Deputy Commissioner Of Income-Tax,Company Circle I, Madurai v. Visvas Promoters (P) Ltd

BEFORE THE MADURAI BENCH OF MADRAS HIGH COURT DATED : 27.03.2019 CORAM: THE HONOURABLE DR. JUSTICE VINEET KOTHARIand THE HONOURABLE MRS.JUSTICE T.KRISHNAVALLI W.A.(MD) No.1051 of 2011against in WP(MD)No.10866 of 2010 Deputy Commissioner of Income-tax,Company Circle I, Madurai,2,V.P.Rathinasamy Road,Madurai – 625 002.... Appellant/Respondent -vs- Visvas Promoters (P) Ltd.,78, T.P.K.Road,Madurai – 625 003.... Respondent/Petitioner PRAYER:Appeal is filed under Clause 15 of Letters Patent, to setaside the order dated 28.09.2010 in W.P.(MD) No.10866 of 2010 onthe file of this Court. Prayer in WP(MD). 10866 of 2010 : Writ Petition is filed under Article 226 of the Constitutionof India, praying this Court to issue a WRIT OF CERTIORARI callingfor the records in the matter of re-assessment of the petitioner infile No. AABCV2330G for the assessment year 2003-2004 wherein anotice dated 31.03.2010 under Section 148 of the Income tax Act,1961 has been issued without jurisdiction and an order CR No.234/COY/10-11/AABCV2330D dated 5th May, 2010 has been passedrejecting our objections on unjust and untenable gerounds and quashboth of them. For Appellant : Mrs.S.Srimathy, learned standing counsel For Respondent : Mr.Venkatesh for Mr.A.Shivaji JUDGMENT [Judgment of the Court was delivered by DR.VINEET KOTHARI, J.] The Revenue Department has filed this Intra Court Appealagainst the order of the learned Single Judge allowing the writpetition filed by the Assessee vide order dated 28.09.210, byhttps://hcservices.ecourts.gov.in/hcservices/which, the learned Single Judge quashed the impugned re-assessmentnotice and proceedings under Sections 147/148 of the Income Tax Act, 1961, initiated against the Assessee for the Assessment Year2003-04 by the impugned notice dated 31.03.2010 issued after fouryears from the end of the relevant AY 2003-04. 2.The learned Single Judge has held that the impugned re-assessment notice was issued beyond the prescribed limitation of 4years and the 1[st] proviso to Section 147 of the Income Tax Actprohibited such re-assessment proceedings to be initiated afterexpiry of 4 years from the end of the relevant assessment year,unless there is a failure on the part of the Assessee to fully andtruly disclose all material facts necessary for assessment. 3.Mrs.S.Srimathy, the learned counsel appearing for theappellant Revenue has urged before us that the reasons, for re-opening AY 2003-04 as communicated by the assessment authority tothe assessee vide his communication dated 20.04.2010, were that theAssessee claimed excess deduction under Section 80IB(10) of theIncome Tax Act, 1961 to the extent of Rs.68,52,835/- in respect ofits Building Project Vajra F Block, which was required to bedisallowed as the said building comprised of residential units overthe prescribed limit of 1500 sq. ft. for each residential unit. 4.She submitted that the Assessee failed to disclose all therelevant particulars for the said project about the difference ofareas of residential units either below 1500 sq. ft. or over 1500sq. ft. Therefore, there was a failure on the part of the Assesseeto disclose all the relevant facts truly and fully and therefore,the limitation of 4 years for re-opening did not apply to thepresent case and the Assessing Authority was justified in re-opening the said assessment and the learned Single Judge has erredin quashing the same and the present appeal filed by the Revenue,therefore, deserved to be allowed. 4.She submitted that the Assessee failed to disclose all therelevant particulars for the said project about the difference ofareas of residential units either below 1500 sq. ft. or over 1500sq. ft. Therefore, there was a failure on the part of the Assesseeto disclose all the relevant facts truly and fully and therefore,the limitation of 4 years for re-opening did not apply to thepresent case and the Assessing Authority was justified in re-opening the said assessment and the learned Single Judge has erredin quashing the same and the present appeal filed by the Revenue,therefore, deserved to be allowed. 5.Per contra, the learned counsel appearing for therespondent/assessee, Mr.Venkatesh, supported the judgment underappeal and urged that the Assessee had truly and fully disclosedall the details in the original return and at the time of originalassessment proceedings, which were completed under Section 143(3)of the Act upon scrutiny of the Returns filed by the Assessee. TheAssessee had disclosed all his building projects in progressincluding Vajra F Block, Porkudam Phase I buildings and had claimedonly the proportionate benefit under Section 80IB(10) of the Act tothe extent the said building comprised of the residential unitsbelow 1500 sq. ft. as stipulated in the said proviso of Section80IB(10) of the Act. 6.He drew our attention to the original Assessment Order dated20.12.2005 passed under Section 143(3) of the Act by the AssessingAuthority and submitted that the details about all the projectswere separately given at the time of original assessmenthttps://hcservices.ecourts.gov.in/hcservices/proceedings and only the proportionate claim was made by theAssessee under Section 80IB(10) of the Act, being conscious of the fact that the residential units below 1500 sq. ft. only wereeligible for deduction under Section 80IB(10) of the Act. Hetherefore submitted that merely on a change of opinion, theAssessing Authority could not seek to disallow such deduction inrespect of Vajra F Block completed by the assessee and that for thepurpose of excluding the limitation of 4 years prescribed in the 1[st]proviso to Section 147 of the Act, he could not have issued theimpugned notice under Section 147/148 of the Act for AssessmentYear 2003-04 and consequently, the learned Single Judge wasabsolutely justified in allowing the writ petition filed by theAssessee and the present writ appeal filed by the Union ofIndia/Revenue Department is without any merit and the same isliable to be dismissed. 7.Having regard to the submissions made by the learned counselfor the parties, we are of the opinion that there is no merit inthe present appeal filed by the Revenue and the same deserves to bedismissed. 8.The reasons assigned by the Assessing Authority incommunication dated 20.04.2010 are quoted below for readyreference: “As requested, the reason recorded for re-openingof the Assessment Year 2003-04 is reproduced as under: “During the scrutiny proceedings for AY 2007-08, itwas found that for the financial year relevantAssessment Year 2003-04, the assessee company claimeddeduction u/s 80IB(10) of the Income-tax Act, 1961, forits projects Vajra E & F Block and Porkudam Phase-I.In the project, Vajra E Block and Porkudam Phase-I, theassessee company had constructed and sold flats of lessthan 1500 sq. ft. and had claimed relief under section80IB(10). In the case of Vajra F Block the assesseehad constructed flats both more than 1500 sq. ft. andless than 1500 sqft andhad claimed 80IB(10)proportionately to the sale of flars less than 1500sqft. Assessee's claim of 80IB(10) in relation to theseparate project approved for Vajra “F” Block is notcorrect on the following grounds. “During the scrutiny proceedings for AY 2007-08, itwas found that for the financial year relevantAssessment Year 2003-04, the assessee company claimeddeduction u/s 80IB(10) of the Income-tax Act, 1961, forits projects Vajra E & F Block and Porkudam Phase-I.In the project, Vajra E Block and Porkudam Phase-I, theassessee company had constructed and sold flats of lessthan 1500 sq. ft. and had claimed relief under section80IB(10). In the case of Vajra F Block the assesseehad constructed flats both more than 1500 sq. ft. andless than 1500 sqft andhad claimed 80IB(10)proportionately to the sale of flars less than 1500sqft. Assessee's claim of 80IB(10) in relation to theseparate project approved for Vajra “F” Block is notcorrect on the following grounds. “It is evident from the plain reading ofthe section 80IB(10) that the benefit ofdeduction is for house project as a whole andall the residential units of the projectshouldsatisfyalltheconditionssimultaneously to be eligible for deduction.Each block (or) house is not a separateproject and hence deduction u/s 80IB(10)https://hcservices.ecourts.gov.in/hcservices/claimed to the tune of Rs.68,52,835/- for theproject Vajra “F” Block has to be disallowed. There is clear cut failure on part of theassessee to disclose fully and truly allmaterial facts. Further the ITAT in theassessee's own case has relied on the Judgmentof Honorable apex Court 255 ITR147(SC) andallowed the issue in favor of revenue. I havereasons to believe that income has escapedassessment.” 9.The Assessee filed his objection to the said reasonscommunicated vide his letter dated 21.04.2010 and contended beforethe Assessing Authority that he had truly and fully disclosed allmaterial particulars with respect to all the Building projects uponthe details called by the Assessing Authority at the time oforiginal assessment under Section 143(3) of the Act. The reply tothe Assessee dated 21.04.2010 are also quoted below for readyreference: “The Original assessment was completed after fullscrutiny under Section 143(3) of the Income Tax Act,1961. The Assessing Officer has said in theAssessment Order that details were called for andscrutinized. In fact the Vajra “F” Block is alsoclearly mentioned in the assessment order. Theeligible deduction under section 80-IB(1) has beenworked out by the Assessing Officer and forms part ofthe assessment order as Annexure. This shows that hehas applied his mind to the claim made and completedthe assessment. This also shows that all primaryfacts required have been furnished by us. In fact inthe working the Assessing Officer has clearly workedout the deduction admissible proportionately foreligible flats. In working out the sale value ofeligible flats he has excluded the sale value of flatsexceeding the 1500 sq. ft. This would show that allprimary facts were available while making the originalassessment. Merely adding a sentence in the reasonsrecorded and communicated that there is a clear cutfailure on part of the assessee to disclose fully andtruly all materials without disclosing the nature offailure would not be enough for initiatingreassessment. The reference of Tribunal's decisionand Supreme Court decision would not clothe theassessing officer with jurisdiction to reopen exceptfailure on the part of the assessee to furnish primaryfacts. In fact the jurisdictional High Court inFenner (India) Ltd., Vs. CIT (241 ITR 672 (Mad) hasclearly held “In cases where the initiation ofproceedings is beyond the period of four years fromhttps://hcservices.ecourts.gov.in/hcservices/the end of the assessment year, the Assessing Officermust necessarily record not only his reasonable beliefthat income has escaped assessment but also the default of failure committed by the assessee. Failureto do so would vitiate notice and the entireproceedings”. This decision has been accepted by thedepartment. Therefore, the facts are clear that theassessment has been reopened after a period of fouryears from the end of assessment year without therebeing any failure on the part of the assessee and suchproceedings are barred by the proviso to Section 147.The present proceedings are clearly due to change ofopinion and not due to any failure on the part of theassessee. Reopening due to change of opinion has beenheld to be invalid by the Apex Court in KelvinatorIndia Ltd. (320 ITR 561 (SC). It appears that thereopening has been done due to change of opinionbecause of the Tribunal's decision in our case whichis not permissible under the proviso to Section 147.In view of the above please pass a speaking orderas required by the Supreme Court case in GKN Driveshafts (India) Ltd. Vs. ITO (259 ITR 19 (SC) early anddrop the the proceedings which are patently illegalfor the reasons aforementioned. “ 10.The Assessing Authority, however, overruled the objectionsof the Assessee vide his communication dated 05.05.2010 citing somejudgments therein. 11.There is no dispute before us that the 1[st] Proviso toSection 147 of the Act provides for a limitation of 4 years fromthe end of the relevant assessment year and the assessment can bere-opened by the Assessing Authority having “reason to believe”that the income of the assessee has escaped assessment on accountof failure on the part of the Assessee to disclose fully and trulyall material facts necessary for assessment for that assessmentyear. Unless there is such a failure on the part of the assessee,the re-assessment notice issued under Sections 147/148 of the Actissued after the expiry of 4 years from the end of relevantassessment year is liable to be quashed as the Assessing Authoritywould lack the jurisdiction to issue any such re-assessment notice. 12.We do not find any such failure on the part of theAssessee, in the present case. He disclosed fully and truly allthe relevant facts before the Assessing Authority in the Returnfiled by him or at the time of original assessment proceedingsunder Section 143(3) of the Act. The Assessee not only disclosedall the Building Projects undertaken by him, but also consciouslyclaimed only a proportionate deduction under Section 80IB(10) ofthe Act, for Vajra F Building to the extent of eligible ResidentialUnits below 1500 sq. ft. each. If the Assessee had anything tohide or make a wrong claim, then proportionate deduction underhttps://hcservices.ecourts.gov.in/hcservices/Section 80IB(10) of the Act would not have been claimed by him.The Assessing Authority, while passing the original assessmentunder Section 143(3) of the Act, had all the powers to call for any further details, if he chose to do so. But, on the contrary, itappears that all the details, were called for by the AssessingAuthority and were so furnished by the Assessee and on a consciousapplication of mind only, the proportionate benefit under Section80IB(10) was allowed by the Assessing Authority while passing theoriginal assessment under Section 143(3) of the Act. The allegedreasons assigned by the Assessing Authority while undertaking there-assessment proceedings beyond the limitation under Section147/148 of the Act and that too on the ground that the residentialflats over 1500 sq.ft. were not disclosed by the Assessee has nolegs to stand upon. Section 80IB(10) of the Act grants deductionto the Assessee engaged for the business of developing and buildinghousing projects approved before 31.03.2008 subject to certainconditions and the conditions relevant for the case in hand arequoted below for ready reference: (c) the residential unit has a maximum built-uparea of one thousand square feet where such residentialunit is situated within the city of Delhi or Mumbai orwithin twenty-five kilometres from the municipal limitsof these cities and one thousand and five hundredsquare feet at any other place; 13.We are satisfied that since a proportionate claim was madeby the Assessee, who disclosed all the details at the time oforiginal assessment and an assessment order was passed by theAssessing Authority under Section 143(3) of the Act applying hismind to the relevant facts, this impugned re-assessment proceedingsinitiated after the end of four years in the present case werewithout any valid rhyme or reason and on a mere change of opinionby the Assessing Authority. On a mere change of opinion, the re-assessment proceedings are not permitted under the Act. TheAssessing Authority cannot have a mere re-appreciation of the samefacts or a review of existing material on a mere change of opinionand take a different view of the matter and he is not permitted toundertake the re-assessment proceedings. The condition of 4 yearsprovided in 1[st] proviso to Section 147 of the Act is a protection infavour of the Assessee against the whimsical and arbitrary re-assessment proceedings initiated by the Assessing Authoritiesbeyond this limitation of 4 years, except where the escapement ofincome has resulted on account of failure on the part of Assesseeto disclose the material particulars. That is why, the law hasbeen settled by the Hon'ble Apex Court as well as various HighCourts that “reason to believe” on the basis of which, such agenuine and objective opinion or reason to believe is formed by theAssessing Authority is required to be conveyed to the Assessee andto which the Assessee is entitled to raise objections and withoutmeeting those objections, the Assessing Authority is not permittedto undertake re-assessment proceedings and it is a question ofjurisdiction, which goes to the root of the matter and the saidhttps://hcservices.ecourts.gov.in/hcservices/exercise cannot be lightly ignored by the Assessing Authority. 14.In the present case, we find that the Assessee had madetrue and full disclosure and had consciously made only aproportionate claim under Section 80IB(10) of the Act, which wasrightly allowed by the Assessing Authority at the time of originalassessment proceedings under Section 143(3) of the Act andtherefore after the expiry of 4 years in 2010, the impugned noticeunder Section 147/148 of the Act for AY 2003-04 issued on31.03.2010 was not a valid initiation of the re-assessmentproceedings. We are of the considered opinion that the learnedSingle Judge was justified in quashing the impugned re-assessmentproceeding and there is no merit in the present appeal filed byRevenue and the writ appeal deserves to be dismissed andaccordingly, the same is dismissed. No costs. Sd/- Assistant Registrar (CS-II) Sub Assistant Registrar(CS) Arul +1CC TO MR.A.SIVAJI, Advocate Sr. No.56982+1CC TO MR.S.SRIMATHY, Standing Counsel Sr. No. 57316 TR (15.04.2019) 7P 3C W.A.(MD) No.1051 of 2011 27.03.2019