JUST TEXTILES LTD,AMBERNATH vs. DCIT RG 10(3), MUMBAI

This is an appeal filed by the assessee against the order of CIT(A) - 21, Mumbai for the A.Y.2008-09 in the matter of order passed u/s.143(3) r.w.s. 147 of the IT Act.

In this appeal, assessee is aggrieved for reopening of the assessment completed u/s.143(3) of the IT Act without considering the facts and circumstances of the case. On merit, assessee is aggrieved for addition made on account of long term capital gains for alleged sale of land. Assessee is also aggrieved by the action of CIT(A) confirming the action of the AO in not appreciating the fact that the amount of capital gains was already taxed in the A.Y.2007-08 and again making an addition for the same M/s. Just Textiles Ltd., income which tantamount to double taxation of the very same income which is not permissible under the Act.

Rival contentions have been heard and record perused.

Facts in brief are that assessee company is engaged in the business of Export and Import of all kinds of textile goods, garments and made up dyes and chemical. It was carrying on its business activity from land and building premises at Kanjurmarg, Mumbai. It has sold the said office premises to M/s Cowtown Land Development Pvt. Ltd. As per Memorandum of Understanding (MOU) dated 30/03/2007 total value of sale proceed for both land and building was agreed at Rs.8,60,00,000/- out of which Rs.60,00,00/- was paid at the time of MOU. Final conveyance deed was executed on 18/05/2007. The assessee has offered this income in the return of Income filed for A Y 2007-08 and computed capital gain under section 50, applicable to depreciable assets, as it was combined sale consideration both for land and building. Assessment for A Y 2007-08 was completed U/s 143(3) vide order dated 02/12/2009 accepting computation of capital gain as offered in the Return of Income. Later the case was reopened on the plea that the capital gain was not taxable u/s 50 but it has to be computed as per provisions of section 48 of the Act. The assessee submitted before the A O that since the sale consideration is combined and by offering income U/s 50, assessee has paid more tax by not taking advantages of indexation hence there is no escapement of income. The A O has passed reassessment order U/s 143(3) r.w.s. 147 of the Act dated 25/03/2013, accepting income computed in the original assessment order dated 02/12/2009. However M/s. Just Textiles Ltd., while finalizing the order, AO recorded a satisfaction in the office note that the income from sale of land and building is not taxable in A Y 2007-08 but is taxable in A Y 2008-09 however while quantifying the amount of capital gain taxable in AY 2008-09 he has reduced capital gain offered U/s 50 in AY 2007-08 and noted that the balance capital gain is taxable in the year 2008-09.

After recording the satisfaction AO issued notice u/s.148 for A.Y. 2008-09 dated 25/03/2013. Thereafter assessee requested to treat original return as return filed u/s.148 and provide reasons recorded to reopen the case. The Ld AO has provided reasons alongwith letter dated 18/10/2013, which was completely different.

By the impugned order CIT(A) not only confirmed the reopening of assessment but also additions so made by the AO. Against this order of CIT(A) assessee is in further appeal before us 7. It was contended by learned AR that the impugned income of capital gain was verified by the A O in the assessment order passed u/s 143(3) on 02/12/2009 for A Y 2007-08 and AO has accepted the amount and method offered by the assessee. Thereafter without any tangible material he changed his opinion during the reassessment proceedings U/s 143(3) r.w.s. 147 in the same AY 2007-08 and recorded a satisfaction that the income should be taxable in the A Y 2008-09 and not A Y 2007-08. This is nothing but change of opinion and reopening is not permissible on change of opinion. Reliance was placed on the decision of Supreme Court in the case of CIT vs. Kelvinator India Ltd. 320 ITR 561 (SC), wherein Hon'ble Apex M/s. Just Textiles Ltd., Court held that “though the power to reopen under the amended s. 147 is much wider, one needs to give a schematic interpretation to the words "reason to believe" failing which s.147 would give arbitrary powers to the AO to re-open assessments on the basis of "mere change of opinion", which cannot be per se reason to re-open. One must also keep in mind the conceptual difference between power to review and power to re-assess. The AO 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. One must treat the concept of "change of opinion" as an in-built test to check abuse of power by the AO. Hence, after 1.4.1989, the AO has power to re-open, provided there is "tangible material" to come to the conclusion that there is escapement of income from assessment. Reasons must have a live link with the formation of the belief. This is supported by Circular NO.549 dated 31.10.1989 which clarified that the words "reason to believe" did not mean a change of opinion."

Further reliance was placed on the following judicial pronouncements, which are on the similar propositions:- • Aventis Ph arm a Ltd. vs. ACIT (2010) 323 ITR 570 (Bom) • CIT vs. Usha International Ltd. ( 348 ITR 485)(Delhi) • Madhukar Khosla vs. ACIT 367 ITR 165 (Delhi) • Asian Paints Ltd. v. CIT [2009] 308 ITR 195 (Bom.) • CIT v. Jet Speed Audio Pvt. Ltd. (2015) 372 ITR 762 (Bom.) • Yash Raj Films P. Ltd. v. ACIT (2011) 332 ITR 428 (Bom.) • Mohan Gupta (HUF) vs. CIT 366 ITR 115(Delhi) • CIT vs. Orient Craft Ltd. 354 ITR 536(Delhi) • Housing Development Finance Corporation Ltd. v. J. P. Janjid M/s. Just Textiles Ltd., (2014) 225 Taxman 81(Mag.) (Bom) 9. It was also contended by learned AR that subsequently Assessing Officer cannot improve upon the reasons which were originally communicated to the assessee. Our attention was also invited to the order of the AO wherein he has recorded satisfaction for reopening in the office note on 25/03/2013, which was part of the assessment order passed U/s 143(3) r.w.s. 147 of the Act on 25/03/2013. Subsequently when assessee asked to provide reasons, the AO communicated the same vide letter dated 18/10/2013, which were neither dated nor signed by the AO and altogether different than what was originally recorded. In the original reasons, based on which notice U/s 148 dated 25/03/2013, was issued, the Ld AO proposed to tax long term capital gain in A Y 2008-09 after reducing short term capital gains offered in A Y 2007-08 U/s 50 of the Act. But in modified reasons he proposed to tax as long term capital gains on the plea that the sale consideration is mainly on account of sale of land, accordingly in the modified ground AO don't want to give any credit for the income already offered in A Y 2007-08 and not reduced cost of building. In the originally recorded reason, the Ld AO intends to tax the said transaction partially in both the year but later he realized that the said action may not sustainable hence he modified the reasons and proposed to taxed the entire transaction in A Y 2008-09, without realizing the fact that partially he has already taxed it in A Y 2007- 08.

Reliance was placed by learned AR on the decision of Bombay High Court in the case of Indivest Pvt. Ltd., 250 CTR 15/206 Taxman 351 and M/s. Just Textiles Ltd., Prashan S.Joshi 324 ITR 154, wherein it was held that only reasons recorded by Assessing Officer must be considered.

Learned AR also relies upon the following decisions for the above proposition:-  Hindustan Lever Ltd., v R.B. Wadkar 268 ITR 332 (Bom)  Mohinder Singh Gill v. Chief Election AIR 1978 SC 851  Mrs. Usha A Kalwani v S.N.Soni 272 ITR 67 (Bom)  Godrej Industries Ltd., v B.S.Singh, Dy. CIT (2015) 377 ITR 1 (Bom) 12. In view of the above judicial pronouncements learned AR vehemently argued that the Assessment Order passed by the AO was not sustainable in law.

With regard to merit of the addition, it was argued by learned AR that AO has wrongly computed capital gains u/s.48 instead of Section 50 which is applicable to the depreciable assets. It was also argued by learned AR that without prejudice to above, the assessee submits that the assessee company was having unabsorbed depreciation of Rs.3,30,92,349/- pertaining to A.Y.2007-08. As per provisions of section 32(2) of the Act, unabsorbed depreciation has to be treated as current year depreciation and accordingly the same is eligible for set off against any other income for the current year as per provisions of section 71 of the Act. Therefore the Ld AO should have allowed set off of such unabsorbed depreciation against the capital gain income as worked out by him. However the AO ignored the same without assigning any reason for the same. Therefore the learned AR submitted that if the Hon'ble M/s. Just Textiles Ltd., Bench sustain addition in this year, then AO should be directed to allow unabsorbed depreciation of Rs. 3,30,92,349/- pertaining to A Y 2007-08. On the other hand learned DR relied on the order of the lower authorities and contended that assessee failed to disclose correctly the capital gains on sale of land and building, accordingly AO was justified in adding the same in the A.Y.2008-09 under consideration.

We have considered rival contentions and carefully gone through the orders of the authorities below. We had also deliberated on the judicial pronouncements referred by lower authorities in their respective orders as well as cited by learned AR and DR during the course of hearing before us.

From the record, we found that original assessment was framed u/s.143(3) in the A.Y.2007-08, wherein capital gain so offered by the assessee was accepted by the AO. Thereafter without any tangible material, AO changed his opinion and recorded a satisfaction that income should be taxable in the A.Y.2008-09 and not in the Assessment Year 2007-08. We found that even when the completed assessment u/s.143(3) for the A.Y.2007-08 was reopened, assessment was completed on the very same income even in the re-assessment proceedings. Thus, there was change of opinion on the very same set of facts and circumstances. The issue is squarely covered by the decision of Supreme Court in case of Kelvinator India wherein Hon’ble Supreme Court observed that mere change of opinion is not sufficient for reopening assessment. One must keep in mind the difference between M/s. Just Textiles Ltd., the power to review and power to re-assess and held that re-assessment has to be based on fulfilment of certain pre-condition and if the concept of change of opinion is removed, then in the garb of re-opening the assessment, review would take place. It was precisely observed by Hon’ble Supreme Court that after 01/04/1989 for exercising power of reopening permissible tangible material to come to the conclusion that there is an escapement of income. Reasons must have live link with the formulation of belief.

As per our considered opinion reason to believe that income chargeable to tax as escaped assessment is one of the conditions precedent for invoking the jurisdiction of the AO to reopen the assessment u/s.147. AO does not have any jurisdiction to review his own order. What cannot be done directly cannot be done indirectly. Thus, the AO cannot initiate proceedings for the re-assessment on the basis of mere change of opinion. In the instant case before us on the basis of material available on record, AO has framed scrutiny assessment order u/s.143(3), thereafter, case was reopened and again assessment was framed u/s.143(3) r.w.s. 147 on the very same income. Thereafter, there was no tangible material before the AO to come to the conclusion that there is an escapement of income from assessment. Accordingly, we do not find any merit for reopening the assessment by the AO in the A.Y 2008-09.

Even on merits, we found that the Ld AO has wrongly applied provisions of section 48 to compute capital gain instead of section 50, M/s. Just Textiles Ltd., applicable to the depreciable assets. In this case sale consideration was consolidated for land as well as Building, hence assessee has computed capital gain u/s 50 as there is no authentic method to bifurcate the sale consideration into land and' building separately. Therefore the assessee computed capital gain u/s. 50 though the same was having higher burden of tax as rate of tax on short term capital gain is higher than the long term capital gain and under section 50, benefit of indexation is also not allowable. However Ld AO ignored the same and applied section 48 of the Act which was also not following in spirit as he failed to grant benefit of indexation, not considered cost of building etc., We also found that AO has not given indexation for the cost of land, which was acquired by the assessee vide deed of partition dated 18/8/1990. Therefore the indexed value of this land in A Y 2008-09 , which works out to be Rs. 3,25,01,831/- (1,07,35,632/- X 551/182) should be considered for calculating long term capital gain u/s 48 of the Act. Further the sale consideration of Rs. 8,60,00,000/- is both for land as well as building, however Ld A 0 has not considered sale consideration pertaining to building portion on the plea that since the land was transferred for the purpose of redevelopment hence the main purpose of agreement is to transfer the land. The Ld AO failed to appreciate the fact that the conveyance deed as well as MOU clearly states the facts that the assessee company has transferred both land as well as building thereon.

In view of the above discussion, we do not find any merit for the addition so made by the AO. In the instant case before us the income M/s. Just Textiles Ltd., from sale of land and building has been offered by the assessee in A Y 2007-08 and the same has been accepted not only in assessment U/s 143(3) but again the reassessment proceeding U/s 143(3) r.w.s. 147 of the Act. Even otherwise the income is assessable in the year 2007-08 as the MOU clearly states that all the control over the property transferred to the buyer on execution of MOU. Hon'ble Bombay High Court in case of Chaturbhuj Dwarkadas Kapadia Vs CIT(260 ITR 491)(Bom) held that "even arrangements confirming privileges of ownership without transfer of title could fall under Section2(47)(v) if the transferee is ready and willing to act upon the arrangements. " In the case of assessee the MOU has given deemed ownership to the transferee and the said MOU has finally acted upon with 45 days by entering into conveyance deed, hence the correct year of determination of capital gain is A Y 2007-08.

In the result, appeal of the assessee is allowed in terms indicated hereinabove.