THE COMMISSIONER OF INCOME-TAX vs M/S AMCO BATTERIES LTD.,

1 IN THE HIGH COURT OF KARNATAKA AT BENGALURU DATED THIS THE 18TH DAY OF NOVEMBER 2020 PRESENT THE HON’BLE MR. JUSTICE ALOK ARADHE AND THE HON’BLE MR. JUSTICE H.T.NARENDRA PRASAD I.T.A. NO.572 OF 2013 BETWEEN: 1. THE COMMISSIONER OF INCOME-TAX

C.R.BUILDING

QUEENS ROAD

BANGALORE. 2. THE DY. COMMMISSIONER OF INCOME-TAX

CIRCLE - 11 (1)

RASHTROTHANA BHAVAN

NRUPATHUNGA ROAD

BANGALORE. ... APPELLANTS (BY SRI.K.V.ARAVIND, ADV.,) AND: M/S AMCO BATTERIES LTD. 3RD FLOOR UNITY BUILDING N.R.SQUARE BANGALORE. ... RESPONDENT (BY SRI.S.PARTHASARATHI, ADV.) - - - THIS ITA IS FILED UNDER SECTION 260-A OF I.T. ACT, 1961 ARISING OUT OF ORDER DATED 31.07.2013 PASSED IN ITA

2 NO.94/BANG/2013 FOR THE ASSESSMENT YEAR 2004-05, PRAYING TO: (I) FORMULATE THE SUBSTANTIAL QUESTIONS OF LAW STATED ABOVE. (II) ALLOW THE APPEAL AND SET ASIDE THE ORDERS PASSED BY THE ITAT, BANGALORE IN ITA NO.94/BANG/2013 DATED 31.07.2013 AND CONFIRM THE ORDER OF THE APPELLATE COMMISSIONER CONFIRMING THE ORDER PASSED BY THE DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE11(1), BANGALORE. THIS ITA COMING ON FOR FINAL HEARING, THIS DAY, ALOK ARADHE J., DELIVERED THE FOLLOWING: JUDGMENT This appeal under Section 260A of the Income Tax Act, 1961 (hereinafter referred to as the Act for short) has been preferred by the revenue. The subject matter of the appeal pertains to the Assessment year 2004-05. The appeal was admitted by a bench of this Court vide order dated 16.12.2014 on the following substantial questions of law: (i) Whether in the fact and in circumstances and in law the tribunal was correct in holding that there is no failure on the assessee to disclose truly and fully all material facts necessary for computing its income due to which income has escaped tax, admittedly when the assessee has not

3 disclosed the fact regarding handing over of possession of the property to the developer pursuant to JVA and recorded a perverse finding? (ii) Whether in the fact and in circumstances and in law the tribunal was correct in holding that disclosure of JVA and advance receipt from JVA amounts to disclosure, when the crucial fact regarding handing over of possession which would amount to transfer under Section 2(47) of the Act liable for capital gains was not disclosed by the assessee and recorded a perverse finding?

Facts leading to filing of this appeal briefly stated are that the assessee is a company engaged in the manufacture and sale of automotive batteries. The assessee filed its return of income for the Assessment Year 2004-05. The Assessing Officer by an order dated 22.12.2006 completed the assessment under Section 143(3) of the Act. The Assessing Officer noticed that the assessee had entered into a joint development

4 agreement and in consideration, the assessee was to receive 28% of the saleable constructed area and the assessee had handed over the possession of the land in pursuance of joint venture agreement. It was further held that handing over the possession of the land would amount to transfer under Section 2(47) of the Act. The Assessing Officer therefore, reopened the assessment and issued a notice under Section 148 of the Act. The Assessing Officer by an order dated 30.12.2011 completed the re-assessment and brought to tax the transaction relating to transfer of land at Hebbal under the Long Term Capital Gains.

The assessee thereupon filed an appeal before the Commissioner of Income Tax (Appeals) who by an order dated 28.11.2012 held that re opening of the assessment is in accordance with law. The assessee thereupon approached the Income Tax Appellate Tribunal (hereinafter referred to as 'the tribunal' for short) by filing an appeal. The tribunal by an order dated

5 30.07.2013 inter alia held that earlier order of assessment was made under Section 143(3) of the Act on 22.12.2006 and the assessment has been reopened after expiry of four years and therefore, the proviso to Section 147 of the Act applies. It was also held that the Assessing Officer has not mentioned that the assessee had failed to disclose truly and fully all material facts necessary for computing its income, due to which the income had escaped tax. Accordingly, the order of re assessment was set aside. In the aforesaid factual background, this appeal has been filed.

Learned counsel for the revenue submitted that the assessee had not declared / disclosed the factum of handing over the possession through joint development agreement, which would constitute failure to disclose fully and truly all material facts necessary for assessment of income and the same is reflected in the reasons recorded by the Assessing Officer. It is further submitted that notes to return only reflects receipts of

6 advance of Rs.180 Crores and not handing over the possession / enjoyment of property in terms of Section 2(47)(V) and Section 2(47)(VI) of the Act and therefore, it is a case of non disclosure.

It is also argued that the reasons recorded by the Assessing Officer prima facie establish a statement of tax and at the stage of recording reasons, the Assessing Officer is not required to establish a statement of tax with evidence and the finding of the tribunal regarding the reasons which has been recorded by the Assessing Officer is contrary to the factual position existing on the record. It is further submitted that the issue with regard to applicability of Section 2(47)(VI) of the Act needs to be examined. Learned counsel for the revenue has also invited our attention to Clauses 3, 4, 5, 6.4, 7.1, 7.4, 7.5, 7.7, 10.2 and 16 has submitted that risk and rewards in the property have already been transferred in favour of the developer and in fact, the title has also been transferred. Therefore, the

7 transaction is liable for capital gains under Section 45 of the Act. It is also argued that since the assessee failed to disclose the transaction, the same has escaped assessment. It is also urged that the order of re opening of assessment be upheld and the matter be remitted to tribunal for adjudication on merits. In support of aforesaid submissions, reliance has been placed on a decision of the Supreme Court in 'ASSISTANT COMMISSIONER OF INCOME TAX VS. RAJESH JHAVERI STOCK BROKERS (P) LTD.', 291 ITR 500 (SC).

On the other hand, learned counsel for the assessee submitted that an agreement has to be a contract in order to attract the applicability of Section 2(45) of the Act. While inviting the attention to clauses 3.1, 3.2 as well as other clauses of the agreement, it is contended that there is no delivery of possession under Section 53A of the Transfer of Property Act, 1881 and the development Agreement is not a registered document. It is also submitted that the assessee gave

8 Power of Attorney to the developer on 07.03.2006 i.e., beyond the accounting period and the possession was not handed over. It is also urged that there is no material on record to show that the possession of the property in question was handed over and the re opening of the assessment is beyond four years, which is not permissible in law. In support of aforesaid submissions, reliance has been placed on decision of the Supreme Court in 'COMMISSIONER OF INCOME TAX VS. BALBIR SINGH MAINI', 398 ITR 531 (SC) and decision of this court in 'VENKATESH POWER WORKS VS. COMMISSIONER OF INCOME TAX', 278 ITR 436.

We have considered the submissions made by learned counsel for the parties and have perused the record. From perusal of the reasons recorded by the Assessing Officer while re opening the assessment, it is evident that Assessing Officer has recorded a finding that due to non disclosure of transaction of joint

9 development agreement entered into by the assessee with M/s Godrej Properties Ltd. on 22.01.2004, towards transfer of land, the income has escaped assessment. The relevant extract of the order reads as under: It is noticed that the company M/s Amco Batteries Ltd had entered into a Development Agreement with M/s Godrej Properties and Investments Ltd. (subsequently name change to M/s Godrej Properties Ltd.) for development of 20 acres of land near Hebbal flyover belonging to the company on 22.01.2004. This Joint Venture Development entered into on 22.01.04 enables the assessee to claim 28% of the saleable constructed area. The balance 72% of saleable constructed area belongs to the developer. The possession of the land vests with the developer on account of Joint Venture Agreement and on account of construction carried on as per JVA as such there is a transfer of property of 72% of the 20 acres of land from the assessee company to M/s. Godrej Properties and Investments Ltd. to the extent of value of the land transferred, the

10 assessee is liable to capital gains tax for the year in which the joint venture agreement is entered into and possession of land is handed over for construction i.e., for the assessment year 2004-05. As the assessee company failed to disclose fully the contents of the JVA entered into with M/s Godrej Properties Ltd. which took place on 22.01.2004 relevant to the Assessment Year 2004-05, capital gain income, which exceeds more than One Lakh Rupees, arising on account of consideration received towards transfer of land, has escaped assessment within the meaning of Section 147 of the I.T.Act. In view of the above, I am satisfied that it is a fit case for issue of notice under Section 148 of the Act for the Assessment Year 2004- 05.

Thus, from perusal of the above relevant extract, it is evident that the Assessing Officer has recorded reasons for arriving at the conclusion that income has escaped assessment. Once the Assessing Officer records the reasons that he has reason to believe

11 that income has escaped assessment, it confers jurisdiction to re open the assessment. However, the tribunal in a cryptic and cavalier manner without adverting to the reasons assigned by the Assessing Officer has held in para 8, the relevant extract of it reads as follows: As seen from the reasons recoded and re opening of the assessment, the AO has not mentioned therein anywhere that the assessee has failed to disclose truly and fully all material facts necessary for computing its income due to which the income has escaped tax.

Thus, from the perusal of the order passed by the tribunal, it is evident that the order passed by the tribunal suffers from the vice of non application of mind and the finding recorded by it referred to supra is perverse.

In view of preceding analysis, the substantial questions of law framed by a bench of this court are

12 answered in favour of the revenue and against the assessee. In the result, the order passed by the tribunal is therefore, quashed and the matter is remitted to the tribunal for decision afresh in accordance with law.

Accordingly, the appeal is allowed. Sd/- JUDGE Sd/- JUDGE ss

THE COMMISSIONER OF INCOME-TAX vs. M/S AMCO BATTERIES LTD.,