SRI. A.S. CHINNASWAMY RAJU,BANGALORE vs. ACIT, BANGALORE

Per Shri Vijay Pal Rao, J.M. : These four appeals by four related assesses and arising from reassessment / assessment framed under Section 147/148 and further under Section 143(3) r.w.s. 254 of the Income Tax Act, 1961 (in short 'the Act') for the Assessment identical circumstances therefore, for the purpose of recording the fact, the appeal in is taken as lead matter.

2[A] The order of reassessment is bad in law for want of requisite jurisdiction, as the mandatory requirement to assume jurisdiction did not exist and have not been complied with and consequently, the reassessment requires to be cancelled. 2[B] The learned CIT[A] failed to appreciate that reason to believe should be bonafide and not on pretence and if the belief entertained by the A.O. were to be really bonafide, the learned A.O. ought not to have filed an appeal against the order of the learned CIT[A] to the Hon'ble ITAT when the CIT[A] had directed the exclusion of the income for the assessment year 2003-04 on the basis of the belief of the A.O., which proves that belief so entertained was not bonafide to assume jurisdiction u/s.148 of the Act. 3[A] The authorities below have seriously erred in law while justifying the re- opening of the assessment by the predecessor AO and have failed to appreciate that income accrues only on transfer and not on mere agreement to transfer property. The authorities below ought to have appreciated that the agreement dated 18/03/2002 entered into by the landlord with Mis. WIPRO in which the appellant was a confirming party could not be construed as an assignment deed but on the contrary, the same was merely an agreement to assign, which did not amount to a transfer giving raise to accrual of income either under the head "Capital Gains" or "Business" and thus there is no escapement of income for the assessment year under appeal and the notice issued u/s.148 of the Act is on the erroneous appreciation of the position of law and consequently assessment requires to be annulled. 3[B] The authorities below have erred in holding that the appellant has booked expenditure in connection with the purchase of land from the farmers on the basis of the agreement to sell without transferring the lands in the name of the appellant, which is incorrect, as the appellant never booked any expenditure in 4 to 1562/Bang/2010 connection with the land but only shown the advances paid, etc., as investment by way of the acquisition of the land and has not shown land as a asset and thus the re-opening of the assessment made on wrong facts is bad in law and consequent assessment made requires to be annulled. 4[A] Without prejudice to the above, the authorities below are not justified in assessing a sum of Rs.3,32,58,944/- as "Business Income" of the appellant under the facts and in the circumstances of the case.

4[B] The authorities below failed to appreciate that the appellant has not carried on any business of real estate or acted as real estate commission agent and the property was sought to be purchased by the appellant and the members of the group for setting up a Hotel and Software Park and there was no intention to resell the lands as part of any real estate business and the understandings reached during the year signifying no-objection for the sale of the lands by the Vendors in favour of Mis. Wipro are only executory in nature and contingent and it is not a deed of assignment but only an agreement to assign and the same did not result or vest the appellant with an indefeasible right to receive the alleged gains as income liable to tax during the previous year relevant to the assessment year under appeal. 5.· The authorities below are not justified in making the addition without considering the statement of facts and grounds of appeal filed before the learned CIT[A] and Hon'ble ITAT in the initial round of appeal proceedings.

6. Without prejudice to the above, the assessment passed is barred by limitation and consequently, the same requires to be annulled.

7. Without prejudice to the right to seek waiver before the Hon'ble CCIT/DG, the appellant denies himself liable to be charged to interest u/s.234A, 234B and 234C of the Act, which requires to be cancelled under the facts and in the circumstances of the appellant's case and the impugned assessment is made for the second time.

8. Without prejudice to the above, the extent of interest charged u/s.234A[3], 234B[3] and 234C[3] are excessive and liable to be reduced substantially at any rate, the levy of interest shall be up-to the date of first re- assessment and not up-to the date of impugned re-assessment.

5 to 1562/Bang/2010 9. For the above and other grounds that may be urged at the time of hearing of the appeal, your appellant humbly prays that the appeal may be allowed and Justice rendered and the appellant may be awarded costs in prosecuting the appeal and also order for the refund of the institution fees as part of the costs.”

Therefore, the assessment completed by the Assessing Officer without first deciding the objections against the reasons for reopening is bad in law. The committed an illegality in not deciding the objections against the reopening of the assessment separately and prior to the completion of the assessment.

Therefore the order passed by the Assessing Officer is in violation of the decision of the Hon'ble Supreme Court in the case of GKN Drive Shaft India Ltd. (supra) as well as the specific directions of the Tribunal in setting aside the reassessment. Hence it is urged that the composite order dt.31.12.2008 is illegal and without jurisdiction and liable to be quashed. In support of his contention, the learned Authorised Representative has relied upon the following decisions :

(i) Pushpak Bullion Pvt. Ltd. Vs. DCIT 371 ITR 81 (Guj) (ii) General Motors India P. Ltd. Vs. DCIT (2013) 354 ITR 244 (Guj) (iii) G N Mohan Raju Vs. ITO (2015) 167 TTJ (Bang) 236.

per the directions of the Tribunal the Assessing Officer was required to dispose Assessing Officer has disposed off the objections raised by the assessee against the notice under Section 148 and consequently passed assessment order. He has relied upon the orders of the authorities below.

147 of the Act on 26.12.2005 without disposing off the objections of the assessee against the reopening. The matter was carried to this Tribunal and this Tribunal vide order dt.5.1.2007 set aside the reassessment and remanded the matter back to the record of the Assessing Officer to follow the procedure Driveshafts (India) Ltd. (supra) in para 2 as under :

“2. It is transpired that all these cases are based on notice that was issued under Section 147 and the assessee in appeal before us as well as before the CIT (Appeals) had challenged the reopening and its validity. The Supreme Court in the case GKN Driveshafts (2003) 259 ITR 19 had categorically held that the reasons recorded must be provided to the assessee and the objections as made by the assessee are required to be dealt with the Assessing Officer. In the present case, other than providing the reasons recorded the Assessing Officer had not dealt with the objections though the assessee had filed their objections. In the light of the decision of the Supreme Court cited supra, this matter requires to be remanded to the Assessing Officer to apply the principle enunciated by the Supreme Court (supra) by considering the objections and after hearing the assessee pass a detailed order with regard to objections and proceed in accordance with law in regard to assessment. The assessments are set aside for the above reasons. Before we part we may observe that the Bombay High Court in the case of Allana Cold Storage Ltd. Vs. ITO and others (2006) 287 ITR 1 has quashed the assessment where the Assessing Officer did not follow the procedure of considering the objections and dealing with the same in the order the Delhi High Court in the case of Smt. Kamlesh Sharma Vs. ITO (2006) 287 ITR 337 had set aside the assessment and directed the Assessing Officer to consider and pass a speaking order on the assessee's objections. The above clearly shows that this is a curable procedure not followed by the Assessing Officer which he must necessarily follow and accordingly we so direct.”

Thus it is clear that the reassessment was set aside for passing the detailed order with regard to the objections and to proceed in accordance with law in regard to the reassessment. Hence the Assessing Officer was required to to the assessment order. The legal proposition on this point has been analysed in various cases by the Hon'ble High Courts. In the case of General Motor India Pvt. Ltd. Vs. DCIT (supra), the Hon'ble Gujarat High Court had considered the identical issue and made the relevant observations in paras 22 to 24 as under :

“ 22. The procedure for filing and deciding objection to the notice under section 148 of the Act had been crystallized by the Apex Court in GKN Driveshafts (INDIA) Ltd. v. Income Tax Officer and others (2003) 259 ITR 19, wherein the Court has held as under :- "However, we clarify that when a notice under section 148 of the Income-tax Act is issued, the proper course of action for the noticee is to file a return and if he so desires, to seek reasons for issuing notices. The Assessing Officer is bound to furnish reasons within a reasonable time. On receipt of reasons, the noticee is entitled to file objections to issuance of notice and the Assessing Officer is bound to dispose of the same by passing a speaking order. In the instant case, as the reasons have been disclosed in these proceedings, the Assessing Officer has to dispose of the objections, if filed, by passing a speaking order, before proceeding with the assessment in respect of the abovesaid five assessment years."

9. The position in law is thus well settled. After a notice for re-assessment has been issued an assessee is required to file the return and seek reasons for issuance of such notice. The Assessing Officer is then bound to supply the reasons within a reasonable time. On receipt of reasons, the assessee is entitled to file preliminary objections to issuance of notice and the Assessing Officer is under a mandate to dispose of such preliminary objections by passing a speaking order, before proceeding with the assessment in respect of the assessment year for which such notice has been issued."

11 to 1562/Bang/2010 and serve a copy of the order on assessee. And after giving some reasonable time to the assessee for challenging his order, it was open to him to pass an assessment order. This was not done by the Assessing Officer, therefore, the order on the objection to the notice under section 148 and the assessment order passed under the Act deserves to be quashed.” It was held by the Hon'ble High Court that the Assessing Officer is mandated to decide the objections to the notice under Section 148 and supply or communicate it to the assessee so that the assessee get an opportunity to challenge the order in a writ petition. Thereafter the Assessing Officer may pass the reassessment order. It was firmly held by the Hon'ble High Court that it was not open to the Assessing Officer to decide the objections to the notice under Section 148 by a composite assessment order. The Assessing Officer was required to first decide the objections of the assessee filed under Section 148 and serve a copy of the order on the assessee. After giving some reasonable time to the assessee for challenging his order it was open to him to pass an assessment order.

“ 8.1. From the aforesaid, it does not appear that any observation has been made by the Division Bench and / or any direction is issued by the Division Bench that assessee has to file return of income in response to the notice under Section 148 of the Act within a period not less than 30 days. What is observed / directed by the Division Bench is that if the assessee when files his return of income in response to notice under Section 148 of the Act, the AO shall supply the reasons recorded by him for issuing such notice within 30 days of the filing of the return by the assessee

12 to 1562/Bang/2010 without waiting for the assessee to demand such reasons. The Division Bench has further observed and directed that once the assessee receives such reasons, he would be expected to raise his objections, if he so desires, within 60 days of receipt of such reasons and if objections are received by the Assessing Officer from the assessee within the time permitted hereinabove, the Assessing Officer would dispose of the objections, as far as possible, within four months of date of receipt of the objections filed by the assessee. That the Division Bench has also further clarified that requirement and the time-frame for supplying the reasons without being demanded by the assessee would be applicable only if the assessee files his return of income within the period permitted in the notice for reopening and likewise the time frame for the Assessing Officer to dispose of the objections would apply only if the assessee raises objections within the time provided hereinabove. The Division Bench has also further observed and clarified that this however, would not mean that if in either case, the assessee misses the time limit, the procedure provided by the Supreme Court in the case of GKN Driveshafts (India) Ltd (supra) would not apply and it only means that the time frame provided hereinabove would not apply in such cases. Meaning thereby, the aforesaid time limit shall be strictly adhered to by the AO to supply reasons recorded; by the assessee to file objections, if he so desire within 60 days and by the AO to dispose of the objections within four months. As further clarified even in case the assessee misses the time limit, the procedure provided by the Supreme Court in the case of GKN Driveshafts (India) Ltd (supra) shall be followed. It is true that on receipt of notice under Section 148 of the Act, the assessee is required to file return within time prescribed in such notice and / or within reasonable time and simultaneously asked for the reasons recorded for reopening and AO is bound to dispose of such objections within time provided by the Division Bench in the case of Sahakari Khand Udyog Mandal Ltd (supra), however in any case before the order of assessment under Section 143(3) r/w Section 147 of the Act. However, at this stage also, the AO must give reasonable time to the assessee to challenge the order disposing of the objection by way of petition under Article 226 of the Constitution of India.” Thus it is settled proposition of law on the point that the Assessing Officer is bound to first decide the objections of the assessee against notice 148, communicate the same to the assessee and allow the assessee reasonable time to challenge the order of the Assessing Officer deciding the objections thereafter, the Assessing Officer may pass the reassessment/assessment.

However this was not done by the Assessing Officer in the case of the assessee and decided the objection under Section 148 of the Act by a composite the Hon'ble Supreme Court as well as the directions of this Tribunal in the set aside order dt.5.1.2007. Accordingly, the assessment order passed by the Assessing Officer is not sustainable and liable to be quashed. We order accordingly.