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Income Tax Appellate Tribunal, INDORE BENCH, INDORE
Before: SHRI MAHAVIR PRASAD & SHRI MANISH BORAD
आदेश / O R D E R
PER MANISH BORAD, A.M: The above captioned appeals filed at the instance of the Revenue in the cases of different assessee for Assessment Year 2013-14 are directed against the different orders of Ld. Commissioner of Income Tax(Appeals)-III (in short ‘Ld.CIT(A)], Indore dated 12.08.2020 and 11.08.2020, respectively, which are arising out of the different orders u/s 143(3) r.w.s. 147 of the Income Tax Act
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1961(In short the ‘Act’) both dated 29.09.2017 framed by ACIT Central Circle 1, Indore.
The Revenue has raised the following grounds of appeal in ITA 26/Ind/2019 in Rajul Bhargava for AY 2013-14:
On the facts and in the circumstances of the case the Ld. CIT(A) has erred in law in deleting the addition of Rs. 2,77,00,000/- mad by the Assessing Officer on account of unaccounted receipt for sale of land at Mayakhedi and has overlooked the findings of the Assessing Officer mentioned in the assessment order.
On the facts and in the circumstances of the case the Ld. CIT(A) has erred in allowing grounds of the assessee who maintained that the said assessment could not have reopened u/s 148 of the Income Tax Act as the assessment was completed u/s 153A of the Income Tax Act, 1961.
On the facts and in the circumstances of the case the Ld. CIT(A) has erred in allowing ground of the assessee that the impugned amount was already assessed and reopening is only change of opinion in the wake of the fact that the Ld. CIT(A) himself had held in appellate order pertaining to AY 2012-13 that cause of action related to 2.310 hectare land pertains to AY 2013-14 and not in AY 2012-13
The Revenue has raised the following grounds of appeal in ITA 27/Ind/2019 in Raunak Maru for AY 2013-14:
On the facts and in the circumstances of the case the Ld. CIT(A) has erred in law in deleting the addition of Rs. 2,77,00,000/- mad by the Assessing Officer on account of unaccounted receipt for sale of land at Mayakhedi and has overlooked the findings of the Assessing Officer mentioned in the assessment order.
On the facts and in the circumstances of the case the Ld. CIT(A) has erred in allowing grounds of the assessee who maintained that the said assessment could not have reopened u/s 148 of the Income Tax Act as the assessment was completed u/s 153A of the Income Tax Act, 1961.
On the facts and in the circumstances of the case the Ld. CIT(A) has erred in allowing ground of the assessee that the impugned amount was already 2
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assessed and reopening is only change of opinion in the wake of the fact that the Ld. CIT(A) himself had held in appellate order pertaining to AY 2012-13 that cause of action related to 2.310 hectare land pertains to AY 2013-14 and not in AY 2012-13
As the issues raised in these appeals are common and interlinked arising out of the same search proceedings and the Revenue has also raised the identical grounds, at the request of both the parties, these appeals were heard together and are being disposed off of by this common order for sake of convenience and brevity.
Brief facts of the case are that both the assessees formed a partnership firm M/s RNR Devcon on 10th March 2010 wherein both the partners had 50:50 sharing. The said firm purchased a plot of land at Bypass Indore for a consideration of Rs. 3.5 crores measuring 3.93 hectares through sale deed registered on 18.03.2010. Later on the firm sold a part of the land i.e. 1.62 hectare of the said land on 14.02.2012 to one M/s Vee Kay InfracomPvt. Ltd. for Rs. 2,35,80,000/-. The resultant profit of Rs. 74,24,668/- on this sale was offered to tax in the hands of the firm for AY 2012-13. After the sale of 1.62 hectare of land the balance land of 2.31 hectare was remaining in the firm. On 31.03.2012 two more persons namely Shri Naresh Kakwani and Shri Jai Narayan Kakwani were admitted as partners. Eventually vide retirement deed dated 25.07.2012 both the assessees retired from the said partnership firm. Search and Seizure operations u/s 132 were carried out on the business as well as residential premises of CHL Group of Indore including the residential premises of both the assessee on 04.10.2013. The ld. Assessing Officer issued notices u/s 153A for A.Ys 2008-09 to 2013-14. Both the assessees then filed an application for settlement of their cases before the Income Tax Settlement Commission (ITSC) on 04.10.2013 for assessment years 2008-09 to assessment year 2014-15 along with some other assessees of the group and the proceedings initiated by the learned Ld. AO were abated. The applications were admitted and were further allowed to be proceeded with vide common
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order u/s 245D(2C) dated 14.11.2014. However, while passing the final order u/s 245D(4) dated 15.05.2015, the ITSC rejected the applications filed by the assessees and the proceedings before the Commission were abated from the date of order before the ITSC. Fresh notices u/s 153A were issued for AYs. 2008-09 to 2014-15 and the assessment proceedings were carried out u/s 153A r.w.s 143(3) and completed u/s 153A r.w.s. 143(3) on 23.03.2016, by passing a consolidated order for AYs 2008-09 to 2014-15. The income for A.Y.2013-14 was assessed at returned income and no addition was made in this year. During the course of search proceedings, certain pen drive was seized from the residential premises of one Shri Ashok Vaishnav who was the accountant of M/s CHL Hospital Ltd., wherein certain notings were found. On the basis of these notings, inventoried as LPS-AV-1 during the course of regular assessment proceedings u/s 153A of the Act Ld. Assessing Officer observed that the bypass land was purchased at Rs. 13.06 crores. He also observed that the bypass land was sold in two trenches i.e. FY 2011-12 and FY 2012-13 for the sale consideration of Rs. 22.50 Crores. On this basis, during the regular assessment proceedings u/s 153A, the assessee(s) were required to show cause as to why half of the quantum of sale consideration of Rs. 9,43,68,000/- (22.50 minus 13.0632) be not brought to tax in the relevant assessment year. Finally an addition of Rs. 4,71,84,000 each was made in the hands of both the partners in AY 2012-13 on account of sale of land at Mayakhedi and change of partners of the firm M/s RNR Devcon in the regular assessment order passed under section 153A. This addition was deleted by the first appellate authority. After the deletion of addition by the Ld. CIT(A) in AY 2012-13, reassessment proceedings were initiated for AY 2013-14 i.e. the year under consideration by issuing notice u/s 148 of the Act. During the course of reassessment proceedings, the unaccounted receipt on transfer of remaining 2.310 Hectares land was worked out to Rs. 5.54 cr. [(2.3/3.930)*9.44] and accordingly addition of Rs. 2.77 crores each was made in the case of both the assessees in AY 2013-14. The aggrieved assessees challenged the reopening proceedings and also the additions before the Ld. CIT(A) and the appeals filed 4
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by the assessees were decided wherein the additions made by the LD. AO were deleted by the Ld. CIT(A) and some of the legal grounds raised by the assessees against the reassessment proceedings were also allowed by the Ld. CIT(A). Thus, the Revenue is in appeals before this Tribunal.
Before us, on merit i.e. on ground no. 1 commonly raised by the Revenue, the Ld. CIT-DR vehemently argued the appeals supporting the order of the Ld. LD. AO and submitted that the addition was rightly made by the Ld. LD. AO and has been wrongly deleted by the CIT(A).
Per Contra, Ld. Counsel for the assessees relied heavily on the findings of Ld. CIT(A) and also referred to the paper books filed which also include submission made before Ld. CIT(A) and various other documents to support their cases and contended that the addition made by the LD. AO was wrong which has rightly been deleted by the Ld. CIT(A).
We have considered the submissions of both the sides and perused the material available on record. We find that the Revenue has challenged the findings of the Ld. CIT(A) deleting the addition of Rs. 2,77,00,000/- each made by the LD. AO on account of unaccounted receipt for sale of land at Mayakhedi in the hands of both the assessee(s) namely Rajul Bhargav and Raunak Maru. We find that the impugned land was purchased by the partnership firm wherein both the assessees were partner and part of the land was sold by the firm in AY 2012-13. Two new partners were also inducted in the firm on 31.03.2012 and both the assessees partners retired from the partnership on 25.07.2012. In the reassessment proceedings the case of the LD. AO is that at the time of retirement of the partners the land remaining in the partnership firm was transferred in the form of retirement of partners from old partners to new partners. The LD. AO worked out the total profit of Rs. 9.44 crores in respect of total land of 3.93 hectare and the proportionate profit of remaining land of 2.31 hectare was worked out at Rs. 5.54 crores (9.44 X 2.3/3.93) and
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made the addition of Rs. 2.77 crores each in the hands of both the partners. The ld. CIT(A) has deleted the addition observing as under:
Ground No. 2 – Through this groundthe appellant has challenged the addition of Rs. 2,77,00,000/- made by the LD. AO by treating the same as unaccounted receipts for sale of land at Mayakhedi. The issue is discussed in Para 5 to 6.15 in the assessment order wherein it is stated by the LD. AO that certain incriminating documents were seized during the search and it was found that the appellant and Shri Raunak Maru had purchased 3.93 hectare of land at Village Mayakhedi in FY 2009-10 in their partnership firm M/s RNR Devcon at the cost of Rs. 13.06 corers. This land was sold for total consideration of Rs. 22.5 crores in two trenches in FY 2011-12 and FY 2012-13. The part of the land i.e. 1.620 hectare was sold by the partnership firm M/s RNR Devcon and the balance land i.e. 2.310 hectare was transferred in the form of retirement of the partners. It is contended by the LD. AO that both the partners retired from the firm thereby forgoing their interest in the balance land as well as in the partnership firm against which they received unaccounted receipts. Referring to page 6 of the LPS – AV1 seized during the search, the LD. AO has stated that this sheet gives complete summary of actual purchase and actual sale of this land. The scanned copy of this sheet is also reproduced by the LD. AO in the assessment order. Thereafter, referring to and drawing support from the statement of Shri Ashok Vaishnav, the LD. AO stated that the land was sold for Rs. 22.5 cr which is also evident from page 3, 4 & 5 of same LPS – AV1 which have also been reproduced in the assessment order. Finally, the LD. AO concluded that the total land of 3.93 hectare was sold at Rs. 22.5 corers which was purchased for Rs. 13.06 corers and therefore, the unaccounted receipt was worked out by the LD. AO at Rs. 9.44 corers (22.5 – 13.06). The LD. AO further stated that the appellant and Shri Raunak Maru retired from the said firm on 25.07.2012 and therefore, the remaining land of 2.310 hectare was transferred in the form of retirement of partners. Accordingly, considering the total profit of 9.44 corers on transfer of 3.93 hectare land, proportionate profit in respect of 2.310 hectare was worked out at Rs. 5.54 corers (9.44) * (2.3/3.930) and half share of the appellant was worked out at Rs. 2.77 corers and the same was treated as unaccounted receipts for sale of land at Mayakhedi and was added to the total income of the appellant.
The appellant, on the other hand, contended that the impugned documents referred by the LD. AO were in the form of print outs taken from the pen drive seized from the residence of Shri Ashok Vaishnav who is an accountant of CHL Hospital and that the hash value report of the said pen drive was never provided by the department. It is also submitted that the impugned seized material was not found from the possession of the appellant and that Shri Ashok Vaishnav was never an accountant of the firm M/s RNR Devcon and the appellant never
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instructed him to maintain any record related to M/s RNR Devcon. It is also contended by the appellant that neither the appellant was ever questioned by the investigation team on this aspect either during the search or even in the post search proceedings. Further, the statement of Shri Ashok Vaishnav was recorded behind the back of the appellant and the appellant was never allowed an opportunity of cross examination. The appellant has also pointed out that the impugned land was purchased by the partnership firm M/s RNR Devcon and was duly recorded in its books of accounts. Part of the land was sold by the firm in AY 2012-13 and the resultant profit was also offered by the firm in its return of income filed for this year. The appellant has submitted that two new partners were admitted in the firm M/s RNR Devcon w.e.f. 31.03.2012, with equal shares and eventually the appellant retired from the firm in July 2012. Referring to the various LPS abstracted by the LD. AO in the assessment order, it is contended by the appellant that the workings done by the LD. AO are inconsistent and not matching with the seized material. It is also the contention of the appellant that he has not received any amount as undisclosed receipts at the time of retirement from the firm, which fact is also evident from the seized material where the name of the appellant is not mentioned against a single receipt or payment and therefore, the addition made in the hands of the appellant is patently wrong.
As an alternate contention, the appellant has also stated that the nature of receipts in the hands of a partner at the time of retirement is capital in nature and is even otherwise not taxable. For this contention the appellant has vehemently placed reliance on the findings given by Honourable ITSC in the appellant’s own case on this very issue. The appellant has also placed reliance on various other decision of Honourable Supreme Court and also of various other High Courts and contended that there is no element of transfer of interest in the partnership assets by the retiring partner to the continuing partners and therefore, any amount received by the partner on retirement from the partnership firm is not taxable.
I have carefully taken into consideration the observations and contentions of the LD. AO made in the assessment order and have also considered the detailed written submission filed by the appellant and have also perused the case laws referred in the matter, after which I now proceed to decide the issue. I find that the appellant had filed an application u/s 245C before the Honourable Income Tax Settlement Commission (ITSC) along with other group cases and an order in proceedings u/s 245D(4) was also passed by the Honourable ITSC on 15.05.2015 in the case of the appellant. The relevant abstract of the said order is filed at page 25 to 37 of the paper book filed by the appellant. The decision rendered by the Honourable ITSC in the appellant’s case is in Para 18 on internal page 40 and 41 of the said order, which is reproduced hereunder for the sake of clarity.
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“ DECISION 18. We have carefully considered the facts of the case as brought to our notice in the application filed, rule 9 report, submissions of both CIT(DR) and AR. The following facts are recapitulated.
(i) The applicant and the Shri Raunak Maru were the two partners in M/s RNR Devcon having 50% share each. The firm purchased a plot of land admeasuring 3.93 hectares of land for a consideration recorded in the books at 3.81 crores, during FY 2009-10. The actual consideration for this purchase was Rs. 13.06 crores as found out from documents seized during the course of search (L.P.S. – AB – 1) as well as on the basis of statement recorded during search. (ii) The above land was sold for Rs. 22.5 crores in two trenches during FY 2011-12 and 2012-13. The total sale consideration was Rs. 22.50 crores. The first sale was of 1.62 hectare as per agreement dated 14.02.2012, when the firm M/s RNR Devcon sold the land to M/s VeekayInfraconPvt. Ltd. Thereafter as per partnership deed dated 31.03.2012 two new partners Shri Naresh Kakwani and Shri Jainarayan Kakwani were admitted as partners. The capital gain of Rs. 74,21,668/- on sale of 1.62 hectares of land was offered in the hands of the firm as capital gain for AY 2012-13. (iii) Thereafter as per deed of retirement dates 25.07.2012, Shri Rajul Bhargava and Shri Raunak Maru retired from the firm with Shri Naresh Kakwani and Shri Jainarayan Kakwani continuing as partners of the firm. The remaining part of land admeasuring 2.21 hectares was thus transferred through the transfer of partnership firm.
18.1 On these facts we have no doubt in our mind that both the unaccounted investment in land purchased by the firm M/s RNR Devcon as well as the profit arising on sale of land by the firm are required to be taxed in the hands of the firm. The receipts by the applicant (accounted as well as unaccounted) in lieu of foregoing their partnership shares to Kakwani family would be capital receipts and not revenue receipts……………
Thus, the Honourable ITSC categorically held that the receipts by the applicant i.e. the appellant, accounted as well as unaccounted in lieu of foregoing there partnership shares to Kakwani family would be capital receipt and not revenue receipts.
Similarly, it has been held by the Honourable Supreme Court and also by various High Courts that where a partner retires from a partnership there is no element of transfer of interest in the partnership assets by the retiring partner to
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the continuing partner and accordingly the amount received by the retiring partner is not assessable as taxable income. For this proposition I find support from the following judicial pronouncements:
Commissioner Of Income-Tax vs R. Lingmallu Raghukumar, (2001) 247 ITR 801 (SC) – In this case before the Honourable Supreme Court, earlier the Hon’ble High Court has dismissed the appeal filed by the department against the decision of the Honourable Andhra Pradesh High Court. The question of law before the Honourable High Court was whether the amount received by the assessee on retirement from the partnership firm is assessable to capital gain. The Honourable High Court held that there was no transfer of any assets as contemplated by the expression “transfer” as defined in section 2(47) of the Income-tax Act and in reaching to this conclusion, the Hon’ble High Court had placed reliance on the judgment of the Hon’ble Gujarat High Court in the case of CIT v. MohanbhaiPamabhai (1973) 91 ITR 393 (Guj), wherein the Honourable Gujarat High Court held that where a partner retires from a partnership and the amount of his share in the net partnership assets after deduction of liabilities and prior charges is determined on taking accounts in the manner prescribed by the relevant provisions of the partnership law there is no element of transfer of interest in the partnership assets by the retiring partner to the continuing partners. This decision of the Hon’ble Gujarat High Court was affirmed by the Honourable Supreme Court in Addl. CIT v. MohanbhaiPamabhai (1987) 165 ITR 166. In view of this decision the Honourable Supreme Court in the case of CIT V/s R Lingmallu Raghu Kumar (Supra) held that the amount received by the assessee on retirement from the partnership firm is not assessable as capital gains. Accordingly, the appeal filed by the department was dismissed by the Hon’ble Supreme Court.
Commissioner of Income Tax &Anr. Vs. Dynamic Enterprises (2013) 359 ITR 0083 (Kar.) FB - In this case the Hon’ble Karnataka High Court while dismissing the appeal filed by the department, held that when retiring partners took cash and retired, they were not relinquishing their interest in immovable property, but they relinquished their share in partnership. Therefore, there was no transfer of capital asset, as such; no capital gains or profit had arisen. It was also held that when retiring partner takes only money towards value of his share and when there is no distribution of capital asset/assets among partners there is no transfer of capital asset and consequently no profits or gains is assessable u/s. 45(4).
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M/s. National Company Vs. The Assistant Commissioner of Income Tax in T.C.A. No. 365 of 2009 dated 08.04.2019 – The Honourable Madras High Court in this recently decided case held that the provisions of Section 45(4) would not be attracted on the retirement of the two partners and consequential allotment of their share in the assets in the Assessee Firm.
The Court also observed in para 20 of his order that on the retirement of a partner from the firm, there will be allotment of his interests in the firm. The interest of a partner in a partnership firm is a right to obtain share of profits from time to time during the subsistence of the partnership and further, on dissolution of the partnership, or on his retirement from the partnership, to get the value of his share in the net partnership assets which remain after deducting the debts and liabilities of the partnership. This could be in the form of immovable assets or in the form of cash in lieu of the immovable assets. Therefore, when a partner retires from a partnership and his share in the net partnership assets is determined and allotted to him, what he receives is his share in the partnership and not any consideration for transfer of his interest in the partnership to the continuing partners. His share in the partnership is worked out by taking accounts in the manner prescribed by the relevant provisions of the partnership law and it is this, namely, his share in the partnership which he receives in terms of money or as an asset. In such transactions there is no element of transfer of interest in the partnership assets by the retiring partner to the continuing partners.
Principal Commissioner of Income Tax Vs. Electroplast Engineers (2019) 104 CCH 0314(Bom) - It was held by Honourable Bombay High Court that as per s. 45(4), profits or gains arising from transfer of capital asset by way of distribution of capital asset on dissolution of firm or otherwise should be chargeable to tax as income of assessee. For application of this provision, thus, transfer of capital asset was necessary. In present case, there was no transfer of capital asset upon reconstitution of firm. All that happened was firm's assets were evaluated and retiring partners were paid their share of partnership asset. There was clearly no transfer of capital asset. Hence, no infirmity was found in order of ITAT.
Prashant S. Joshi Vs. Income Tax Officer &Anr (2010) 324 ITR 0154 (Bom.) – The facts of this case are that the LD. AO reopened the case of the partner on the basis of order passed by CIT(A) in the case of the partnership firm for asst. yr. 2005-06 allowing the claim of the payment
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of Rs. 1 crore to the two retiring partners as revenue expenditure. Since the assessee partner claimed the payment to be exempt by treating it as a capital receipt, the case of the partner was reopened and it was held by the Hon’ble Bombay High Court that there was no reason to believe that the receipts under the deed of retirement had escaped assessment within the meaning of s. 147.
The Honourable court relying on various decisions observed that during the subsistence of a partnership, a partner does not possess an interest in specie in any particular asset of the partnership. A partner has a right to obtain a share in profits during the subsistence of partnership. On dissolution of a partnership or upon retirement, a partner is entitled to a valuation of his share in the net assets of the partnership which remain after meeting the debts and liabilities. An amount paid to a partner upon retirement, after taking accounts and upon deduction of liabilities does not involve an element of transfer within the meaning of s. 2(47) and therefore, the Honourable Court held that it was impossible for any prudent person to form a reasonable belief that the income had escaped assessment and quashed the reassessment proceedings. In coming to this conclusion, the Hon’ble High Court went further and observed that the amounts received by the retiring partner are neither chargeable to tax u/s 28(iv) nor u/s 28(v) and therefore there was no escapement of income in the hands of partner.
Commissioner of Income Tax Vs. Riyaz A. Sheikh (2013) 84 CCH 0389(Bom) - Where the court has observed that in the matter of Prashant S. Joshi (2010) 324 ITP 154 the Honourable Bombay High Court itself has referred the decision of Tribuvandas G. Patel 115 ITR 95 which was rendered by it and reversed by the Apex Court. It has also been observed that moreover, the decision of Honourable Bombay High Court in the case of Prashant S. Joshi placed reliance on the decision of the Hon’ble Supreme Court in the case of CIT V/s. R. Lingamallu Rajkumar reported in [2001] 247 ITR 801 and held that amounts received on retirement by a partner is not subject to capital gains tax. In view of this, the Honourable Court saw no reason to entertain the proposed question of law.
Decision of the Honourable Kerala Court in case of Commissioner of Income Tax Vs. Kunnamkulam Mill Board (2002) 257 ITR 0544where the court held that when a partnership is reconstituted by way of admission of partner or retirement of partner, there is no transfer of assets within the meaning of s. 45(4) of the IT Act.
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Therefore, it is seen that the amount received by a partner on his retirement from the partnership firm has been held to be not taxable. Courts have held that there is no element of transfer and therefore, the amounts received by the retiring partner does not attract capital gains. The Honourable Bombay High Court in the case of Prashant S. Joshi (Supra) has categorically stated that the amounts received by the retiring partner are neither chargeable to tax under section 28(iv) nor under section 28(v). Therefore, the findings rendered by the Honourable ITSC in the appellant’s own case on this very issue are very much in line with various other judicial pronouncements of various High Courts and also of the Honourable Apex Court. Hence I have no hesitation in holding that the addition of the impugned amount made by the LD. AO in the hands of the appellant by treating the same as having received at the time of retirement for transferring his share do not have any authority or legal sanctity.
The other important and undisputed facts, which also have an important bearing on the present issue are that earlier there were two partners in the firm i.e. the appellant and Shri Raunak Maru with equal shares and later on two more new partners entered into the partnership as on 31.03.2012. Therefore, as on 31.03.2012 there were total four partners in the firm, all having equal share. Finally in July 2012 the appellant and Shri Raunak Maru retired from the firm. Thus the earlier 50% share of the appellant in the profits of the firm was reduced to 25% share as on 31.03.2012 and was further reduced to Nil on 25.07.2012. Therefore, it cannot be said that the appellant had foregone his entire share in the partnership on 25.07.2012 i.e. during the previous year relevant to AY 2013-14. From this, it follows that if at all any amount was received by the appellant from the new partners, for relinquishment of right in the partnership, the entire amount so received could not be considered in AY 2013-14 alone.
Since it is already held by me that the amount received by a partner on his retirement from the partnership firm is capital in nature and is not taxable, I refrain myself from commenting upon various issues raised by the appellant through this ground of appeal such as recording the statement of Mr. Ashok Vaishnav behind the back of the appellant, not allowing cross examination of Mr. Ashok Vaishnav, not providing hash value report of the pen drive seized from Mr. Ashok Vaishnav, the name of the appellant not mentioned in the seized document etc.
In view of the discussion, I hold that the addition made by the LD. AO of Rs. 2,77,00,000/- is wrong on the same is deleted facts and in the circumstances of the case and is also legally unsustainable. Therefore the same is deleted.
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Considering the above, we find that in the earlier assessment proceedings carried out u/s 153A, the entire profit of Rs. 9.44 crores in respect of the total land of 3.93 hectare was added equally in the hands of both the assessees and an addition of Rs. 4,72,00,000/- was made in AY 2012-13 in the cases of both the partners. We find that the assessees have filed an application u/s 245C before the Income Tax Settlement Commission (ITSC) along with other group cases and an order in proceedings u/s 245D(4) was also passed by the Honourable ITSC on 15.05.2015 in the case of both the assessees. The relevant abstract of the said order is filed at page 25 to 37 of the paper book filed by the assessees. The decision rendered by the ITSC in the assessee’s case is in Para 18 on internal page 40 and 41 of the said order, which is reproduced hereunder for the sake of clarity.
“ DECISION 18. We have carefully considered the facts of the case as brought to our notice in the application filed, rule 9 report, submissions of both CIT(DR) and AR. The following facts are recapitulated.
(iv) The applicant and the Shri Raunak Maru were the two partners in M/s RNR Devcon having 50% share each. The firm purchased a plot of land admeasuring 3.93 hectares of land for a consideration recorded in the books at 3.81 crores, during FY 2009-10. The actual consideration for this purchase was Rs. 13.06 crores as found out from documents seized during the course of search (L.P.S. – AB – 1) as well as on the basis of statement recorded during search. (v) The above land was sold for Rs. 22.5 crores in two trenches during FY 2011-12 and 2012-13. The total sale consideration was Rs. 22.50 crores. The first sale was of 1.62 hectare as per agreement dated 14.02.2012, when the firm M/s RNR Devcon sold the land to M/s VeekayInfraconPvt. Ltd. Thereafter as per partnership deed dated 31.03.2012 two new partners Shri Naresh Kakwani and Shri Jainarayan Kakwani were admitted as partners. The capital gain of Rs. 74,21,668/- on sale of 1.62 hectares of land was offered in the hands of the firm as capital gain for AY 2012-13. (vi) Thereafter as per deed of retirement dates 25.07.2012, Shri Rajul Bhargava and Shri Raunak Maru retired from the firm with Shri Naresh Kakwani and Shri Jainarayan Kakwani continuing as partners of the firm. The remaining part of land admeasuring 2.21 hectares was thus transferred through the transfer of partnership firm.
Shri Rajul Bhargava, Indore & otr.
18.1 On these facts we have no doubt in our mind that both the unaccounted investment in land purchased by the firm M/s RNR Devcon as well as the profit arising on sale of land by the firm are required to be taxed in the hands of the firm. The receipts by the applicant (accounted as well as unaccounted) in lieu of foregoing their partnership shares to Kakwani family would be capital receipts and not revenue receipts……………”
Thus, we find that the ITSC categorically held that the receipts by the applicants i.e. both the assessees, accounted as well as unaccounted in lieu of foregoing there partnership shares to Kakwani family would be capital receipt and not revenue receipts. We further find that the learned Commissioner of Income Tax (Appeals) relying on the following decision of Honourable Supreme Court and also of various High Courts held that where the partner retires from partnership firm there is no element of transfer of interest in the partnership assets by the retiring partner to the continuing partner and accordingly the amount received by the retiring partner is not assessable as taxable income.
1.1.1.1 Commissioner Of Income-Tax vs R. Lingmallu Raghukumar, (2001) 247 ITR 801 (SC) – In this case before the Honourable Supreme Court, earlier the Hon’ble High Court has dismissed the appeal filed by the department against the decision of the Honourable Andhra Pradesh High Court. The question of law before the Honourable High Court was whether the amount received by the assessee on retirement from the partnership firm is assessable to capital gain. The Honourable High Court held that there was no transfer of any assets as contemplated by the expression “transfer” as defined in section 2(47) of the Income-tax Act and in reaching to this conclusion, the Hon’ble High Court had placed reliance on the judgment of the Hon’ble Gujarat High Court in the case of CIT v. MohanbhaiPamabhai (1973) 91 ITR 393 (Guj), wherein the Honourable Gujarat High Court held that where a partner retires from a partnership and the amount of his share in the net partnership assets after deduction of liabilities and prior charges is determined on taking accounts in the manner prescribed by the relevant provisions of the partnership law there is no element of transfer of interest in the partnership assets by the retiring partner to the continuing partners. This decision of the Hon’ble Gujarat High Court was affirmed by the Honourable Supreme Court in Addl. CIT v. MohanbhaiPamabhai (1987) 165 ITR 166. In view of this decision the Honourable Supreme Court in the case of CIT V/s R Lingmallu Raghu Kumar (Supra) held that the amount received by the assessee on retirement from the
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partnership firm is not assessable as capital gains. Accordingly, the appeal filed by the department was dismissed by the Hon’ble Supreme Court.
1.1.1.2 Commissioner of Income Tax &Anr. Vs. Dynamic Enterprises (2013) 359 ITR 0083 (Kar.) FB - In this case the Hon’ble Karnataka High Court while dismissing the appeal filed by the department, held that when retiring partners took cash and retired, they were not relinquishing their interest in immovable property, but they relinquished their share in partnership. Therefore, there was no transfer of capital asset, as such; no capital gains or profit had arisen. It was also held that when retiring partner takes only money towards value of his share and when there is no distribution of capital asset/assets among partners there is no transfer of capital asset and consequently no profits or gains is assessable u/s. 45(4).
1.1.1.3 M/s. National Company Vs. The Assistant Commissioner of Income Tax in T.C.A. No. 365 of 2009 dated 08.04.2019 – The Honourable Madras High Court in this recently decided case held that the provisions of Section 45(4) would not be attracted on the retirement of the two partners and consequential allotment of their share in the assets in the Assessee Firm.
The Court also observed in para 20 of his order that on the retirement of a partner from the firm, there will be allotment of his interests in the firm. The interest of a partner in a partnership firm is a right to obtain share of profits from time to time during the subsistence of the partnership and further, on dissolution of the partnership, or on his retirement from the partnership, to get the value of his share in the net partnership assets which remain after deducting the debts and liabilities of the partnership. This could be in the form of immovable assets or in the form of cash in lieu of the immovable assets. Therefore, when a partner retires from a partnership and his share in the net partnership assets is determined and allotted to him, what he receives is his share in the partnership and not any consideration for transfer of his interest in the partnership to the continuing partners. His share in the partnership is worked out by taking accounts in the manner prescribed by the relevant provisions of the partnership law and it is this, namely, his share in the partnership which he receives in terms of money or as an asset. In such transactions there is no element of transfer of interest in the partnership assets by the retiring partner to the continuing partners.
1.1.1.4 Principal Commissioner of Income Tax Vs. Electroplast Engineers (2019) 104 CCH 0314(Bom) - It was held by Honourable Bombay High Court that as per s. 45(4), profits or gains arising from transfer of capital asset by way of distribution of capital asset on dissolution of firm or otherwise should be chargeable to tax as income of assessee. For application of this provision,
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thus, transfer of capital asset was necessary. In present case, there was no transfer of capital asset upon reconstitution of firm. All that happened was firm's assets were evaluated and retiring partners were paid their share of partnership asset. There was clearly no transfer of capital asset. Hence, no infirmity was found in order of ITAT.
1.1.1.5 Prashant S. Joshi Vs. Income Tax Officer &Anr (2010) 324 ITR 0154 (Bom.) – The facts of this case are that the LD. AO reopened the case of the partner on the basis of order passed by CIT(A) in the case of the partnership firm for asst. yr. 2005-06 allowing the claim of the payment of Rs. 1 crore to the two retiring partners as revenue expenditure. Since the assessee partner claimed the payment to be exempt by treating it as a capital receipt, the case of the partner was reopened and it was held by the Hon’ble Bombay High Court that there was no reason to believe that the receipts under the deed of retirement had escaped assessment within the meaning of s. 147.
1.1.1.6 Commissioner of Income Tax Vs. Riyaz A. Sheikh (2013) 84 CCH 0389(Bom) - Where the court has observed that in the matter of Prashant S. Joshi (2010) 324 ITP 154 the Honourable Bombay High Court itself has referred the decision of Tribuvandas G. Patel 115 ITR 95 which was rendered by it and reversed by the Apex Court. It has also been observed that moreover, the decision of Honourable Bombay High Court in the case of Prashant S. Joshi placed reliance on the decision of the Hon’ble Supreme Court in the case of CIT V/s. R. Lingamallu Rajkumar reported in [2001] 247 ITR 801 and held that amounts received on retirement by a partner is not subject to capital gains tax. In view of this, the Honourable Court saw no reason to entertain the proposed question of law.
1.1.1.7 Decision of the Honourable Kerala Court in case of Commissioner of Income Tax Vs. Kunnamkulam Mill Board (2002) 257 ITR 0544where the court held that when a partnership is reconstituted by way of admission of partner or retirement of partner, there is no transfer of assets within the meaning of s. 45(4) of the IT Act.
Thus, we find that the amount received by a partner on his retirement from the partnership firm has been held to be not taxable. Honourable Courts have held that there is no element of transfer and therefore, the amounts received by the retiring partner does not attract capital gains. The Honourable Bombay High Court in the case of Prashant S. Joshi (Supra) has categorically stated that the amounts received by the retiring partner are neither chargeable to tax under section 28(iv) nor under section 28(v). Therefore, the findings 16
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rendered by the ITSC in the assessees’ own case on this very issue are very much in line with various other judicial pronouncements of various High Courts and also of the Honourable Apex Court. Hence, we have no hesitation in holding that the addition of the impugned amount made by the LD. AO in the hands of the assessees by treating the same as having received at the time of retirement for transferring their share do not have any authority or legal sanctity.
We also note that from the notings found during the search, which are also abstracted by the LD. AO in the assessment order it does not transpires that both these assessees have actually received any amount on transfer of their share in the partnership. It was vehemently contended by the Ld. Counsel for the assessee that the impugned notings do not mention the names of any of the assessees, which fact is not controverted by the Revenue.
We also find that the other important and undisputed facts, which also have an important bearing on the present issue are that earlier both the assessees were partners in the firm with equal shares and later on two more new partners entered into the partnership as on 31.03.2012. Therefore, as on 31.03.2012 there were total four partners in the firm, all having equal share. Finally in July 2012 both the assessees retired from the firm. Thus the earlier 50% share of the assessees in the profits of the firm was reduced to 25% share as on 31.03.2012 and was further reduced to Nil on 25.07.2012. Therefore, it cannot be said that the assessees have foregone their entire share in the partnership on 25.07.2012 i.e. during the previous year relevant to AY 2013- 14. In view of this, in any case, the addition made by the LD. AO in AY 2013-14 alone was unwarranted. Even before us, the Revenue could not controvert the findings of the ld. CIT(A) by bringing any contrary material on record. Thus, considering the aforesaid facts and in the circumstances of the case and the various judicial pronouncements as referred above and also in the light of our detailed findings made in the preceding paras, we are of the considered opinion 17
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that the addition made by the LD. AO was wrong and the Ld. CIT(A) was fully justified in deleting the addition. Accordingly, ground no. 1 commonly raised by the Revenue is dismissed.
Ground nos. 2 & 3 are raised by the Revenue challenging the observations of the Ld. CIT(A) to the effect that the reassessment u/s 148 of the Act could not have been made since the assessment was completed u/s 153A of the Act and also the observation that the present reopening is only change of opinion since the impugned amount was already assessed earlier in the regular assessment proceedings.
The Ld. CIT-DR vehemently supported the order of the LD. AO and argued that the Ld. CIT(A) has erred in holding that the assessment completed u/s 153A could not have been reopened u/s 147 r.w.s 148 of the Act. The Ld. CIT-DR also contended that the Ld. CIT(A) erred in holding that the present reassessment proceedings of AY 2013-14 constitute change of opinion on the ground that the impugned amount was already assessed earlier in AY 2012-13.
Per contra, the Ld. Counsel for the assessee vehemently supported the order of the Ld. CIT(A) and contended that the proposition that the cases covered u/s 153A could not be reopened u/s 147 r.w.s. 148 fo the Act is covered in favour of the assessees by the decision of Honourable Jurisdictional High Court of Madhya Pradesh in the case of Ramvallabh Gupta V/s ACIT and Others 288 ITR 347. He also submitted that since the impugned addition in respect of transfer of land was already made in AY 2012-13 and the issue was deliberated at length not only by the Honourable ITSC but also by the Ld. LD. AO during the regular assessment proceedings u/s 153A, making addition on the same issue now in AY 2013-14 in the reassessment proceedings, without any new fact or information coming on record is clearly only change of opinion which is not permissible in law. 18
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We have considered the submissions of both the sides and perused the material available on record. We find that the Ld. CIT(A) has dealt these issues while adjudicating ground no. 4 and ground no. 5 in his order and his observations in the case of Shri Rajul Bhargava are abstracted here under:-
Ground No 4- Through this ground of appeal the appellant has challenged that the original assessment for this year was completed u/s 153A and therefore, reassessment proceedings u/s 148 could not have been legally initiated in this case. The appellant also filed a detailed written submission in this respect wherein it is contended by the appellant that reopening u/s 147 is not permissible in cases where assessment u/s 153A / 153C were completed earlier and that the assessments on the basis of documents seized during the search can only be made u/s 153A / 153C and not u/s 147. Referring to the language of section 153A, it is contended that the said section starts with non obstante clause, excluding section 147 and 148 from operation and applicability in cases which are covered u/s 153A / 153C. For this proposition, the appellant has also paced reliance on the decision of the Honourable M. P. High Court in the case of Ramballabh Gupta V/s ACIT 288 ITR 347. The LD. AO in his report has stated that section 153A does not provide any immunity to the assessee from reassessment and there is no express provision in the Act which does not allow reassessment of any completed assessment. In respect of the decision of Honourable Delhi ITAT in the case of Rajat Shubhra Chatterjee V/s ACIT (ITA No. 2430/D/2015) dated 20.05.2016, 47 CCH 0135 on which reliance was placed by the appellant in the written submission for the proposition that proceedings initiated u/s 148 were not legally tenable holding that for any evidence which is found / related to search, addition can be made only u/s 153A / 153C and not u/s 148, the LD. AO stated that in the case before the Honourable Delhi ITAT the search was not conducted on the assessee but incriminating material related to the assessee was found in some other search and therefore, the facts are distinguishable. 11. In respect of the above observations of the LD. AO in his report, the appellant submitted that section 153A starts with a non obstante clause i.e. notwithstanding anything contained in section 139, 147, 148 etc, therefore, specifically exclude the operation of section 147. The appellant reiterated his reliance on the decision of Honourable Jurisdictional High Court of Madhya Pradesh in the case of Ramvallabh Gupta V/s ACIT & Others 288 ITR 347 and contended that the assessment framed u/s 153A cannot be reopened u/s 147. 12. It is seen that the appellant has contended that since a search was conducted on the appellant u/s 132 and the assessments were framed 19
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u/s 153A including the impugned year, reassessment proceedings u/s 148 could not have been legally initiated for this year. As per the appellant section 153A opens with non obstante clause and exclude operation of some sections including section 147 and 148. For ready reference section 153A(1) is reproduced hereunder:-
“153A(1) notwithstanding anything contained in section 139, section 147, section 148, section 149, section 151 and section 153, in the case of a person where a search is initiated u/s 132 or books of accounts, other documents or any other assets are requisitioned u/s 132A after the 31st day of May, 2003, the assessing officer shall –“ 13. It is also seen that the words ‘to the contrary’ are not mentioned in section 153A. In such a situation, the applicability of all such sections mentioned in the non obstante clause is completely ruled out. It is also seen that section 153A to section 153D are self contained complete code for assessment in search cases. I, therefore, find sufficient force in the contention of the appellant that the assessments which were subjected to proceedings u/s 153A to section 153D cannot be subject to reassessment proceedings u/s 147 / 148. In holding so I find direct support from the decision of Honourable Jurisdictional High Court of Madhya Pradesh in the case of Ramballabh Gupta V/s ACIT & Others, 288 ITR 347, which has a binding precedence on this office. In this case before the Honourable High Court of Madhya Pradesh, search assessments for six years were completed and the LD. AO issued notice u/s 148 for the year immediately preceding the first year of the six years covered under the search assessments. The Honourable MP High Court while deciding the issue held that notice u/s 148 in relation to an assessment year other than the six assessment years falling within the jurisdiction of section 153A is valid and reassessment order can be passed for any year beyond the period of six years. However, while explaining the above law, the Honourable High Court observed that notice u/s 148 cannot be issued in relation to six assessment years which are defined in section 153A. The relevant observations made by the Honorable M.P. High Court are as under:
“11. In other words, the LD. AO may not have jurisdiction to issue notice under s. 148 of the Act in respect of those six assessment years which fall within the exclusive jurisdiction of s. 153A ibid. Such is not the case here. ………… 14. In my opinion, the only fetter put on the powers of LD. AO in taking recourse to s. 148 is that it cannot be issued in relation to those six assessment years which are defined in s. 153A ibid. This fetter is due to use of non obstante clause in s. 153A ibid. In all other cases and for all other assessment years, s. 148 can always be resorted to subject of course to condition that it must satisfy the requirement specified in s. 148 ibid.” 14. I also find that the appellant through the written submission on the legal grounds has referred the above decision of the Jurisdictional High 20
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Court, a copy of which was also sent to the LD. AO, however, the LD. AO did not made any comment on this decision in his remand report. 15. It is undisputed fact that search in this case was conducted on 04.10.2013 and assessment proceedings u/s 153A were made for AYs 2008- 09 to 2013-14 by passing a common consolidated order for all the six years along with order u/s 143(3) for AY 2014-15. Thus evidently the assessment for the impugned assessment year i.e. AY 2013-14 was duly completed u/s 153A on 23.03.2016 and therefore, the said assessment could not have been reopened u/s 148 in view of the non obstante clause in section 153A and also in view of the decision of Honourable Jurisdictional High Court as discussed above. Accordingly, I hold that the reassessment proceedings initiated in this case are without jurisdiction. Thus ground no 4 of the appeal is allowed. 16. Ground No 5- The appellant has also raised the ground that the issue on which addition has now been made in the reassessment proceedings of AY 2013-14 was not only examined in the earlier assessment proceedings carried out u/s 153A but addition was also made on the same issue, though the same was made in AY 2012-13 in the common consolidated order passed u/s 153A for AYs 2009-10 to 2014-15. Therefore, there was no escapement of income and also that the reopening is only due to change of opinion. With regard to this contention of the appellant of change of opinion, the LD. AO in his report has stated that each and every assessment year is exclusive and that the issue in question was not examined in the context of relevant assessment year and therefore, the income related to the same has escaped assessment. According to the LD. AO, there is no question of change of opinion when no opinion was formed on the same issue earlier for the year under consideration and therefore, the income related to the same had escaped assessment. It is also stated by the LD. AO that if the issue would have been the part of original assessment than the reopening would not have been necessary. 17. In reply to the LD. AO’s comments, the appellant submitted that during the regular search assessment proceedings conducted u/s 153A the same issue was examined at length also with respect to AY 2013-14. Referring to the common questionnaire issued u/s 142(1) dated 15.01.2016 issued during regular assessment proceedings wherein it was stated by the erstwhile LD. AO that the Bypass land was sold out in two trenches i.e. FY 2011-12 and FY 2012-13 for the sale consideration of Rs. 22.5 corers and the appellant was required to explain the issue, the appellant contended that during the regular assessment proceedings the issue stood examined even in context of the impugned assessment year i.e. AY 2013-14. The then LD. AO preferred to make the entire addition in respect of sale of land and exit from the partnership firm in AY 2012-13 and not in AY 2013-14. Therefore, the appellant assailed the contention of the LD. AO that the issue was not examined in context of the relevant year i.e. AY 2013-14 stating the same to be apparently wrong and misleading. The appellant contended that in view of the fact that during the regular assessment proceedings, the issue was specifically examined with reference to AY 2013-14 also and addition was 21
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also made on the same issue in AY 2012-13, it is clear case of change of opinion and reassessment proceedings cannot be resorted to in such cases. 18. The appellant has contended that the reassessment proceedings were initiated on the same set of facts and documents which were available with the LD. AO at the time of framing the search assessment u/s 153A and no new material / information has come in the possession of the LD. AO and therefore, the action of the LD. AO tantamount to change of opinion. The appellant submitted that the same very issue on which the reassessment proceedings were initiated, was also discussed at length in the proceedings before the Honourable ITSC in the appellant’s own case. It is also submitted by the appellant that the identical issue i.e. the purchase and sale of plot of land at Mayakhedi by the firm M/s RNR Devcon and also the issue of change of partners of the firm M/s RNR Devcon was discussed at length by the erstwhile LD. AO in the assessment order passed u/s 153A for AYs 2008-09 to 2014-15 and addition was also made in the hands of the appellant on this issue in AY 2012-13. Then the issue travelled to the first appellate authority, who deleted the addition made in AY 2012-13. Therefore, the appellant contended that the impugned issue was adequately dealt at the time of regular assessment proceedings completed u/s 153A and was therefore, not amenable to reassessment proceedings. 19. After considering all the aspect, I find that the issue of plot of land at Mayakhedi purchased by the firm M/s RNR Devcon and part of the land sold by the firm, thereafter dilution of share in the partnership firm and ultimately exit of the appellant from the said firm was discussed at length during the proceedings before the Honourable ITSC, as evident from the copy of the order passed u/s 245D(4) dated 15.05.2015 filed at page 25 to 37 of the paper book. Later on when the assessment proceedings were resumed by the erstwhile LD. AO, a common questionnaire u/s 142(1) for AYs 2008-09 to 2014-15 dated 15.01.2016 was issued, copy is filed at page no. 8 to 12 of the paper book, wherein through question no. 2 it was stated by the LD. AO that from the seized material and data recovered from the Pen drive of Mr. Ashok Vaishnav accountant of CHL Hospital Indore it was found that the ‘Bypass land’ was sold in two trenches i.e. FY 2011-12 and FY 2012-13 for the sale consideration of Rs. 22.5 corers and the assessee was also show caused as to why half of the quantum of net sale consideration should not be added as undisclosed income in the hands of the appellant for the relevant assessment year. Therefore, from the questionnaire issued u/s 142(1) during the regular assessment proceedings, it evidently transpires that the issue was duly examined also in the context of the impugned assessment year i.e. 2013-14 and an opinion was also formed on the same and the then LD. AO choose to make addition in AY 2012-13. 20. It is also seen that a common assessment order for AYs 2008-09 to 2014-15 was passed u/s 143(3) r.w.s. 153A on 23.03.2016, copy of which is at page no. 33 to 54 of the paper book. A perusal of this assessment order shows that the issue of purchase and sale of land at Mayakhedi is discussed in Para 11 to 11.16 and Para 12 and 12.1 on page 3 to 13 of the assessment order. In Para 12, it is mentioned by the erstwhile LD. AO that the partners of 22
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the firm M/s RNR Devcon have got changed and at the time of changing the hands, the net sale value of the land was taken at 1817.43 Lacs and in Para 12.1 the LD. AO stated that half of the quantum of sale consideration of Rs. 9,43,68,000/- (22.50 – 13.0632) i.e. Rs. 4,71,84,000/- is received by the assessee as unaccounted receipts for sale of land at Mayakhedi, which was added to the income of the appellant for AY 2012-13. It is also seen that my predecessor in office had decided the first appeal for AY 2012-13 vide order dated 24.05.2017 wherein also this issue has been discussed at length and the addition made by the LD. AO was deleted holding that the profit in respect of 1.620 hectare of the land sold by the firm M/s RNR Devcon was required to be taxed in the hands of the firm only and in respect of balance 2.310 hectare transferred through relinquishment of partnership rights by the appellant, the cause of action is during AY 2013-14 and not AY 2012-13. This view was also affirmed by the LD. AO in the appeal proceedings through his report dated 01.02.2017. From the reasons recorded by the LD. AO, I also find that the same facts which are mentioned in the regular common assessment order of AYs 2008-09 to 2014-15, are also mentioned in the ‘reasons to believe’. Even in the reassessment order all the facts and the reference to the seized material is the same which was made in the regular assessment order. Therefore, evidently the impugned issue on which ‘reasons to believe’ have been recorded and the reassessment proceedings were initiated was discussed at length and duly deliberated upon at various instances such as proceedings at various stages before the Honourable ITSC and also during the regular assessment proceedings. It is undisputed fact that addition on this very issue was also made by the erstwhile LD. AO through the common assessment order passed u/s 153A for AYs 2008-09 to 2014-15 since the entire material was already available with the LD. AO at the time of regular assessment proceedings and no new material came to the possession, therefore, this is a clear case of change of opinion. From the questionnaire dated 15.01.2016 issued during the course of regular assessment proceedings, copy of which is at page no. 8 to 12 of the paper book, it is evident that the then LD. AO had categorically raised a query regarding taxability of profit on sale of bypass land for a consideration of Rs. 22.50 crores stating that the same was sold out in two trenches i.e. FY 2011- 12 and FY 2012-13. It is also seen that along with this questionnaire, the erstwhile LD. AO also attached the copies of the impugned seized material LPS – AV-1 which are at page 11 and 12 of the paper book, and the same seized material has been abstracted by the LD. AO in the reassessment order which is under challenge. The seized material is abstracted on age 7, 9 to 11 of the reassessment order. These facts substantiate that not only the impugned issue was examined in the context of the assessment year under consideration i.e. AY 2013-14 through the questionnaire issued u/s 142(1) during the regular assessment proceedings but also that the entire material was already available with the erstwhile LD. AO and was also duly considered by him while passing the regular assessment order u/s 143(3) r.w.s. 153A.It is a settled legal proposition than when the LD. AO had applied his mind and passed the original assessment order and there is no fresh material for initiating the reassessment proceedings, the proceedings so initiated amounts to change of opinion on the same set of facts and such 23
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proceedings are bad in law. I find support in so holding from the following judicial rulings. a) Latest decision of the Hon’ble Allahabad High Court in the case of Pawan Sood vs. ITO (2019) 415 ITR 350 (All) dated 11.02.2019, wherein the Hon’ble High Court followed the decision of the Hon’ble Supreme Court in (2015) 17 SCC 324, wherein it was held that mere change of opinion while perusing the same material cannot be a “reason to believe” so that a case of escaped assessment exists requiring assessment proceedings to be reopened and quashed the notice issued under section 148. The Hon’ble Allahabad High Court held that:
“In view of the aforesaid judgment of the Hon’ble Apex Court, even if, at the time of passing of the original assessment order, there is a mistake or non-application of mind, it would not justify the respondent Department to reinitiate the proceedings of reassessment. In the case in hand, the assessing authority had applied its mind and passed the original assessment order and there is no fresh material on record permitting the respondent Department to initiate the reassessment proceedings. The impugned notice dated March 29, 2014 amounts to change of opinion on the same set of facts, which were available at the time of passing the original assessment order. This court is of the opinion that the initiation of the reassessment proceedings is bad in law and is liable to be set aside.” b) Similarly the Apex Court in the case of CIT vs Tarajan Tea Co. (P) Ltd. reported in 236 ITR 447 (SC) held that information which was with the A.O. at the time of original assessment cannot be used for reopening the assessment u/s 147 and observed as under:-
“5. A perusal of the record in this case shows that there was no omission or failure on the part of the assessee to make a return under s. 139 as contemplated in cl. (a); nor was there any information in the possession of the LD. AO obtained by him subsequent to the assessment order. Whatever information was necessary was already available to the LD. AO when the first assessment was made. The order passed by the AAC in another case is not ‘information’ within the meaning of the section. Hence, neither cl.(a) nor cl. (b) of section would apply in this case. 6. In the circumstances, it is unnecessary to consider the question whether a proceeding under s. 147(a) could be converted into a proceeding under s. 147(b) in the course of the proceedings without issuing a fresh notice and initiation of a fresh proceeding. The order of the LD. AO reopening the earlier order and passing a fresh assessment order is unsustainable and the view taken by the Revenue authorities has been rightly set aside by the High Court”.— Tarajan Tea Co. (P) Ltd. vs. CIT(1993) 113 CTR (Gau) 17 : (1993) 200 ITR 12 (Gau) : TC 51R.1617 affirmed.
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c) The Hon’ble Kerala High Court in the case of CIT v. Sivanandan (52 DTR) Ker. 428 held that once the A.O. proceeds to make block assessment u/s. 158BC based on materials gathered during search u/s 132, he cannot proceed to make reassessment u/s 147 on the basis of same material.
“6. Learned senior counsel appearing for the Revenue contended that there is no change of opinion on the part of the LD. AO as found by the Tribunal, and according to him, the LD. AO is free to make income escaping assessment, no matter a block assessment under s. 158BC was completed covering this year also. Learned counsel appearing for the assessee, on the other hand, relied on the decision of the Allahabad High Court in Vishwanath Prasad Ashok Kumar Sarraf vs. CIT & Ors. (2010) 43 DTR (All) 305: (2011) 235 CTR (All) 367: (2010) 327 ITR 190 (All) and a decision of the Bombay High Court in Smt. Mira Ananta Naik &Ors. vs. Dy. CIT (Inv.) & Ors. (2009) 221 CTR (Bom) 149 : (2008) 15 DTR (Bom) 8, and contended that income assessed in a block assessment under s. 158BC cannot be again brought to tax under s. 147 after the appellate authority cancels or modifies the block assessment. However, once the LD. AO, after conducting search and based on materials gathered during search under s. 132, proceeds to make block assessment under s. 158BC, then he cannot, based on the same materials which in this case is deposit amounts found during search, proceed to make income escaping assessment under s. 147 after block assessment was cancelled by the first appellate authority. The LD. AO obviously cannot get over the findings in the order of the first appellate authority against a block assessment by invoking powers under s. 147. During block assessment, the LD. AO obviously considered as to whether bank deposits in the names of family members of the assessee found during search represent his undisclosed income but accepted the assessee's contention that the same belong to his family members. Rightly or wrongly only the interests from these deposits were assessed as part of undisclosed income of the assessee for the block period. In appeal, the CIT(A) cancelled the assessment on interest income. We are of the view that the LD. AO cannot after cancellation of block assessment by the CIT(A) proceed to make an income escaping assessment for assessing the very same bank deposits as escaped income. We do not think the LD. AO has jurisdiction to assess the very same amount, which was considered and given up while making block assessment. Even though learned standing counsel submitted that deposit amounts were not considered in block assessment, we cannot accept it because when interest from the same deposits were assessed as undisclosed income of the block period, it can be legitimately assumed that the officer considered the deposit amounts for assessment but gave up the same. In this context, the findings of the Tribunal that reassessment under s. 147 is a result of change of opinion of the LD. AO, cannot be said to be illegal or incorrect because what was not treated as undisclosed income in block assessment is later treated as escaped income in another round of assessment under a different provision of the Act (s. 147) which in 25
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our opinion is impermissible. We, therefore, uphold the order of the Tribunal and dismiss the Departmental appeal.” d) In the case of ITO vs Nawab Mir Barkat Ali Khan Bahadur (1974) reported in 97 ITR 239 (SC), it was held that second thoughts on the same material and omission to draw the correct legal presumption during original assessment do not warrant the initiation of a proceeding u/s 147. The Honourable Court observed as under:-
“4. ……… The High Court was right in holding that the ITO had no valid reason to believe that the respondent had omitted or failed to disclose fully and truly all material facts and consequently had no jurisdiction to reopen the assessments for the four years in question. Having second thoughts on the same material does not warrant the initiation of a proceeding under s. 147 of the IT Act, 1961.” e) In the case of Sirpur Paper Mills Ltd. vs ITO (1978) reported in 114 ITR 404 (AP), it was held that Income Tax Department cannot be permitted to bring fresh litigations because of new views to entertain the facts or new version which they present as to what should be the inference or proper inference either of the facts disclosed or the weight of the circumstances. The Honourable court observed as under:
“7. The ITO while passing the assessment order for 1965-66, from the above statement of facts is clear, was satisfied without the vouchers, about the genuineness of the expenditure and allowed such an expenditure under the head "Workmen and staff welfare expenses". ………………………………………. 10. The admission of a fundamental fact or primary fact cannot be with- drawn and a fresh litigation cannot be started with a view to obtain another assessment upon different assumption of facts. The IT Department cannot be permitted to begin fresh litigations because of new views they entertain on facts or new versions which they present as to what should be the inference or proper inference either of the facts disclosed or the weight of the circumstances. If this is permitted, litigation would have no end, except when legal ingenuity is exhausted. To do so, is "...to divide one argument into two and to multiply the litigation".
Because vouchers were not filed at the time of 1965-66 assessment or similar expenditure was disallowed in succeeding assessment years, the Revenue cannot remedy the error by notice under ss. 147 and 148 of the IT Act. Therefore, the notice dt. March 23, 1974, of the ITO is hereby quashed. ” f) When at the time of the original assessment primary facts were already before the LD. AO and after enquiry the LD. AO could have assessed the income on the basis of such information, it is not open to him to invoke the provisions of section 147 and reopen the
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assessment even though he may have omitted to notice the facts by oversight – Lokendra Singh vs ITO (1981) 128 ITR 450 (MP).
“It is a settled law that an assessing officer has no power to review his order and he could not do so in the purported exercise of the authority u/s 147 of the Act. Therefore, in light of the above settled preposition, it is submitted that the present case having been re- opened merely on change of opinion, is bad in law.” 21. Therefore, in view of the above discussion and the evident facts oozing out from the notice u/s 142(1) dated 15.01.2016 issued during the regular assessment proceedings that the issue was examined categorically in the context of the present assessment year i.e. AY 2013-14 also and that the same issue had earlier travelled upto the Honourable ITSC and later on detailed discussion on the same is also made in the regular assessment order and also the fact that addition was also made on this issue itself, as well as the fact that the same seized material was referred in the questionnaire issued u/s 142(1) and also in the regular assessment order, which has been made the basis of reopening and has also been abstracted and referred in the reassessment order for making the addition, I have no hesitation in holding that the impugned amount was already assessed and a case of escapement of income is not justified in the present context. As the entire material seized during the search was available before the LD. AO while making the regular assessment order which was also categorically dwelt upon by the erstwhile LD. AO and discussed in the regular assessment order and no fresh facts / information has come to his possession after the regular assessment which can justify the impugned reassessment proceedings. The ‘reasons to believe’ and the reassessment proceedings suffer from the vice of change of opinion which is not permissible in law. Therefore, ground no. 5 raised by the appellant is allowed.
Considering the above, we find that after the search the proceedings were conducted before the ITSC and later on regular assessments u/s 153A were framed for AY 2008-09 to AY 2014-15 u/s 143(3) r.w.s. 153A vide order dated 23.03.2016. Later on reassessment proceedings were initiated for AY 2013-14. It is the case of the assessee that since a search was conducted u/s 132 and the assessment were framed u/s 153A, reassessment proceedings u/s 148 could not have been legally initiated for this year. The Ld. CIT(A) has relying on the decision of Honourable Jurisdictional High Court of Madhya Pradesh Ramvallabh Gupta V/s ACIT (supra) has held that the said assessment could not have been reopened u/s 147 r.w.s. 148 of the Act. It is also mentioned by
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the Ld. CIT(A) in Para 14 of his order that the written submissions on the legal grounds made by the assessees before the Ld. CIT(A) wherein the decision of the Honourable Jurisdictional High Court was also referred, were also sent to the LD. AO, however, the LD. AO did not make any comment on this decision in his remand report. We also find that the observations of Honourable Jurisdictional High Court have been abstracted in the order of the Ld. CIT(A) in Para 13. Therefore, in the light of the detailed findings given by the Ld. CIT(A) in Para 10 to Para 15 of his order, we find no reason to interfere with the order of Ld. CIT(A) on this issue.
We also find that the issue of purchase of land by the partnership firm, sale of part of the land by the partnership firm and the retirement of the assessees from the partnership firm was discussed by the ld. LD. AO in the regular assessment order passed u/s 153A and additions on this issue was also made by the LD. AO in AY 2012-13. It is only when the Ld. CIT(A) deleted the addition made in AY 2012-13, the present case was reopened u/s 148 and the addition was made. The Ld. CIT(A) has also referred to the questionnaire u/s 142(1) issued during the regular assessment proceedings and held that the issue was duly examined in the context of the impugned assessment year i.e. AY 2013-14 and an opinion was also formed on the same and the then LD. AO in the regular assessment proceedings chose to make the addition in AY 2012- 13. We find that the entire material was already available with the LD. AO at the time of regular assessment proceedings and there is no fresh material with the LD. AO to initiate the present reassessment proceedings. Even before us, the Revenue could not controvert the findings of the ld. CTI(A) by bringing any contrary material on record. Therefore, in the light of the detailed findings given by the Ld. CIT(A) in Para 16 to Para 21 of his order, we find no reason to interfere with the order of Ld. CIT(A) on this issue. Accordingly, ground nos. 2 to 3 commonly raised in the appeals of the Revenue are dismissed.
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In result, the appeals of the Revenue are dismissed.
The order pronounced as per Rule 34 of ITAT Rules, 1963 on 21.03.2022.
Sd/- Sd/- (MAHAVIR PRASAD) (MANISH BORAD) JUDICIAL MEMBER ACCOUNTANT MEMBER
�दनांक /Dated : 21.03.2022
!vyas! Copy to: The Appellant/Respondent/CIT concerned/CIT(A) concerned/ DR, ITAT, Indore/Guard file.
By Order,
Sr. Private Secretary, I.T.A.T., Indore