Principal Commissioner Of Income Tax 1No v. Shri.k.r.jayaram

IN THE HIGH COURT OF JUDICATURE AT MADRAS Orders Reserved On Orders Pronounced On 08.07.202022.07.2020 CORAM: THE HONOURABLE MR.JUSTICE T.S.SIVAGNANAMand Principal Commissioner of Income Tax 1No.63, Race Course Road,Coimbatore...Appellant/Respondent -vs- Shri.K.R.Jayaram ..Respondent/Appellant Tax Case (Appeal) filed under Section 260A of the Income TaxAct, 1961, against the order dated 17.10.2017 made in ITANo.1698/Mds/2016 on the file of the Income Tax AppellateTribunal Madras 'C' Bench, Chennai for the assessment year 2009-10 against the order of the Commissioner of Income Tax(Appeals)-2, Coimbatore dated 30/03/2016 made in ITA 437/14-15against the order of the Assistant Commissioner of Income Tax,Circle III Coimbatore dated 02/07/2014 made in PAN No.AFEPJ8078Afor the Assessment Year 2009-2010. This Tax Case (Appeal) under Section 260(A) of the IncomeTax Act, 1961 (hereinafter referred to as 'the Act') has beenfiled by the Revenue challenging the order dated 17.10.2017 madein ITA No.1698/Mds/2016 on the file of the Income Tax Appellate https://hcservices.ecourts.gov.in/hcservices/ Tribunal Madras 'C' Bench, Chennai (for brevity 'the Tribunal')for the assessment year 2009-10. 2.The Tax Case (Appeal) was admitted on 24.06.2019 on thefollowing substantial questions of law:-“(i) Whether the Tribunal was justifiedin holding that the reopening of assessmentwas a result of mere change of opinion, evenwhen there is no opinion formed or expressedby the Assessing Officer on this issue in theoriginal assessment? (ii) Whether the Tribunal was right innot considering the decision of the Hon'bleSupreme Court wherein reopening of assessmenton the basis of information possessed by theAssessing Officer either from external sourcesor from material on record is legally tenableas held in the case of Kalyanji Mavji & Co.,vs. CIT [reported in 102 ITR 286] ? and (iii) Whether the Tribunal was right instating that reopening of assessment is bas inlaw when Section 147 of the Income Tax Actclearly says that if the Assessing Officer hasreason to believe that any income chargeableto tax has escaped assessment, the AssessingOfficer can assess or re-assess theassessment?” 3.Heard Mr.T.R.Senthil Kumar, learned Senior StandingCounsel assisted by Ms.K.G.Usha Rani, learned Junior StandingCounsel appearing for the appellant/Revenue and Mr.NareshKumar, for Mr.R.N.Amarnath, learned counsel appearing for therespondent/assessee. 4.The issue, which falls for consideration, is whether thereopening of the assessment under Section 147 of the Income TaxAct ('The Act' for brevity) is proper and valid. 5.The assessee is an individual engaged in Real-Estatebusiness, filed his return of income for the assessment year2009-10, declaring the total income of Rs.1,31,99,850/- on01.07.2009. The Assessing Officer completed the assessmentunder Section 143(3) of the Act by making an addition ofRs.23,29,000/- being disallowance of improvement cost of landclaimed by the assessee and the assessee had shown the sale ofthe land under the head of “short term capital gain”.Subsequently, the assessment was reopened stating that onverification of the document, i.e., sale deed, it is seen thatSection 50C value was fixed at Rs.735.00 Lakhs by the DistrictRevenue Officer exercising powers under the Indian Stamp Act and 5.The assessee is an individual engaged in Real-Estatebusiness, filed his return of income for the assessment year2009-10, declaring the total income of Rs.1,31,99,850/- on01.07.2009. The Assessing Officer completed the assessmentunder Section 143(3) of the Act by making an addition ofRs.23,29,000/- being disallowance of improvement cost of landclaimed by the assessee and the assessee had shown the sale ofthe land under the head of “short term capital gain”.Subsequently, the assessment was reopened stating that onverification of the document, i.e., sale deed, it is seen thatSection 50C value was fixed at Rs.735.00 Lakhs by the DistrictRevenue Officer exercising powers under the Indian Stamp Act and the correct market value of the property that should have beenadopted by the assessee is Rs.367.50 lakhs i.e., 50% of Rs.735lakhs, as two persons including the assessee had done thebusiness and each of them shared the profit on equal ratio.Therefore, the Assessing Officer proposed that the saleconsideration for capital gains computation should have beenworked out on the said amount of Rs.367.50 lakhs. Notice underSection 148 of the Act was served on the assessee on 26.03.2014.In response thereof, the assessee filed return on 02.06.2014showing Rs.1,16,55,725/- as business income as against theearlier classification as “capital gains”. The AssessingOfficer held that the assessee having filed the return, whichwas a revised return, that too, only after notice under Section148 was issued, the same cannot be accepted. Further, theAssessing Officer held that in the original return, the assesseehas shown the amount as “capital gains” and in the return filedin response to the Section 148 notice, the said income was shownby the assessee as “business income”, which is not acceptable.Accordingly, the assessment was completed under Section 143(3)read with Section 147 of the Act, by order dated 02.07.2014. 6.The assessee preferred appeal before the Commissioner ofIncome Tax (Appeals)-2, Coimbatore in ITA No.437/14-15. Theappeal was dismissed by order dated 30.03.2016. Aggrieved bythe same, the assessee preferred appeal to the Tribunal, whichwas allowed by order dated 17.10.2017, impugned in this Appeal. 7. Though three substantial questions of law have beenframed for consideration, if we take a decision as to whetherthe reopening was justified, that would be sufficient to answerall the three questions, because all the three substantialquestions of law are interlinked and the only issue is whetherthe reopening of assessment is valid. 8.The learned counsel appearing for the Revenue strenuouslycontended that the notice under Section 148 was served on theassessee on 26.03.2014, well before the expiry of four years andthe observations of the Tribunal that the revision of assessmentwas based on change of opinion, is an incorrect finding and thequestion of obtaining fresh tangible material is not necessarywhen the assessment is reopened within four years. In thisregard, the learned counsel referred to Section 147 of the Actand also the three provisos and four explanations containedtherein. In support of his contentions, the learned counselreferred to the judgment of the High Court of Gujarat inChunibhai Ranchhodbhai Dalwadi vs. Assistant Commissioner ofIncome-tax, [2017] 81 Taxmann.com 136 (Gujarat) . 9.The learned counsel appearing for the respondent/assesseesubmitted that the Tribunal has elaborately considered the https://hcservices.ecourts.gov.in/hcservices/ 9.The learned counsel appearing for the respondent/assesseesubmitted that the Tribunal has elaborately considered the https://hcservices.ecourts.gov.in/hcservices/ issue, referred to various decisions and has rightly held thatthe reopening was bad in law, as it is a clear case of change ofopinion. In support of his contention, the learned counselreferred to the decision of this Court in the case of CIT vs.Ashley Services Ltd., (2014) 369 ITR 209 (Madras). Further, itis submitted that Section 50C, which is a special provision forfull value of consideration in certain cases, was inserted bythe Finance Act, 2002 w.e.f., 01.04.2003. In sub-Section (1) ofSection 50, the words “or assessable” were inserted by Finance(No.2) Act 2009, w.e.f., 01.10.2009 and the said provisioncannot be applied to the case of the assessee, as admittedly,the sale transaction took place on 02.05.2008. Further, acircular has been issued by the CBDT stating that the words “orassessable” which were inserted w.e.f., 01.10.2009, areprospective and this aspect was considered by a Division Benchof this Court in CIT vs. R.Sugantha Ravindran, (2013) 352 ITR488 (Madras). 10.We need not labour much to take a decision in the instantcase, in the light of the decision of the Delhi High Court inthe case of CIT vs. Kelvinator India Ltd., reported in (2002)256 ITR 1, which was affirmed by the Hon'ble Supreme Court inthe case of CIT vs. Kelvinator India Ltd., reported in (2010)320 ITR 561. It was pointed out that a schematic interpretationis to be given to the words “reason to believe” failing which,Section 147 would give arbitrary powers to the Assessing Officerto reopen assessments on the basis of mere change of opinion,which cannot be per se reason to reopen. 11.It was pointed out that the Assessing Officer has nopower to review; he has power to reassess. The power ofreassessment has to be based on fulfilment of certain pre-conditions and if the concept of “change of opinion” is removed,then, in the garb of reopening the assessment, review would takeplace and the concept of “change of opinion” should be treatedas an in-built test to check abuse of power by the AssessingOfficer. Thus, it is clear that the words “reason to believe”occurring in Section 147 of the Act as interpreted by theHon'ble Supreme Court in Kelvinator India Ltd., (supra), doesnot make a distinction in respect of reopening done within fouryears or beyond four years. 12.The provisos contained in Section 147 of the Act imposeconditions when reopening is done beyond four years and mattersconnected thereof. Thus, the common issue in all cases ofreopening is whether the Assessing Officer had “reason tobelieve” that income chargeable to tax has escaped assessment.The reason to believe cannot be on a “change of opinion”. Theassessee is expected to file his return of income along with hisbooks and documents. It is for the Assessing Officer to consider the same in accordance with law and complete theassessment. The assessee is not there to advice the AssessingOfficer as to how he should go about in assessing the income ofthe assessee, as it is the statutory duty of the AssessingOfficer. Admittedly, the Sale Deed dated 02.05.2008, is onlythe document, which is the subject matter of the assessment.This document was very much available with the Assessing Officerwhen he completed the assessment under Section 143(3), dated05.12.2011. At that juncture, all that the Assessing Officerwas concerned about is the claim made by the assessee asexpenses for the improvement of the land by levelling, sandfilling, road laying etc. consider the same in accordance with law and complete theassessment. The assessee is not there to advice the AssessingOfficer as to how he should go about in assessing the income ofthe assessee, as it is the statutory duty of the AssessingOfficer. Admittedly, the Sale Deed dated 02.05.2008, is onlythe document, which is the subject matter of the assessment.This document was very much available with the Assessing Officerwhen he completed the assessment under Section 143(3), dated05.12.2011. At that juncture, all that the Assessing Officerwas concerned about is the claim made by the assessee asexpenses for the improvement of the land by levelling, sandfilling, road laying etc. 13.The stand taken by the assessee was disbelieved, as nomaterial evidence was produced by the assessee to substantiatesuch expenses. Based on the very same document, the assessmentwas reopened by serving notice on 26.03.2014, stating that theassessee should have adopted the value of the land as computedby the District Revenue Officer under the Indian Stamp Act forthe purposes of computation of the stamp duty payable on suchinstrument. 14.As rightly pointed out by the learned counsel for theassessee the words “or assessable” stood inserted by Finance(No.2) Act, 2009 w.e.f., 01.10.2009 and this provision has beenheld to be prospective and this issue was considered by theHon'ble Division Bench of this Court in the case of R.SuganthaRavindran (supra). Therefore, the revenue cannot refer toSection 50C of the Act to non-suit the assessee. 15.In Ashley Services Ltd., (supra), the Court on goingthrough the reasons given for reopening of the assessment, heldit to be a review of the assessment order under Section 143(3)and even though the assessment was reopened within four years,when there was no fresh material to disturb the reasoningarrived at, reopening of assessment was unsustainable.Therefore, the Tribunal rightly held that there was no materialavailable with the Assessing Officer other than what wasavailable with him at the first instance, when he completed theassessment under Section 143(3) of the Act, vide order dated05.12.2011 to come to a conclusion that there were reasons toreopen the assessment. 16.In Chunibhai Ranchhodbhai Dalwadi (supra), the assesseesold immovable property, vide sale deed dated 19.04.2006 and thesale value as per agreement is Rs.87,71,765/- and registeredwith the Sub-Registrar on the same date and the stamp duty paidwas Rs.11,92,500/-. As per the calculation adopted by theRegistration Department, the sale value was determined atRs.2,12,84,400/- whereas, the agreement shows the consideration https://hcservices.ecourts.gov.in/hcservices/ as Rs.87,71,765/- only. Therefore, the Assessing Officer in thesaid case stated that as per provisions of Section 50C, thedeemed long-term capital gain is Rs.1,25,14,635/-, which has notbeen offered for tax by the assessee in the return of incomefiled for the assessment year 2007-08. Hence, he has reason tobelieve that the said income has escaped assessment. The Courtheld that the Assessing Officer never examined the said issueduring the original assessment proceedings. Further, noted thatnecessary relevant information was not placed by the assesseeduring the original assessment and therefore, held that thereopening within four years was permissible. This decisionrelied on by the revenue is clearly distinguishable on facts, asthere is no allegation against the assessee before us that hefailed to fully and truly disclose all information. 17.That apart, the effect of the CBDT circular was takennote of and considered by this Court in R.Sugantha Ravindran(supra). At this juncture, it will be beneficial to refer tothe operative operation of the said judgment:-“10.Even otherwise, we are of the firm viewthat the insertion of words "or assessable" byamending Section 50C with effect from 01.10.2009is neither a clarification nor an explanation tothe already existing provision and it is only aninclusion of new class of transactions namely thetransfers of properties without or beforeregistration. Before introducing the saidamendment, only the transfers of properties wherethe value adopted or assessed by the stampvaluation authority were subjected to Section 50Capplication. However after introduction of thewords "or assessable" after the words "adopted orassessed", such transfers where the valueassessable by the stamp valuation authority arealso brought into the ambit of Section 50C. Thussuch introduction of new set of class of transferwould certainly have the prospective applicationonly and not otherwise. Hence the assessee'stransfer admittedly made earlier to such amendmentcannot be brought under Section 50C.” 18. In the written submissions placed by the learned SeniorStanding counsel appearing for the Revenue after reiterating thefactual position, the learned counsel relied upon the decisionof the High Court of Bombay in the case of Export CreditGuarantee Corporation of India Ltd., vs. Additional Commissionerof Income-tax reported in [2013] 30 taxmann.com 211 (Bombay)wherein the Court held that where there is a complete failure onthe part of the Assessing Officer to apply his mind duringoriginal assessment to points on which assessment is sought to be reopened, it can be said that there is tangible material andreason to believe that income has escaped assessment. 19. The decision in the case of Consolidated Photo & FinvestLtd., vs. ACIT reported in (2006) 281 ITR 394 (Delhi), of theHigh Court Delhi, was referred to in support of the contentionthat where the order of assessment does not address itself to anaspect which is the basis for reopening of the assessment, it isnot a case of change of opinion. 20. Reliance was placed on the decision of this Court inSmt.A.Sridevi vs. ITO reported in (2018) 100 Taxmann.com 434,(Mad), where reassessment was held to be justified when theassessee had not filed balance sheet or statement of affairs. 21. Relying upon the decision of the High Court of Gujaratin the case of Chunibhai Ranchhodbhai Dalwadi vs. ACIT reportedin (2017) 81 Taxmann.com 136 (Gujarat), the reopening of theassessment was held to be justified when the sale value ofproperty as determined by the Stamp Duty Authorities was muchhigher than the declared value by the assessee. 22. Further reliance was placed on the decision of thisCourt in the case of Sword Global India(P) Ltd., vs. ACITreported in (2015) 234 Taxman 187 (Madras), which is a casewhere the assessee wilfully made false or untrue statements atthe time of original assessment. In our considered view, theaforementioned decisions are all distinguishable on facts. 23. In the case of Export Credit Guarantee Corporation ofIndia Ltd., (supra), the Court came to the conclusion that therewas complete failure on the part of the Assessing Officer toapply his mind and therefore, held reopening to be valid. We donot find any such non-application of mind by the AssessingOfficer, as the Assessing Officer has considered the affect ofthe sale deed and there are no other complicated issues in theassessment. 23. In the case of Export Credit Guarantee Corporation ofIndia Ltd., (supra), the Court came to the conclusion that therewas complete failure on the part of the Assessing Officer toapply his mind and therefore, held reopening to be valid. We donot find any such non-application of mind by the AssessingOfficer, as the Assessing Officer has considered the affect ofthe sale deed and there are no other complicated issues in theassessment. 24. The decision in the case of Consolidated Photo & FinvestLtd., (supra) was a case where the assessment order did notaddress the aspect on which reopening was made. This wouldarise when there are several issues to be determined by theAssessing Officer, not as in the case of the assessee on hand,where there is a single issue regarding valuation of theproperty. 25. The decision in the case of Smt.A.Sridevi (supra) willnot apply to the facts of the case on hand, because the assesseein the said case did not produce the relevant documents. In thecase of Chunibhai Ranchhodbhai Dalwadi (supra), the assessee did https://hcservices.ecourts.gov.in/hcservices/ not declare the long term capital gain in the original return ofincome nor the Assessing Officer considered the same, whereas inthe instant case, the only issue was the claim of cost ofimprovement against capital gains and there was no other issue.Therefore, the said decision will not assist the case of theRevenue. Equally, the decision in Sword Global India(P) Ltd.,(supra), would not apply to the facts of the instant case, asthere was no allegation against the assessee that he made afalse statement. 26. It would be worthwhile to remind ourselves about thedecision of the Hon'ble Supreme Court in the case of CalcuttaDiscount Co., Ltd., vs. ITO [1961] 41 ITR 191 (SC), wherein theHon'ble Supreme Court held that the duty of the assessee is tomake full and true disclosure of all primary facts and once itis done, it is for the Assessing Authority to decide whatinference of fact or law could be drawn there from. The lawdoes not require the assessee to state the conclusion that couldreasonably be drawn from the primary facts and if there were, infact, some reasonable grounds for thinking that there had beenany non-disclosure as regards any primary facts, which couldhave a material bearing on the question of “under assessment”,that would be sufficient to give jurisdiction to the ITO toissue notices under Section 34 (1922 Act) and whether thesegrounds are adequate or not for arriving at a conclusion thatthere was a non-disclosure of material facts could not be openedfor the Court's investigation. 27. For the above reasons, we find that the Tribunal wasright in allowing the assessee's appeal. 28. Accordingly, the appeal filed by the Revenue isdismissed and substantial questions of law are answered againstthe Revenue and in favour of the Assessee. No costs. pbn https://hcservices.ecourts.gov.in/hcservices/ To 1.Income Tax Appellate Tribunal Madras 'C' Bench, Chennai. 2.The Commissioner of Income Tax (Appeals)-2, Coimbatore. 3.The Assistant Commissioner of Income Tax, Circle III, Coimbatore. Coimbatore. 4.The Deputy Commissioner of Income Tax Non-Corporate Circle 1, Coimbatore. Non-Corporate Circle 1, Coimbatore. +1cc to Mr.T.R.Senthilkumar, Advocate, S.R.No.25010 Pre-delivery Judgment made inTax Case (Appeal) No.440 of 2018 VG II (CO)KKV/14/08/2020