ZAKARIA INDUSTRIAL PRMISES CO OPERATIVE SOCIETY LTD,MUMBAI vs. ITO 20(3)(4), MUMBAI

The aforesaid appeal has been filed by the assessee against impugned order dated 12.09.2013 passed by CIT(A)-31 Mumbai, for the quantum of assessment passed u/s 143(3) r.w.s. 14A for the assessment year 2007-08, on the following grounds :-

Brief facts qua the validity of reopening u/s 147 as challenged by the assessee vide ground no. 1 are that the assessee is a co-operative industrial society. It has filed its return of income for the assessment year 2007-08, u/s 139(1) on 15.11.2007 declaring “Nil” income. The said return of income, disclosed the working of long-term-capital-gain, wherein the assessee had shown consideration of Rs. 1 crores against sale of FSI and after taking into account the cost of acquisition of FSI Rs. 1,76,081/-, the entire long-term-capital-gain of Rs. 98,23,919/- was claimed as exempt. In support, the assessee has given a detailed note along with the computation of income. The said return was duly processed u/s 143(1). Thereafter, the Department called for certain information from the assessee vide letter dated 03.07.2008, wherein the AO specifically asked for details of transaction of sale and purchases of immovable property for the last five years with the copy of agreement. In response, the assessee furnished all the requisite information vide letter dated 15th July, 2008 and 4th August, 2008. This transaction of sale of FSI was also enquired upon and details were furnished by the assessee. After such exchange of letters, queries and replies, no action was taken against assessee and the return income which was duly accepted u/s 143(1), became the assessed income, as no notice u/s 143(2) was issued even after exchange of above letters. Again on 28.07.2010, the assessee was issued summons u/s 131 by ITO (Investigation Unit) to produce the books of accounts and copies of return of income. In response, the assessee vide letter dated 09.08.2010 responded to the said summon and furnished the copies of documents required including Income-tax returns and all the bank statements. Further vide letter dated 14.09.2010, the assessee again furnished the requisite details as required by the 3 Zakaria Industrial Prmises Co Operative Society Ltd Department. After such an exchange of letters, no adverse inference was drawn or any action was taken. Thereafter, on 28.03.2011, the assessee’s case was reopened by issuance of notice u/s 148 on the following “reasons recorded”, which was supplied to the assessee on 14.10.2010 :-

During the course of the assessment proceedings, the assessee raised its objections and justified the claim of deduction of long-term-capital-gain on the ground that, there was divergent of income by overriding title. The relevant submission of the assessee reads as under :-

In the first appeal, Ld. CIT(A) too rejected the assessee’s legal submission on the ground that original return was not subject to scrutiny assessment u/s 143(3) therefore, no opinion was formed at all. The notice u/s 148 was issued much before 4 years from the end of assessment year therefore, AO has all the powers to reopen the case u/s 147 as had ‘reason to believe’ that income chargeable to tax has escaped the assessment. In his order, Ld. CIT(A) discussed the entire law on ‘change of opinion’ validity of reopening after referring to the various decisions and decided the issue against the assessee.

Before us, the Ld. Counsel submitted that once the assessee has given detailed note in the return of income for claiming of exemption of long-term-capital-gain and later on it has been enquired by the Department also twice, then on the same information and some material on record, reopening u/s 147

On the other hand, Ld. DR strongly relying upon the order of the CIT(A) submitted that, once no order u/s 143(3) has been passed then, there cannot be a case of ‘change of opinion’. Here in this case, the return of income has been accepted u/s 143(1) and there was no scrutiny assessment u/s 143(3) therefore there was no application of mind during assessment. Thus, the case has rightly been reopened on the “reasons recorded” by the AO.

We have heard the rival contentions and also perused the relevant material on record. The assessee which is a co-operative industrial society has shown sale consideration from sale of FSI of Rs. 1 crore and after deducting the cost of acquisition at Rs. 1,76,081/-, treated the entire long-term-capital-gain of Rs. 98,23,919/- as exempt. In the computation of income, the assessee has given the following note for making such a claim :-

Now, after all these exercise of seeking information which was already there on record and without there being any tangent material coming on record, the assessee’s case was sought to be reopened on the ground that assessee has received Rs. 1 crore during the relevant financial year from sale of FSI and the entire amount claimed as deduction cannot be allowed. There is no reference in the ‘reasons recorded’ about any material or information coming on record to show that assessee’s claim for deduction is either not tenable or is incorrect and therefore, income chargeable to tax has escaped assessment. Here it is not a question of purely “change of opinion”, on the ground that earlier assessment was completed u/s 143(3) albeit the issue is, when the assessee has made full disclosure in the return of income which has been enquired upon by the Department twice and no further action has been taken, then, without there being any contrary or adverse material on record, reopening u/s 147 can be made without any tangent material indicating escapement of income. There cannot be “reason to believe” on the same set of facts and record, which has been subjected to examination by different Departmental authorities. The entire disclosure and reason for exemption of LTCG was made in the return of income, then what tangible material having live-link-nexus with the escapement of income came into possession of the AO, so as to entertain “reason to believe” and acquiring jurisdiction to reopen the case u/s 147. On the records, there is none.

Coming to argument of the Ld. DR that in this case no scrutiny assessment was made u/s 143(3) but return of income was processed u/s 143(1) and therefore, neither there is “change of opinion” nor there is any such presumption that there is 8 Zakaria Industrial Prmises Co Operative Society Ltd application of mind on the material on record. The Statute has given sufficient power to the Assessing Officer for reopening the assessment either in the cases where return of income has been accepted u/s 143(1) or has been subjected to scrutiny assessment u/s 143(3). However, the common requirement in both the cases is that the Assessing Officer must have ‘reason to believe’ that income chargeable to tax has escaped assessment. The words “reason to believe” is the key element and are stronger than the word “satisfied” and whether the Assessing Officer had ‘reason to believe’ or not is always a question of jurisdiction which needs to be examined whenever the reopening u/s 147 is challenged. It is a trite law that the ‘reason to believe’ entertained by the Assessing Officer should have a rational connection and relevant bearing on the formation of belief with the tangible material coming on record having live link nexus with the income chargeable to tax escaping the assessment. The belief entertained by the Assessing Officer must be held in good faith and not merely a pretence for review and roving and fishing enquiry. As stated above, there is no new information or material coming on record to remotely suggest that AO has any reason to believe that income chargeable to tax has escaped the assessment especially, in the present facts when the same issue has been examined/enquired upon by the Departmental officials twice. Even in the course of these examinations, nothing new material or information has been unearthed. Thus, in our opinion, the reasons as recorded by the AO do not vest him jurisdiction for reopening the assessment u/s 147. Thus, we hold that the entire assessment proceedings is bad in law as reopening of assessment u/s 147 vide issuance of notice u/s 148 is without jurisdiction and void ab initio and consequently, assessment order itself is quashed.

In the result, on ground no. 1 itself the appeal of the assessee is allowed. Order pronounced in the open court on 15th October, 2015.