M/S.dass Media Private Limited,26 Poes Gardens, Chennai 86 v. Income Tax Officer, Corporate Ward 1, (4), Room

IN THE HIGH COURT OF JUDICATURE AT MADRAS CORAM THE HONOURABLE DR. JUSTICE ANITA SUMANTH W.P. Nos.34963 of 2019 and 4063 of 2020andWMP.Nos. 4800, 4803 of 2020 & 35746, 35748 & 35751 of 2019 M/s.Dass Media Private Limited,26 Poes Gardens, Chennai 86. .. Petitioner in both WPs Vs 1 Income Tax Officer, Corporate Ward 1, (4), Room No.616, Wanaparthy Block, VI Floor, 121 MG Road, Nungambakkam, Chennai 34. 2 Assistant Commissioner of Income Tax (OSD), Corporate Range 1, Room No.603, Wanaparthy Block, VI Floor, 121 MG Road, Nungambakkam, Chennai 34. …Respondents in both WPs Prayer in W.P. No.34963 of 2019: Writ Petition filed underArticle 226 of the Constitution of India praying to Writ ofCertiorari, to call for the records of the 1[st] respondentcontained in its notice bearing Letter No. ITBA/ AST/ S/ 148/2018-19/ 1015382191 (1) issued under u/s. 148 of the Income TaxAct 1961 for PAN. for the assessment year 2014-15dated 21.3.2019 and all proceedings in furtherance thereofincluding but not limited to the order bearing Letter No. ITBA/AST/ F/ 17/ 2019-20/ 1021733903 (1) dated 5.12.2019 passed bythe 1st respondent disposing of the petitioners objections tothe reopening of the income tax assessment for the assessmentyear 2014-15 and to quash the same as arbitrary unjust andillegal. Prayer in W.P. No.4063 of 2020: Writ Petition filed underArticle 226 of the Constitution of India praying to Writ ofCertiorari, to call for the records of the 1st Respondentcontained in its assessment order bearing Letter No. ITBA/ COM/F/ 17/ 2019-20/ 1022818181(1) passed under u/s. 143(3) read withsection 147 of the Income Tax Act 1961 for PAN. AAACD2726Mfor the assessment year 2014-15 dated 21.12.2019 and to quashthe same as arbitrary unjust and illegal. For Petitioner : Mr.Suhrit Parthasarathy in both WPs.For Respondents : Mrs.Hema Muralikrishnan, Senior Standing Counsel ********* The petitioner is a company and had entered into anagreement for joint development in the capacity of a land ownerwith one M/s. Bashyaam Construction Pvt. Ltd. (BCPL) asdeveloper. The petitioner filed a return of income (ROI) forassessment year (AY) 2014-15 on 04.03.2015 admitting a totalloss. The return was not taken up for scrutiny. In its return ofincome for AY 2016-17, the petitioner had returned long termcapital gain (LTCG) in regard to the project of jointdevelopment. The return of income was selected for scrutiny byissuance of notice under Section 143(2) of the Act and videquestionnaire under Section 142(1) various details/particularswere sought from the petitioner including copy of annual report,financials (profit and loss accounts and balance sheet withcomplete schedules) and a computation of Long Term Capital gains(LTCG) along with an explanation in regard to the purportedmismatch between the income credited in the profit and lossaccount and sales turnover/receipts. 2. The petitioner responded vide letter dated 28.07.2018enclosing the details sought including the computation of LTCG.A notice under Section 133(6) was also issued to BCPL seekingthe details of cost of construction and basis of valuation ofthe same. On the basis of the reply furnished by BCPL, a noticewas issued on 20.12.2018 to the petitioner calling upon it toshow cause why the sale consideration for the purpose of capitalgains not be 70% of the total sale receipts, on theunderstanding that the ratio of sharing on profits betweenpetitioner and BCPL was 70-30%. In response, while accepting thequantum of turnover per se, the petitioner submitted that thecorrect proportion was 69-31% and not 70-30%. The assessmentwas, however, completed along with the lines proposed for theSCN and is stated to be challenged by the petitioner and pendingin appeal. 3. While this is so, a notice under Section 148 of the Actcame to be issued on 21.03.2019 seeking to reopen the income taxassessment of the petitioner for AY 2014-15.The petitionerrequested the reasons for re-assessment vide letter dated23.09.2019 parallely filing a return of income on 03.04.2019 inresponse to the notice under Section 148. The reasons werefurnished and read as follows: GOVERNMENT OF INDIAMINISTRY OF FIANANCE INCOME TAX DEPARTMENT DC/ACIT (OSD) CORP RG 1 CHENNAI Sir/Madam/M/s,Subject: Furnishing of reasons for reopening in thecase of M/s Dass Media P.Ltd. Ref:1.Notice u/s 148 of the Income Tax Act, 1961 dated21.03.20192. Your letter dated 29.03.2019.Kindly refer to the above. The Reasons for reopening the assessmentproceedingsu/s 147 of the Income-tax Act, 1961 in thecase of M/s Dass Media P. Ltd AY 2014-15 are asfollows: “1. The assessee company had entered into a jointDevelopment Agreement with M/s. Bashyaam ConstructionsPvt. Ltd., Chennai for promotion of its property at oldNo.26, new No.57, Poes Garden, Chennai-600 086 as ahigh rise luxurious apartments numbering 8 units. TheJoint Development Agreement was entered into on11.09.2013 with the Developer wherein the land ownerM/s. Dass Media pvt Ltd transferred the rights andconveyed the same to the extent of 30% to the Deeloperincluding UDS and the super built-up area. As theDeveloper was handed over the above share, theeassessee stood to have capital gain with the executionof the above transaction. The assessee company receivedR.2.5 Crores on 11.09.2013 and Rs.81 Lakhs on 06.03.2014. 2. The total number of flats as per JDA was 8flats out of which assessee’s share was 6 flats. Fromthe information regarding the break up of cost centreexpenses receivedin resonse to 133(6) notie dated14.12.2018 sent to M/s Bashyam Constructions Pvt. Ltd.,it is seen that the total cost of construction isRs.24,51,07,602.38The Capital gains is computed as under; 70% of Cost of Construction: 70% ofRs.24,51,07,602.38=R.17,15,75,322Add:Monetary Compensation pertaining to developer’s share)=Rs.3,30,00,000 (+)Less: Cost of Acquisition (Indexed)Proportionate land value: Rs.16,24,94030% of the above:Rs.4,87,482/-Purchase in FY 1985-86-Captial gain index is 133Cost indexed for FY 13-14 index is 939Rs.34,41,696 (-)Long Term Capital GainRs.20,11,33,6263. It was also learnt during the survey that theCMDA approval for the building was obtained in FY 2013-14 itself. Thus it is clear that the incidence ofcapital gain arose in AY 2014-15 itself. The assesseehas offered capital gains in AY. 2016-17 which wassubsequently assessed vide order u/s 143(3) of theIncome Tax Act, 1961 dated 29.12.2018. The assessee haspreferred an appeal before the CIT(A) against the aboveordre u/s 143(3) of the Income-tax Act dated29.12.2018. It is noticed that the assessee company hasnot offered any capital gain in AY 2014-15 which is thecorrect year of incidence of capital gain. Therefore,the assessment has to be reopened for AY. 2014-15 andassessed protectively to safeguard the interest ofrevenue. 4. The petitioner wrote to the respondent on 15.06.2019objecting to the proposed re-assessment and pointing out thatthe very income proposed to be brought to tax in AY 2014-15, hadsuffered tax in AY 2016-17. The assumption of jurisdiction bythe Assessing Officer was challenged on the ground that thereexisted no valid reasons for the proposed re-assessment and nomaterial on the basis of which the Officer has arrived at theprima facie conclusion that income had escaped assessment. 4. The petitioner wrote to the respondent on 15.06.2019objecting to the proposed re-assessment and pointing out thatthe very income proposed to be brought to tax in AY 2014-15, hadsuffered tax in AY 2016-17. The assumption of jurisdiction bythe Assessing Officer was challenged on the ground that thereexisted no valid reasons for the proposed re-assessment and nomaterial on the basis of which the Officer has arrived at theprima facie conclusion that income had escaped assessment. 5. The proposed re-assessment was also challenged on meritsby the petitioner stating that profits were realized from theproject only in the financial year relevant to AY 2016-17, theOfficer proceeded on the basis that the approval of the ChennaiMetropolitan Development Authority had been received in FY,relevant to AY 2014-15 and as such the capital gain ought tohave been brought to tax in AY 2014-15 itself. Moreover, one ofthe reasons for re-opening was to safeguard/protect theinterests of the revenue and this was also, according to thepetitioner, legally incorrect. 6. The objections came to be rejected by order dated05.12.2019, challenged in Writ Petition No.34963 of 2019. Though https://hcservices.ecourts.gov.in/hcservices/ an interim stay was granted by this Court on 17.12.2019, itappears that the order came to the notice of the respondent onlyon 23.12.2019, by which time, the order of assessment had beenpassed. This order came to be challenged by the petitioner inW.P.No.2390 of 2020. The Officer has, at paragraph 8 of counterdated 23.01.2020 in W.P. No.34963 of 2019 expressed regret forproceeding to pass the order of assessment despite interim orderdated 17.12.2019. He assigns the blame to a gap in intra-department communication by which order dated 17.12.2019 came tohis attention only on 23.12.2019 by which time the impugnedorder of assessment had been passed, on 20.12.2019. Theexplanation offered is accepted. Both matters have thus beentaken up together. 7. Revenue points out that as the original processing of theROI was only by way of intimation and no scrutiny assessmentunder Section 143(3) had been made, the assumption ofjurisdiction under Section 147 is unassailable. It was only whenthe return of income for AY 2016-17 was taken up that theOfficer gleaned that the appropriate year for taxing the capitalgain would be 2014-15 and not 2016-17. 8. The question of change of opinion or review of theearlier order would not arise insofar as no opinion was formedand no order passed at the first instance. It is for this reasonthat the reopening has been done protectively, to ascertain thecorrect year in which the incidence of taxing the capital gainarose. According to the revenue, the very fact that thereopening was protective would establish that the Officer had nointention whatsoever to engage in double taxation of the sameincome in both AY 2013-14 and 2016-17, but only wanted toascertain the appropriate year for taxation of the capital gain. 9. The issue that arises turns on whether the assumption ofjurisdiction in terms of Section 147 for AY 2012-13 is proper,particularly, seeing as the Officer only proposes a re-assessment, on protective basis. Admittedly, there has been noscrutiny assessment for AY 2012-13 and only an intimation hasbeen passed. The issue based on which the re-assessment has beeninitiated is whether the capital gains offered to tax in AY2016-17 should have been offered in the earlier year i.e. AY2012-13. 10. Ordinarily the limitation provided for the initiationof re-assessment is four years from the end of the relevantfinancial year, extended to six years upon satisfaction of theconditions elaborated in the proviso to Section 147, conditionalupon an order under Section 143(3) having been passed at theoriginal instance. Since only an intimation under Section 143(1) has been passed in this case, limitation of six years is, 10. Ordinarily the limitation provided for the initiationof re-assessment is four years from the end of the relevantfinancial year, extended to six years upon satisfaction of theconditions elaborated in the proviso to Section 147, conditionalupon an order under Section 143(3) having been passed at theoriginal instance. Since only an intimation under Section 143(1) has been passed in this case, limitation of six years is, available. (See The Assistant Commissioner of Income Tax (ACIT)Vs. Rajesh Jhaveri Stock Brokers Pvt. Ltd. (291 ITR 500). 11. Coming to whether a re-assessment may be initiated onprotective basis, I see no legal infirmity in the same.Though the assumption of jurisdiction to re-open an assessmentmust be based on the satisfaction of the officer that income hasescaped assessment, such reasoning is not expected to beironclad even at that preliminary stage. It will suffice thatthe Officer has a legitimate and reasonable basis to come tosuch a conclusion. In the present case, the return of incomefor AY 2012-13 was not scrutinized and only the return of incomeof the petitioner for AY 2016-17 was taken up for scrutiny. Thequestion of whether the capital gain is assessable in AY 2012-13 or 2016-17 is thus, a matter to be decided by the Authoritiesafter due verification of relevant documents and in accordancewith the law. Thus, while the merits of the matter relating tothe year in which the instance of capital gain would fall isleft entirely open for decision by the Officer, the assumptionof jurisdiction is upheld. 12. The concept of a protective assessment is not new toincome tax proceedings and in Banyan and Berry Vs. Commissionerof Income Tax (222 ITR 831), a Division Bench of the GujaratHigh Court states that where there is a doubt or ambiguity aboutthe real entity in whose hands particular income is to beassessed, the Assessing Authority is justified to take recourseto a protective assessment in the hands of one entity and aregular assessment in the hands of the other. At the end of theday, it is only one assessment that would survive, after theauthorities, with the cooperation of both the assessees,ascertain which the proper entity is to be assessed. So too inascertaining the proper year of assessment. 13. In Smt. Hemlata Agrawal Vs. CIT (64 ITR 428), aDivision Bench of the Allahabad High Court considered the scopeof protective assessment in the context of re-assessment. Theissue concerned the nature and source of investment in immovableproperty. The amount in question was brought to tax in the handsof both the husband and wife, the former substantively and thelatter protectively. Both the assessees therein challenged theorders of assessment till the Income Tax Appellate Tribunal. Inthe wifes’ case an additional point taken was that the re-assessment was only by way of change of opinion and was thusunsustainable. This argument was rejected by the Tribunalstating that a protective assessment did not amount to a changeof opinion but merely indicated caution on the part of theincome tax officer in deciding the question of law. In furtherappeal, the Court was of the view that the proper approach ofthe Tribunal would have been to hear both the appeals together and then determine whose hands the income was assessable. Thetax case filed by Mrs.Agrawal was allowed. 14. In this case the issue that arises is whether thecapital gain is taxable in one year or the other and thus, it isonly if the material pertaining to both years were availablebefore the officer that a proper decision in this regard couldbe arrived at. and then determine whose hands the income was assessable. Thetax case filed by Mrs.Agrawal was allowed. 14. In this case the issue that arises is whether thecapital gain is taxable in one year or the other and thus, it isonly if the material pertaining to both years were availablebefore the officer that a proper decision in this regard couldbe arrived at. 15. The petitioner argues that the order of assessment forAY 2016-17 has been challenged in appeal only on the aspect ofcomputation of the capital gain and thus as far as the year oftaxability is concerned, the order has attained finality. Thisargument is misconceived since the very doubt entertained by theOfficer turns on the question of whether the year of taxabilityadopted by the petitioner is correct or not. The finalityattained by filing of the first appeal by the petitioner issubject to statutory processes such as 263 and 147 of the Act,if otherwise valid. This argument is thus rejected. 16.The impugned order is confirmed and this writ petitiondismissed. The re-assessment shall be taken up on merits anddecided as expeditiously as possible and at any rate within aperiod of eight weeks from today. Let the appeal filed by thepetitioner also be taken up for hearing and disposed by theCommissioner of Income Tax (Appeals) parallelly. Connectedmiscellaneous petitions are closed. No costs. Sd/- Assistant Registrar (CS III ) /true copy/ Sub Asst. Registrar ska To 1 Income Tax Officer, Corporate Ward 1, (4), Room No.616, Wanaparthy Block, VI Floor, 121 MG Road, Nungambakkam, Chennai 34. 2 Assistant Commissioner of Income Tax (OSD), Corporate Range 1, Room No.603, Wanaparthy Block, VI Floor, 121 MG Road, Nungambakkam, Chennai 34. +2 ccs to Mr.Arun Karthik Mohan Advocate sr41251+1 cc to Mr.Hema Muralikrishnan Advocate sr41251 W.P. Nos.34963 of 2019 and 4063 of 2020and WMP.Nos. 4800, 4803 of 2020 & 35746, 35748 & 35751 of 2019 gp(co)aa20/01/2021