MR. KESHAB CHANDRA JAIN,NEW DELHI vs. ACIT, NOIDA

ORDER PER J.SUDHAKAR REDDY, ACCOUNTANT MEMBER

This is an appeal filed by the Assessee directed against the order dated 11.5.2011 of Ld.CIT(A), Ghaziabad pertaining to the Assessment Year (hereinafter referred to as the A.Y.) 2001-02.

2. Facts in brief:- The Assessee is an individual and has income from salary and other sources. He filed his return of income on 12.12.2001 declaring net income of Rs.5,24,311/-. The same was processed u/s 143(1) of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’). Thereafter an order was passed u/s 143(3)(i) of the Act on 4.2.2003, wherein the Assessing Officer (hereinafter referred to as the AO) examined the issue as to why the assessee has not included in its taxable income, capital gains on Sh. Keshab Chandra Jain, New Delhi sale of plot of DSIDC. Thereafter the A.O. reopened the assessments by issual of notice u/s 148 of the Act on 23.3.2006. The capital gains declared by the assessee on the sale of plot of DSIDC was treated as short term capital gain, instead of long term capital gain claimed by the assessee. Aggrieved the assessee carried the matter in appeal before the First Appellate Authority, without success. Further aggrieved the assessee is before us on the following grounds.

“1. That the assumption of jurisdiction by the Assessing Officer under section 147 of the Income Tax Act, 1961, is arbitrary, unjust and bad in law.

3. That there was no valid material with the Assessing Officer as contemplated to assume the jurisdiction under section 147 of the Income Tax Act, 1961 and consequently the reassessment so framed on the basis of such invalid assumption of jurisdiction is bad in law.

4. That the Id Commissioner of Income Tax (Appeals) Ghaziabad had erred in sustaining the assessment made on sale of property as a short term capital gain.

5. That the gain on sale of property as assessed by Assessing Officer and sustained by Id Commissioner of Income Tax (Appeals) Ghaziabad is arbitrary, unjust and not tenable under the law on various factual and legal grounds.

6. The above grounds are independent and without prejudice to one another.

7. Your appellant craves leave to add, alter, amend or withdraw any of the grounds of appeal at the time of hearing.”

Sh. Keshab Chandra Jain, New Delhi 3.1. On a careful consideration of the facts and circumstances of the case, on perusal of orders of lower authorities and case laws cited, we hold as follows.

4.1. The reason for reopening the assessment is on the issue of capital gain which arose on the sale of DSIDC plot. Thus in our view the reopening is made based on change of opinion. The Hon’ble Supreme Court in the case of Kelvinator of India (320 ITR 561) reaffirmed the judgement of the Jurisdictional High Court in the case of CIT vs. Kelvinator of India Ltd. reported in 256 ITR 01. The Hon’ble Delhi High Court had held that the reopening cannot be made on a mere change of opinion. It was held as follows. “When a regular order of assessment is passed in terms of Sub Section (3) of S.143 of the Act the 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 Sh. Keshab Chandra Jain, New Delhi the Indian Evidence Act, 1872, 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 A.O. to reopen the proceeding without anything further, the same would amount to giving a premium to an authority exercising quasi judicial function to take benefit of its own wrong. Hence, it is clear that section 147 of the Act does not postulate conferment of power upon the A.O. to initiate reassessment proceedings upon a mere change of opinion.”

4.2. Similarly the Hon’ble Delhi High Court in CIT vs. Manak Shoes Co. (P) Ltd. (2011) reported in 200 Taxman 133 (Del) held as follows. Held: “Reading of the original assessment order brought out following aspects :— (i) That was an order passed under section 143(3) (ii) The assessment order specifically noticed that the return accompanied by statutory audit report in Form No. 3CD. (iii ) The case was taken up for scrutiny. The representative of the assessee attended the proceedings pursuant to the said notice and supplied the details from time-to-time. (iv ) The Assessing Officer examined the details in respect of various items. He specifically recorded that ‘as in the past the assessee continued to carry on the business of casual sports shoes' (v) Various items were scrutinized on merits and the issue on depreciation was also specifically commented upon on certain aspects inasmuch as certain expenses were disallowed holding that the assessee was not entitled to depreciation thereupon. The original assessment order unequivocally manifested that the Assessing Officer specifically went into the issue as to whether there was a manufacturing activity or not. [Para 8] In that background, one should examine the assertion of the assessee that it had subsequently informed the Assessing Officer that it had incurred huge loss in its manufacturing operation as it received no orders from its overseas buyers who were facing competition from Chinese makers of shoes. It was also explained that the assessee had got all its manufacturing facility intact at the behest of the buyers and no expenditure for manufacturing the same was incurred. Most significant aspect was that the assessee had got a reimbursement of Rs. 1.34 crores from its buyers as compensation for maintaining the manufacturing facility which amount was offered for tax and was taxed in entirety even though the Assessing Officer disallowed the expenditure so claimed in its return of income. There was no reason in the aforesaid circumstances to disbelieve that the Assessing Officer had not noticed that there was no manufacturing activity for want of orders. At the Sh. Keshab Chandra Jain, New Delhi same time, he allowed the depreciation keeping in view the aforesaid factors. [Para 9] In support of its claim, the assessee had filed the profit and loss account and balance sheet of various schedules annexed thereto. Schedule 17 related to "Significant Account Policy" wherein date of consumption of raw material, payment to auditors, production date on sport/casual shoes/sleepers and sales had been provided. When the original order passed by the Assessing Officer revealed that there was an application of mind on the issue, there was no reason to presume that the Assessing Officer would not have noticed the said material produced before him. On the aforesaid material and facts, the Tribunal had rightly concluded that it was a case of mere change of opinion. In the instant case, the Assessing Officer had specifically taken note of the documents on record. The assessment order itself mentioned that the return was accompanied by statutory audit report in Form No. 3CD. The Assessing Officer also applied his mind while examining the details in respect of various items. Therefore, it could not be said that it was a case of non- disclosure. [Para 10] For the aforesaid reasons, the Tribunal was justified in holding that assumption of jurisdiction by the Assessing Officer under section 147/148 was non est and invalid. [Para 11]”

5.1. Even otherwise we find that the assessee had made full payment to DSIDC towards the cost of land, by 4th December, 1991. The payments made on 29.4.2000 and 7.12.2000 are only towards lease rents. Thus, in our view, the assessee acquired valuable rights due to the allotment made by DSIDC Ltd. When this valuable right is sold, capital gains arose. In the case on hand the valuable rights in question accrued to the assessee on 4th December, 1991 and this right was sold on 30.01.2001. Thus capital asser representing the valuable right is a long term capital asset. This view is supported by the decision of the Hon’ble Delhi High Court in the case of CIT vs. K.Ramakrishnan (2014) reported in 48 taxmann.com 55 (Delhi). The Ld.D.R. argues that, the possession of the plot was given only on 29.1.2001 and the assessee sold the plot of land on 30th January, 2001, within two

Sh. Keshab Chandra Jain, New Delhi days and hence the profit on sale of this plot of land should be assessed as short term capital gain. In view of the decision of Jurisdictional High Court the argument of the Ld.D.R. is to be dismissed as devoid of merit.

5.2. The Delhi “C” Bench of the ITAT in the case of Jitendra Mohan vs. ITO (2007) 11 SOT 595 (Del) had held as follows. “Section 2(42A), read with sections 2(14) and 2(47), of the Income-tax Act, 1961 - Capital gains - Long term capital assets - Assessment year 2001-02 - Assessee had been allotted an industrial shed by Delhi State Industrial Development Corporation Ltd. (DSIDC) vide letter dated 8-7-1994 which was not of any specific shed as same was to be decided later on through a draw of lots - Later on 27-8-1996 assessee, by a draw of lots, was allotted Shed No. D-13, subject to payment of all outstanding dues and interest - Assessee was allotted shed on instalment basis - Assessee paid first instalment and second instalment on 21-10-1993 and 28-12-1994, respectively, and deposited last instalment on 19-12-1997 - Possession of said shed was handed over to assessee by DSIDC on 18-5-1998 - Assessee thereafter sold that shed on 15- 12-2000 and declared long-term capital loss in his return - Assessing Officer held that industrial shed had been held by assessee for a period much less than 36 months, as only on payment of final instalment on 19-12-1997 assessee got possession of shed on 18-5-1998 and sale of same by assessee on 15-12-2000 had to be treated as short-term capital asset - Whether as per wider meaning of word ‘property’ used in definition of ‘capital asset’ in section 2(14), property/shed was held by assessee on 28- 12-1994 on payment of second instalment after date of allotment - Held, yes - Whether therefore, sale of shed by assessee on 15-12-2000, after holding same for a period of more than 36 months was to be treated as long-term capital asset and sale of same resulting into loss/gain also amounted to long-term capital loss/gain - Held, yes.”

Sh. Keshab Chandra Jain, New Delhi

Order pronounced in the Open Court on 26th May, 2016.