In multistoried buildings situated at good location. Thus, the decision to change the use of land from 'cinema hall to commercial was taken and prior to the date of signing Development Agreement on 12 December 2001. the land had been cleared for commercial use. Thus, the change of land use was done as part of the assessee's deliberate, preplanned move to enter into an adventure in the nature of trade in respect of the land 'situated at good location'. Since the intention of the assessee was to develop its land into a commercial complex and earn profit by selling shops & offices at the complex, so the Income from this activity should have been treated as income from business & profession. As per the terms of Development Agreement, the assessee (i.e. the owner) received its half share of constructed complex in lieu of half portion of land surrendered to the developer. This, in effect, was the first instance of reaping the harvest of its 'adventure in the nature of trade' with respect to the prime land it owned and got converted to commercial land. The valuation of assessee's portion of the constructed building (and not the land on which it was constructed) was got done and the value was determined at Rs, 18,49,76,342/-. This value constitutes the transfer consideration for commercial land which should have been declared as 'Income from Business and Profession' rather than Long Term Capital Gain as declared by the lessee. The assessee has computed Long Term Capital Gain at Rs.2,01,69,487/- after deducting indexed cost of land (which in itself has been computed by the Valuer on a rough estimate basis by taking DLC rate of 1973 and notionally increasing it by 20% for each year upto 1981). Thus, it is seen that income amounting to Rs. 16,48,06,855/-has escaped assessment. (b) On perusal of computation of income it is observed that the assessee had sold a shop no. GF 8A and had shown short term capital gain of Rs. 10, 12,630/-. The assessee company had been handed & 407/JP/2018 & CO Nos.11 & 12/JP/2018 DCIT vs. M/s Man Prakash Talikies Pvt. Ltd. over the constructed commercial complex including the aforesaid shop by M/s Golcha Buildtech Pvt. Ltd. (developer). It did not make any expenditure on its own because as per development agreement whole expenditure to develop the building was to be incurred by the developer company. Thus, purchase price of the shop for the assessee company was Nil. Further, since the said property is a commercial complex, profit arising out of sale of shops situated in the complex should have been declared as business income rather than Short Term Capital Gain. Hence, the business income that would arises from selling the shop will be Rs. 36,25,870/- not Rs. 10, 12.630/- as shown by the assessee, and this income would be treated as business income and not income from short term capital gain as claimed by the assessee. Hence, I have reason to believe that income of Rs. 16,48,06,855/- +Rs.36.25.870/- Rs. 16,84,32,725/- has escaped assessment. Thus It is a fit case for issue of notice u/s 148 of the Act."

24. Based on the reasons so recorded the ld. DR demonstrated that the ld. Assessing Officer has correctly entertained the view that the date of entering into the Development Agreement would be treated as an act of conversion of Capital Asset into Stock-in- Trade and that provisions of section 45(2) of the Act would be attracted. Thus, since there was escapement of income, proceedings under section 148 have rightly been initiated. He has further submitted that on perusal of the assessment order u/s. 143(3) it can be noticed that the ld. Assessing Officer has not recorded any reasons as to whether the transaction would yield Capital Gain or Business Income and thus he had not applied his mind and has not formed any opinion on the correct nature of the transaction, hence, the relief granted by the ld. CIT(A) on account of change of opinion is bad in law and not correct and that why this of the ld. CIT(A). He further submitted that due to omission of certain words in the reasons recorded by the ld. Assessing Officer would not be a valid ground to vitiate entire reassessment proceedings and that detailed reasons have been recorded by the ld. Assessing Officer and on this ground the reassessment ought not to have been quashed by the ld. CIT(A). He further submitted that department receives information from various sources such as investigation wing, audit wing, other assessing officers, external agencies, etc., etc. and after receiving the said information from the Audit Wing, the ld. Assessing Officer has applied his mind and has independently formed his opinion and has accordingly initiated reassessment proceedings. No fault can be pointed out if the source of information is from the Audit Wing and if the ld. Assessing Officer has acted upon the same. The ld. DR has submitted written submission as well has relied upon several case laws in support which are referred to hereinabove.

25. On the other hand, the ld. AR relied upon the order passed by the ld. CIT(A) and submitted that instant reassessment has been initiated after a lapse of 4 years from the end of the assessment year and after scrutiny assessment order passed in the Act. He has referred to 1st proviso to section 147 and stated that in the reasons recorded by the ld. Assessing Officer there is no allegation whatsoever that there was any failure on the part of the assessee that it had failed to disclose fully and truly all material facts necessary for its assessment. As is decided in various judicial precedent cited wherein it has been decided that in absence of that allegations it would make entire reassessment proceedings as bad in law and is a change of opinion. There must be some finality in the legal proceeding and change of the opinion on the same material the re-opening of the assessment is not permitted. He further stated that even if the said allegation was recorded, then too, the Assessing Officer would have to demonstrate as to what was a failure on the part of the assessee. He further submitted that the reason that no such allegation was recorded by the Assessing Officer was that all material particulars and documents were indeed submitted by the assessee. He further submitted that it is settled law that the reasons are required to be read as they are recorded by the Assessing Officer and that no substitution or deletion is permissible thereto; no addition can be made to those reasons and no inference can be allowed to be drawn based on the ld. CIT(A) vide his letter dated 21.12.2017 called for remand report from the Assessing Officer to justify non-recording of any allegations against the assessee in the reasons, however, the ld.

Assessing Officer vide its letter dated 22.12.2017 chose not to respond to the query raised and simply furnished the copy of reasons recorded. Ld. AR, based on that aspect of the matter submitted that the ld. CIT(A) correctly come to the conclusion that in absence of any allegation against the assessee that it had failed to disclose fully and truly all material facts necessary for his assessment, the reassessment proceedings initiated after passage of 4 years wherein scrutiny assessment u/s. 143(3) has been carried out against the assessee, is not permissible as the same is barred by limitation. Ld. AR stated that the assessee at the time of scrutiny assessment, disclosed fully and truly all relevant material required and even the reasons recorded are based on the same material and no new information or material relied upon while recording the reasons. Ld. AR thus drawn our attention on the reasons and the information based on which the re-opening of the case was proposed. In the scrutiny assessment, assessing officer based on the material placed on record taken a plausible view on same material making the re-opening is nothing but a change of opinion and is not permitted. In that original proceeding ld. AO made the queries and replies were called for from the assessee is relevant and not the finding arrived & referred in the assessment order. As is evident from the audited accounts placed on record the impugned property has always been shown under the head ‘Investment’ only. Even the object clause of the assessee do not permit the assessee to do Real estate business. Even the barter assets were also not shown as stock-in-trade in the books of accounts of the assessee. Ld. AR stated that if the order if found to be prejudicial to the interest of the revenue the same would have been reviewed by the ld. PCIT within the permissible time limit in the law. Instead, the re-opening was proposed merely based on the audit objection and that too on the same material is nothing but a change of opinion and the same authority cannot under the guise of the re-opening review the order passed by the predecessor. Ld. AR heavily argued that reassessment cannot be initiated based on information received from Audit wing. The information received from Audit Wing has been given statutory recognition for the first time by Finance Act, 2021 and he placed reliance on Explanation submission as well has relied upon several case laws in support which are referred to hereinabove. The ld. AR has also controverted & distinguished the case law relied upon by the ld. DR and submitted that the same are inapplicable in the instant case.

Secondly the assessee was questioned whether the demolition of Cinema Building was undertaken by the Developer or by the assessee. Ld. AR submitted that the same was done by the developer & not by the assessee. Ld. DR did not controvert this fact also but stated that demolition of cinema hall by the assessee or by the developer is not material, it is the intention of the assessee which is determinative factor to test whether or not section 45(2) is applicable or not. Ld. DR in the rejoinder further stated that assessee was required to pass necessary entries in the year 2001 itself and reflect the same as stock-in-trade, i.e., when the development agreement was entered into by it and non- test to find out as to whether the transaction is in the nature of business income or that of the capital gain but the intention and nature of use of the asset is relevant.

(i) reassessment cannot be initiated simpliciter on the change of opinion of successor from the predecessor, (ii) it is not the assessment order which will determine as to why the Assessing Officer has applied his mind and formed any opinion, but, the disclosures in the Audit Report, queries raised and submissions made by the assessee during the course of assessment proceedings, (iii) it is the duty of the assessee’s to disclose the transactions truly and correctly and it is for the Assessing Officer to appreciate the same and form an opinion on the same, not making any addition on any issue or not spelling out as to why the submissions of the assessee were accepted or as to what all he considered during the course of assessment proceedings in the assessment order, does not mean that no opinion was formed by him, more particularly when the relevant documents and information was duly disclosed by the assessee, as per 1st proviso to section 147, after lapse of 4 years and (iv) where scrutiny assessment has already been resorted to, in absence of any allegation that there is failure on the part of the assessee to disclose fully and truly all material facts necessary for his assessment, the limitation for reassessment proceedings would be restricted to 4 years and benefit of 6 years which is ordinarily available to initiate reassessment proceedings as per section 149(1)(b) would not be available to the ld. Assessing Officer, (v) non-allegation by the Assessing Officer of any failure on the part of assessee to disclose fully & truly all material facts is a ‘jurisdictional fact’ and in absence of same, entire reassessment proceeding would be vitiated, reasons are required to be read as they are recorded by the (vi) Assessing Officer and that no substitution or deletion is permissible thereto; no addition can be made to those reasons and no inference can be allowed to be drawn based on these reasons which is not recorded, (vii) Information / Opinion received from the Audit Wing per se does not constitute tangible material more particularly when it is in the nature of reappreciation of material particulars already on record, (viii) Finance Act, 2021 by inserting Explanation 1(ii) to section 148 for the first time gives statutory recognition to the information received from Audit Wing as valid source to initiate reassessment proceedings. The said insertion would be prospective in nature. by the revenue based on the provision of section 143(3) duly supplied and disclosed all the relevant details to decide the issue of chargeability of gain and modus-operandi of the transactions undertaken by the assessee and justified the returned income which was based on the submission so made was accepted by taking the plausible view on the matter. Based on the same material placed on record, the audit team substituted their view.

Revenue accepting that view on the same material started the re- opening proceeding that too after 4 years and that too at the last date of time barring of six-year reasons were recorded, obtained the approval and notice alleged to have been served by way of affixture. As is evident from the reasons recorded that no allegation has been made in the reasons recorded that there was any failure on the part of assessee to disclose fully & truly all material facts for the purpose of assessment. Thus, reassessment proceedings were initiated by the Assessing Officer based on change of opinion, which is impermissible, as in the instant case the Assessing Officer has duly applied his mind on the disclosures made in the Audit Report and replies filed by the assessee while assessment proceedings and supporting documents thereto. against the assessee for failure at its end to disclose truly and fully material particulars, the reassessment proceedings cannot be resorted to, as in such case normal period of limitation available to the Assessing Officer would be 4 years and the benefit of extended period of limitation of 6 years would not be available.

& 407/JP/2018 & CO Nos.11 & 12/JP/2018 DCIT vs. M/s Man Prakash Talikies Pvt. Ltd.

Based on the above judgment he holds that the assessment was re- opened on 31.03.2015 i.e. after a period of four years from the end of relevant assessment year i.e. 2008-09. Therefore, the first proviso to section 147 of the Act is also applicable, according to which, an action u/s 147 of the Act can be taken only if the part of the assessee to disclose fully and truly all material facts necessary for his assessment, for that assessment year. It was the contention of the appellant that there was no failure on its part to disclose fully and truly all material facts necessary for its assessment. Even though he called the remand report in the interest of the justice wherein the ld. AO reported that:

"In this regard, the A/R has completely misunderstood the concept of "disclosing truly and fully relevant particulars of income in the Return of Income". As such, the assessee only disclosed LTCG on land and STCG on sale of shops in his return of income but as per accounting standards and provisions of Income Tax Act, the act of converting capital asset into stock in trade clearly instruct to show business income and LTCG in the Return of Income which was actually not reflected by assessee at all."

As the explanation of the ld. AO was not sufficient ld. CIT(A) again given him an opportunity vide letter dated 21.12.2017 to submit its comments on the contention of the assessee wherein he has just relied upon the reasons recorded for opening the case but chose not to comment on the contention of the assessee that there in fact any failure on its part to disclose fully and truly all material facts necessary for its assessment for the year under consideration.

He noted and we also perused that aspect of the matter in the reasons so recorded there is not a single averment about the at the time of original assessment proceedings. We get support for this aspect of the matter from the decision of our jurisdictional high court in the case of CIT vs. Manish Ajmera [2011] 13 taxmann.com 132 (Rajasthan), wherein our Hon’ble jurisdictional High Court held that:

8. In our view, the order passed by the Tribunal does not suffer from any legal infirmity and therefore the appeals do not raise any question of law. Both the appeals are therefore dismissed.

After considering all the factum of the case ld. CIT(A) hold a view that the initiation of proceedings u/s. 147 of the Act was not in conformity with the provision of section 147 of the Act, after 4 years provisions of section 143(3) of the Act. Thus, we do not find any infirmity in the finding so recorded by the ld. CIT(A). As regards the judicial precedent cited by the rival parties, we are not referring to all the judgments but after considering those which were consider relevant to decide the issue have been discussed. The decision discussed has direct bearing based on the facts of the case of the assessee. All the decision relied upon by the ld. DR were distinguished by ld. AR and has filed his comments on each of the decision. We have also gone through the said comments and have also gone through the judgments and orders and found that they are distinguishable on facts and in law and they do not help the cause of the revenue in the instant case supporting the re-opening of the case of the assessee. Accordingly the Ground No. 1, 2, 4, 5, & 6 raised by the Revenue is devoid of any merits and we do not see any infirmity in the detailed finding of the ld. CIT(A) in quashing the reassessment proceedings on the ground of change of opinion as well as on ground of limitation as per 1st proviso to section 147 in absence of any allegation against the assessee of failure at its end and according the reopening in the case was not in accordance with law. Accordingly, the appeal filed by revenue has & 6.

31. Ground no. 3 and 7 [ additional ground] raised by the revenue relates to the merits of the issue. On these grounds Ld. AR stated that ld. CIT(A) has apart from quashing the reassessment proceedings has further held that invocation of section 45(2) by the ld. Assessing Officer is also bad in law and has deleted the addition made by the ld. Assessing Officer.

It is a fact which is not controverted by the revenue that no financial entry was made in the books of accounts of the assessee from 2001 to 2008 reflecting transfer of the asset from capital asset to stock-in-trade and same carried accordingly as capital assets.

Sub-section (14) of Section 2 of the Income-tax Act, 1961 ('Act') defines the term "capital asset" to include property of any kind held by an assessee, whether or not connected with his business or profession, but does not include any stock-in-trade. We also note that the constructed shops received by the assessee after the development has been carried out by the Developer has been consistently shown under the head ‘Investment’. The change on land use from Cinema Hall to Commercial Complex is We are afraid to hold such a view and if such a proposition were to be approved then in such an eventuality, every change of land use from agricultural to non-agricultural, residential to commercial, industrial to commercial, or similar action could automatically lead to conversion of capital asset into stock-in-trade.

Law has no intention nor section 45(2) provides for the same.

To maximize the Gains by an assessee does not mean that the intention of the assessee could be meted out by carrying on the business. In all Development Agreements there are multiple units which could be sold / retained by the Land Owner as per its choice. Thus, mere entering into the Development Agreement would not permit invocation of section 45(2) of the Act. It is a well-accepted principle of tax jurisprudence that the Assessing Officer cannot decide what is to could have been done by the assessee and is evident from the facts on record that the intention of assessee is not the necessary criteria for invoking section 45(2) of the Act corroborate the intention along with the passing off necessary entries in books of accounts which is absent. business assets the CBDT vide circular dated also at the help of the assessee and directed the revenue officers vide circular no. 4/2007, issued by the Central Board of Direct Taxes (CBDT) on June 15, 2007, provides guidelines to distinguish between shares held as stock-in-trade and shares held as investments. This distinction is crucial because it affects how the income from the sale of these shares is taxed. Shares held as stock-in-trade are considered business income, while shares held as investments are treated as capital gain. The Calcutta high court in the case of Gyan Traders Ltd. Vs. CIT [ 143 taxmann.com 42 (Calcutta) ] while referring to the circular held that ;

To further support even the object clause of the assessee has been referred to by the ld. CIT(A) in detailed while supporting his view on the issue on merits as to whether the assessee has converted his capital assets into stock in trade or not. The terms of the development agreement entered into by and between the assessee and developer has been referred by the ld. CIT(A) in detail. The assessee was not in the business of real estate, nor did it have any object clause for carrying out business of real estate.

Entire responsibility of construction, demolition of existing structure, approval of maps, etc., was of the Developer and the assessee had simply handed over the Land owned by it for the purpose of construction of commercial complex. There is no positive act which trade.

As discussed herein above if that version of the revenue is accepted then no one would be in a position to enter into Development Agreement, since it would amount to carrying on the business, which otherwise it is not permitted to do so to the even based on object also in the case of the assessee. The arguments advanced by ld. DR purely narrow down and without seeing the other facts as discussed as to decide the issue in a holistic manner.

On the issue of merits of the case also, we intend to avoid repetition and are not referring to all the judgments relied upon by the rival parties as the same are reproduced hereinabove. In short while deciding the merits of the issue, ld. CIT(A) perused the object clause, various clause of the development agreement, consistently followed the accounting entries to demonstrate that the asset was considered as capital assets. He also touched upon the aspect of the subsequent action of the assessee when the assets received as exchange was also shown as investment and not stock in trade.

Thus, on the merits of the issue we do not find any infirmity in the finding so recorded by ld. CIT(A).

Ground No. 3 & 7 raised by Revenue devoid of any merits and are dismissed. In the result of the appeal of the revenue in stands dismissed.

In the light of the discussion so recorded the cross objection no co/11/JP/2018 filed by the assessee is partly allowed.

"(i) Whether on the facts and in the circumstances of the case and in law the Ld. CIT(A) has erred in deleting the addition made by the AO without appreciating that the assessee made transfer as per section 2(47) of the Act while making treatment of its capital asset i.e. land of Cinema Hall into stock in trade of the business for selling of shops u/s 45(2) of the Act?" (ii) Whether on the facts and in the circumstance of the case and in law the Ld. CIT(A) has erred in deleting the additions of Rs. 2,06,71,225/- on account of business income and Rs. 66,76,744/- on account of LTCG without deciding it on merit?"

Ground No. (iii) as raised by the Revenue in A.Y. 2008-2009. In light of our detailed findings given in A.Y. 2008-2009 in Ground No. (iii) we do not see any infirmity in the findings of the ld. CIT(A) whereby he had held that provisions of section 45(2) are not applicable, and which have been upheld by us in A. Y. 2008-09 and that finding shall apply mutatis mutandis and accordingly the Ground No. (i) of the Revenue stands dismissed.

In the light of the discussion so recorded the cross objection no co/11/JP/2018 filed by the assessee is partly allowed.

In the result, the appeals of the revenue stands dismissed, and the cross objection of the assessee are partly allowed.

Order pronounced in the open Court on 27/09/2024