Runwal Realty Private Limited v. Dy. Commissioner Of Income Tax, Central Circle 4(1) & Ors

R.M. AMBERKAR (Private Secretary) IN THE HIGH COURT OF JUDICATURE AT BOMBAYO.O.C.J. WRIT PETITION NO. 3339 OF 2018 Runwal Realty Private Limited..Petitioner Versus Dy. Commissioner of Income Tax, Central Circle 4(1) & Ors. ..Respondents ................... Mr. Madhur Agarwal i/by Mr. Atul Jasani for the Petitioner Mr. Madhur Agarwal i/by Mr. Atul Jasani for the Petitioner Mr. A.R. Malhotra a/w Mr. N.D. Kazi for the RespondentsMr. A.R. Malhotra a/w Mr. N.D. Kazi for the Respondents ................... CORAM : AKIL KURESHI & S.J. KATHAWALLA, JJ. DATE : JUNE 3, 2019. P.C.: 1.The petition is filed by the assessee to challenge anotice of reopening of assessment issued by the respondent– Assessing Officer on 30.3.2018. 2.Brief facts, are as under:- 2.1 Petitioner is a Private Limited Company and isengaged in the business of real estate development. Thepetitioner had filed return of income for the assessment year 2011-12 on 30.9.2011 declaring total income of Rs. 35.94Crores (rounded of). This was revised by declaring total income of Rs. 35.66 Crores (rounded off). In the return, thepetitioner had claimed deduction for sum of Rs. 56.13 Croresunder Section 80-IB(10) of the Income Tax Act, 1961 (“theAct” for short”). The return filed by the petitioner was takenin scrutiny by the Assessing Officer. The Assessing Officerpassed an order of assessment under Section 143(3) of theAct on 8.3.2014 accepting the petitioner’s declared income.Subsequently, the petitioner was subjected to searchoperations. Post search also, the assessment was carriedout. Thereafter, the Assessing Officer issued the impugnednotice. In order to do so, he had recorded following reasons:- “Reasons to believe that income chargeable to tax escaped--assessment u/s. 147 of the Income Tax Act: 1. In this case, the assessee filed its return of income on30.9.2011 declaring total income of Rs. 35,94,29,403/-. Arevised return of income was filed by assessee on 26.3.2013declaring total income at Rs. 35,66,13,156/-. Subsequently,assessment u/s. 143(3) was completed on 8.3.2014 acceptingthe revised return filed by the assessee. A search action u/s.132 had been carried out on the Runwal Group on17.11.2014. Notice u/s. 153A was issued and served on theassessee. In response thereto, assessee filed return ofincome on 13.7.2016 declaring total income at Rs.35,66,13,160/-. Consequently, assessment u/s. 143(3) r.w.s.153A was completed on 30.12.2016 at an assessed income ofRs. 36,14,35,900/-.30.9.2011 declaring total income of Rs. 35,94,29,403/-. Arevised return of income was filed by assessee on 26.3.2013declaring total income at Rs. 35,66,13,156/-. Subsequently,assessment u/s. 143(3) was completed on 8.3.2014 acceptingthe revised return filed by the assessee. A search action u/s.132 had been carried out on the Runwal Group on17.11.2014. Notice u/s. 153A was issued and served on theassessee. In response thereto, assessee filed return ofincome on 13.7.2016 declaring total income at Rs.35,66,13,160/-. Consequently, assessment u/s. 143(3) r.w.s.153A was completed on 30.12.2016 at an assessed income ofRs. 36,14,35,900/-. 2. On going through the record, it was observed that assesseehad claimed deduction u/s 80-IB(10) of Rs. 56,13,80,172/-. Itwas observed that deduction u/s. 80-IB(10) had to becomputed on the basis of commercial profit whereas it hadbeen computed in accordance with provisions of Section 28 to44 of the I.T. Act and after set off of losses in accordance withprovisions of Section 70, 71, 72 and 73 of the I.T. Act.Further, it had been observed that assessee had availeddeduction on sale of car parking also which cannot beconstrued as derived from housing projects as the car parkingspace cannot be sold to flat buyers and excluding car parkingthe eligible profit works out to Rs. 50,49,35,215/- whereasdeduction had been allowed at Rs. 56,13,80,172/-. Therefore,the same resulted in excess allowance of deduction of Rs.5,74,34,957/-. 3. Further, it was observed that assessee submitted detailscontaining saleable area and carpet area in respect of eachflat. On going through the same, it was noticed that the areaof each flat was more than 1000 sq. ft. and the correspondingcarpet area was less than 1000 sq. ft. and the built-up areawas not given. Obviously, the deduction was allowed on thebasis of carpet area which is incorrect because the provisionsof the Act clearly mentions that the deduction had to beallowed to only those projects wherein built-up area of eachflat should not be more than 1000 sq.ft. Therefore, thededuction has to be allowed on the basis of built-up area andnot on the basis of loading on carpet area to determinesaleable area which works out 45% as shown below:- Considering the above facts, the assessee had failed to fulfillthe conditions laid down in section 80-IB(10) so as to beeligible for the said project. Further, it was observed that two residential units i.e. 701 &702 to Mr. Rajesh J. Sheth, HUF and Pranlal R. Sheth (HUF)that flat Nos. 701 and 702 were booked on 7.11.2011 anddate of allotment was on 31.12.2011. Hence, the date ofbooking and date of agreement both were posterior to be dateof amendment in the Act on 1.4.2010. Further, the event ofdate of allotment was not a pre-amendment event. Hence, thededuction claimed and allowed as per provisions of section80-IB(10) is not applicable to the assessee. Hence, it can besaid that assessee was not eligible for deduction u/s. 80-IB(10) of the Act. 4. Further, I have also examined the case records and afterconsidering the same, there is enough reason to believe thatthe assessee prima facie has clearly failed to disclose allmaterial facts for determination of income. In fact, in thiscase, the assessee seems to have fabricated evidence inorder to mislead the revenue to believe the apparent as real. 5. In view of the above, it is evident that an income to the extentof Rs. 56,13,80,172/- has resulted in under assessment ofincome of assessee to that extent.of Rs. 56,13,80,172/- has resulted in under assessment ofincome of assessee to that extent. 6. In view of the fact mentioned above, it is evident that theassessee has not fully and truly disclosed all the material factsnecessary for his assessment during the assessmentassessee has not fully and truly disclosed all the material factsnecessary for his assessment during the assessment proceedings which has led to the escapement of income forAY 2011-12. On the basis of the aforesaid tangible materialavailable with me now, I have reason to believe that anamount of more than Rs. 1,00,000/- has escaped assessmentfor AY 2011-12 within the meaning of section 147 of the ITAct.” 2.2The petitioner raised objections to the notice ofreopening under a communication dated 4.9.2018. Suchobjections were, however, rejected by the Assessing Officerby order dated 17.9.2018. Hence, this petition. 3. Perusal of the reasons recorded by the AssessingOfficer would show that he objects to the petitioner’s claim ofdeduction under Section 80-IB(10) of the Act on followingthree grounds:- proceedings which has led to the escapement of income forAY 2011-12. On the basis of the aforesaid tangible materialavailable with me now, I have reason to believe that anamount of more than Rs. 1,00,000/- has escaped assessmentfor AY 2011-12 within the meaning of section 147 of the ITAct.” 2.2The petitioner raised objections to the notice ofreopening under a communication dated 4.9.2018. Suchobjections were, however, rejected by the Assessing Officerby order dated 17.9.2018. Hence, this petition. 3. Perusal of the reasons recorded by the AssessingOfficer would show that he objects to the petitioner’s claim ofdeduction under Section 80-IB(10) of the Act on followingthree grounds:- i. The petitioner had sold car parking spaces andclaimed it as a profit out of development underthe housing project. According to the AssessingOfficer, such income would not qualify fordeduction under Section 80-IB(10) of the Act;claimed it as a profit out of development underthe housing project. According to the AssessingOfficer, such income would not qualify fordeduction under Section 80-IB(10) of the Act; ii. According to the Assessing Officer, the assesseehad given details of saleable area and carpet areaof the facts constructed were in excess ofhad given details of saleable area and carpet areaof the facts constructed were in excess of thousand square feet. The assessee had,however, not provided the details of carpet area.According to him, therefore, the claim ofdeduction under Section 80-IB(10) of the Act wasunsustainable; iii. He noticed that the assessee had sold tworesidential units to one Rajesh J. Sheth, HUF andPranlal R. Sheth (HUF) which was in breach of oneof the conditions contained in Section 80-IB(10) ofthe Act. In the reasons recorded, though he hasnot referred to the condition, obviously, hisreference is to clause (f) of Section 80IB(10) of theAct which prohibits allotment of a flat in favour ofcertain person being an individual to whom theflat has already been allotted in housing project. residential units to one Rajesh J. Sheth, HUF andPranlal R. Sheth (HUF) which was in breach of oneof the conditions contained in Section 80-IB(10) ofthe Act. In the reasons recorded, though he hasnot referred to the condition, obviously, hisreference is to clause (f) of Section 80IB(10) of theAct which prohibits allotment of a flat in favour ofcertain person being an individual to whom theflat has already been allotted in housing project. 4.Taking us through the reasons and the material onrecord, the petitioner raised following contentions:-record, the petitioner raised following contentions:- (i). The impugned notice has been issued beyond theperiod of four years from the end of relevantassessment year. There was no failure on thepart of the assessee to disclose truly and fully allmaterial facts;period of four years from the end of relevantassessment year. There was no failure on thepart of the assessee to disclose truly and fully allmaterial facts; (ii). The assessee’s claim of deduction under Section80-IB(10) of the Act was examined minutelyduring the original assessment proceedings aswell as during the post search assessment. Anyattempt on the part of the Assessing Officer todislodge the claim would be based on change ofopinion since no additional material is availablewith the Assessing Officer;80-IB(10) of the Act was examined minutelyduring the original assessment proceedings aswell as during the post search assessment. Anyattempt on the part of the Assessing Officer todislodge the claim would be based on change ofopinion since no additional material is availablewith the Assessing Officer; (ii). The assessee’s claim of deduction under Section80-IB(10) of the Act was examined minutelyduring the original assessment proceedings aswell as during the post search assessment. Anyattempt on the part of the Assessing Officer todislodge the claim would be based on change ofopinion since no additional material is availablewith the Assessing Officer;80-IB(10) of the Act was examined minutelyduring the original assessment proceedings aswell as during the post search assessment. Anyattempt on the part of the Assessing Officer todislodge the claim would be based on change ofopinion since no additional material is availablewith the Assessing Officer; (iii) Even otherwise, the reasons recorded lack validityand proceeded on erroneous averments. Learnedcounsel pointed out that the assessee hadsupplied full details of carpet area. However, theclause (f) of Section 80-IB(10) would not apply inthe present case since the allotments were madeto two different HUF’s.and proceeded on erroneous averments. Learnedcounsel pointed out that the assessee hadsupplied full details of carpet area. However, theclause (f) of Section 80-IB(10) would not apply inthe present case since the allotments were madeto two different HUF’s. 5.On the other hand, learned counsel for the departmentopposed the petition contending that:-opposed the petition contending that:- (i). There was no full and true disclosures on the partof the petitioner. Mere production of details oraccounts would not satisfy the requirement of trueand full disclosure. In this respect, learnedcounsel relied on following decisions:-of the petitioner. Mere production of details oraccounts would not satisfy the requirement of trueand full disclosure. In this respect, learnedcounsel relied on following decisions:- 1. Rakesh Agarwal Vs. Assistant Commissioner ofIncome-tax[1]; 2. Dr. Amin's Pathology Laboratory Vs. P.N.Prasad, Joint Commissioner of Income-tax (No. 1)[2]; (ii). The petitioner had sold car parking spaces whichcannot be stated to be income derived out ofdevelopment under housing project. Thepetitioner’s claim of deduction under Section 80-IB(10) to that extent was not sustainable;cannot be stated to be income derived out ofdevelopment under housing project. Thepetitioner’s claim of deduction under Section 80-IB(10) to that extent was not sustainable; (iii). The petitioner had not raised contentions withrespect to the Assessing Officer’s ground ofunsustainability of deduction of the incomederived from car parking spaces.respect to the Assessing Officer’s ground ofunsustainability of deduction of the incomederived from car parking spaces. 6.Having thus heard learned counsel for the parties andhaving perused the documents on record, in our opinion, theimpugned notice cannot survive the test of law. Our reasonsare as follows:- 7.As noted, the petitioner had filed return of income. One 1[1996] 221 ITR 492 (Delhi)2[2001] 252 ITR 673 (Bombay)2[2001] 252 ITR 673 (Bombay) (iii). The petitioner had not raised contentions withrespect to the Assessing Officer’s ground ofunsustainability of deduction of the incomederived from car parking spaces.respect to the Assessing Officer’s ground ofunsustainability of deduction of the incomederived from car parking spaces. 6.Having thus heard learned counsel for the parties andhaving perused the documents on record, in our opinion, theimpugned notice cannot survive the test of law. Our reasonsare as follows:- 7.As noted, the petitioner had filed return of income. One 1[1996] 221 ITR 492 (Delhi)2[2001] 252 ITR 673 (Bombay)2[2001] 252 ITR 673 (Bombay) of the main claim in the return was deduction under Section80-IB(10) of the Act relatable to the petitioner’s income fromdevelopment of housing project. The petitioner’s return wastaken in scrutiny. During scrutiny assessment, the AssessingOfficer had raised queries which can be gathered from thefact that the petitioner had supplied several details as calledfor by the Assessing Officer. In one of the communications,the petitioner had made detail submissions providingmaterials on allowability of deduction under Section 80-IB(10) of the Act. Thus, petitioner’s claim of deduction underSection 80-IB(10) of the Act was scrutinized by the AssessingOfficer during the original scrutiny assessment. After suchscrutiny, he passed an order of assessment in which hemade no disallowance. Any attempt on his part now todisturb the claim would be based on change of opinion whichis wholly impermissible as held by the Supreme Court in caseof CIT, Delhi Vs. Kelvinator of India Ltd[3]. In the saiddecision, the Court held that even post amendment w.e.f.1.4.1989, the concept of change of opinion would continue toapply in relation to reassessment. 3(2010) 320 ITR 561 (SC) 8.This apart, the notice of reopening of assessment hasbeen issued beyond the period of four years from the end ofrelevant assessment year. Additional requirement flowingfrom the provisions of Section 147 of the Act namely theincome chargeable to tax had escaped assessment due tothe failure on the part of the assessee to disclose trully andfully all material facts, therefore, must be satisfied. 9.In the present case, the petitioner had produced fullaccounts. In the profit and loss account, the petitioner hadshowed income of Rs. 112.58 Crores from sale of flats. Aseparate sum of Rs. 4,48,50,0000/- was shown by way ofreceipt from sale of car parking. Along with the return, thepetitioner had also produced accounts dully attached in From3CD which also contained such details. In plain terms, therewas no failure on the part of the assessee to disclose trulyand fully all material facts. In fact, the Assessing Officer inhis reasons recorded for issuing the impugned notice hasproceeded on the basis of the material already on recordclearly indicating there was no material alient to the record on which he had placed reliance in order to form a belief thatincome chargeable to tax had escaped assessment. We arenot oblivient to the explanation to Section 147 of the Actheavily placed reliance upon by the learned counsel for theRevenue, however, since a days of decision in case ofCalcutta Discount Co Ltd Vs. ITO[4], it is well settled thatthe duty of the assessee is to disclose primary facts. Whatlegal inference to be drawn on the basis of such facts iswithin the realm of the Assessing Officer's jurisdiction. 10. Additionally, we find that the objections with respectto not providing built up area details and breach of clause (f)to Section 80-IB(10) of the Act are unsustainable factuallyand legally respectively. The assessee had provided fulldetails including built up area of the flats sold contrary towhat the Assessing Officer had asserted in the reasonsrecorded. Further, the clause (f) of Section 80-IB(10) of theAct would apply in case of allotment to an individual as theSection itself clearly provides which is not a case in thepresent case. 10. Additionally, we find that the objections with respectto not providing built up area details and breach of clause (f)to Section 80-IB(10) of the Act are unsustainable factuallyand legally respectively. The assessee had provided fulldetails including built up area of the flats sold contrary towhat the Assessing Officer had asserted in the reasonsrecorded. Further, the clause (f) of Section 80-IB(10) of theAct would apply in case of allotment to an individual as theSection itself clearly provides which is not a case in thepresent case. 441 ITR 191 11. The last contention of the learned counsel for theRevenue that certain objections not having been taken bythe assessee in response to the notice issued wouldpreclude him from raising a contention that the petition isnot borne out from any authority or statutory provision. Ifthere is legal contention which goes to the root of the matterand which would render the action of the Assessing Officer ofissuing notice of reassessment without jurisdiction, such aground cannot be showed out merely because in the writtenobjections, the petitioner had not thought of raising it.Accepting any such contention would enable the revenue toproceed further with the reassessment which at a laterrelatably stage when shown to be without jurisdiction, wouldbe liable to be quashed. 12. In the result, the impugned notice dated 30.3.2018 isset aside. The petition is allowed to be disposed ofaccordingly. [ S.J. KATHAWALLA, J. ] [ AKIL KURESHI, J ]