Wp/14481/2018 Of Raviraj Devikesh Constructions v. The Income Tax Officer, Ward 5(1) , Pune And Anr

IN THE HIGH COURT OF JUDICATURE AT BOMBAY CIVIL APPELLATE JURISDICTION WRIT PETITION NO. 14481 OF 2018 Raviraj Devikesh Constructions .. Petitioner v/s. The Income Tax Officer,Ward 5(1), Pune & Anr. .. Respondents Mr. Mihir Naniwadekar a/w Ms. Alisha Pinto for the petitioner Mr. Sham Walve for the respondents CORAM : AKIL KURESHI & M.S. SANKLECHA, J.J. P.C. DATED : 11[th] JANUARY, 2019 1.At the request of the parties, the petition is being taken up forfinal disposal at the stage of admission. 2.This petition under Article 226 of the Constitution of Indiachallenges a notice dated 29[th] March, 2018 issued under Section 148 ofthe Income Tax Act, 1961 (the Act). The impugned notice dated 29[th]March, 2018 under Section 148 of the Act seeks to reopen theassessment for Assessment Year 2011-12. 3.The petitioner is a partnership firm engaged in construction of housing projects. For the subject assessment year, the petitioner filedits return of income claiming deduction under Section 80IB(10) of theAct in respect of its project "Sicilia” (project) in Pune. The AssessingOfficer by a scrutiny assessment passed an order dated 25[th] March, 2014under Section 143(3) of the Act allowing the petitioner's claim forbenefit of deduction under Section 80IB(10) of the Act. This afterhaving considered the issue of eligibility of Section 80IB(10) of the Actto the project as some of the flats appeared to be in excess of the area of1,500 sq.ft. 4.On 29[th] March, 2018, the impugned reopening notice was issued.In support of the impugned notice, the Assessing Officer had recordedthe following reasons :- “1.Brief of the Assessee : The assessee is a partnership firmfalling within the jurisdiction of Income-Tax Officer, Wd 5(1),Pune. The assessee firm is engaged in the business of developmentof properties and construction of residential buildings. It had filedreturn of income for the AY 2011-12 on 21.09.2011 declaring totalincome of Rs.3,64,47,017/-. During the previous relevant to theAY in question, the assessee firm had claimed deduction u/s80IB(10) of the Income-tax Act, 1961 (hereinafter “the Act)amounting to Rs.8,19,29,331/- in its return of income in respect ofprofit and gains of its business. The return was processed u/s143(1) of the Act. Subsequently, assessment was made u/s 143(3)of the Act on 25.03.2014 allowing the entire claim of 80IB(10)made by the assessee firm at Rs.8,19,29,331/-. Thus, theassessment resulted in acceptance of returned income ofRs.3,64,47,017/-. 2.Brief details of information collected / received by the AO : Ihave gone through the relevant case records in my possession thatcontain Assessment Order made u/s 143(3) of the Act for the AY2011-12. Govt. Approved Valuer, Shri. Nitin Lele's Report, dtd.24.03.2014 and other relevant submissions. It is observed fromthe Valuer's Report that areas of some of the residential unitsconstructed by the assessee firm exceed the prescribed limit i.e.1,500 sq.ft. as elaborately discussed in the foregoing paras and,thus, the assessee violated the provisions of Sec.80IB(10)(c) of theAct. 3.Analysis of information collected / received :- The assesseehad undertaken a project named “Sicilia” situated atS.No.70A/5/1, Ghorpadi, Pune admeasuring 26,938 Sq.Mtrs. Theproject consisted of 252 flats in 5 buildings A,B,C,D & E. TheValuer's Report dated 24.3.2014, vide Para Nos. 4.2 and 4.3 clearlymention (as per Area Statement enclosed therewith) that areas of 8flats on the 1[st] floor and 16[th] flats on the 9[th] floor are in excess of1,500 sq.ft. and terrace area was also a part of the flat. Inaccordance with the provisions of Sec. 80IB(10)(c) of the Act, thebuilt up area of each residential unit should not be more than 1500sq.ft. in order to be eligible to claim deduction u/s 80IB(10) of theIT Act. 3.Analysis of information collected / received :- The assesseehad undertaken a project named “Sicilia” situated atS.No.70A/5/1, Ghorpadi, Pune admeasuring 26,938 Sq.Mtrs. Theproject consisted of 252 flats in 5 buildings A,B,C,D & E. TheValuer's Report dated 24.3.2014, vide Para Nos. 4.2 and 4.3 clearlymention (as per Area Statement enclosed therewith) that areas of 8flats on the 1[st] floor and 16[th] flats on the 9[th] floor are in excess of1,500 sq.ft. and terrace area was also a part of the flat. Inaccordance with the provisions of Sec. 80IB(10)(c) of the Act, thebuilt up area of each residential unit should not be more than 1500sq.ft. in order to be eligible to claim deduction u/s 80IB(10) of theIT Act. As per Sec. 80IB(a), definition of built-up area is“built-up area means the inner measurements of the residential unitat the floor level, including the projections and balconies, asincreased by the thickness of the walls but does not include thecommon area shared with other residential units.” In this case, theterraces are not common areas because they have exclusive accessfrom a particular flat only nobody else can access these terracesexcept the individual flat owner. Besides, it is seen that theauthorized signatory of the firm had issued letters to the flat ownersstating that as per their negotiations and rights reserved with themabout grant of use of exclusive terraces towards the North andSouth of the said block / parking areas in the said scheme, the firmhas permitted all the rights to use terraces adjoining to the units tothe respective flat owners. Further, during the course of theassessment proceedings, a statement of one of the owners (flat no.A-101) Viz. Shri. Narayan Subbaiah Sava, Pune was also recorded u/s 131 of the Act on 2.1.2014, wherein he has clearly stated thathe has exclusive access for the terrace adjoining to his flat. Hence,it is crystal clear that the terrace area includes builtup area. Thus,the built up area of the above mentioned flats exceeds 1500 sq.ft.Accordingly, the assessee firm has violated the provisions of Section80IB(10)(c) of the Act. 4.Enquiries made by the AO as sequel to information collected /received :- As stated above, it is observed that the assessee failed tofulfill the conditions stipulated in Sec.80IB(10)(c) of the Act. 5.Findings of the AO :- On the basis of the Valuer's Report, it isfound that the areas of as many as 24 flats in the said projectconstructed by the assessee are in excess of 1,500 sq.ft. (includingterrace areas). The assessee firm, therefore, did not comply with theconditions laid down u/s 80IB(10)(c) of the Act. Hence, theincome of the assessee has been escaped from assessment to theextent of the deduction allowed u/s 80IB(10) i.e. Rs.8,19,29,331/-. 6.Basis of forming reason to believe and details of escapementof income :- In view of the above Para Nos. 2, 3, 4 and 5 and theinformation in my possession, I have reason to believe that theassessee's income chargeable to the extent of Rs.8,19,29,331/- hasbeen escaped from assessment. I am, therefore, satisfied that it is afit case for initiating the proceedings u/s 147 of Act to assess suchescaped income and to assess any other income which may come tothe notice during the assessment proceedings u/s 147 of the Act; assuch the proceedings under the said Section are hereby initiated. 7.Findings of the AO on true and full disclosure of the materialfacts necessary for assessment under Proviso to Section 147 : TheValuer's Report dtd. 24.3.2014 highlighting the areas of 8 flats onthe 1[st] floor and 16[th] flats on the 9[th] floor being in excess of 1,500sq.ft. (including terrace areas) proves the fact that the assessee hadnot disclosed fully and truly all material facts necessary for itsassessment or that the facts of the case are covered by theExplanation 1 to Section 147 of the Act.” 5.From the reasons recorded in support of the impugned notice, it 7.Findings of the AO on true and full disclosure of the materialfacts necessary for assessment under Proviso to Section 147 : TheValuer's Report dtd. 24.3.2014 highlighting the areas of 8 flats onthe 1[st] floor and 16[th] flats on the 9[th] floor being in excess of 1,500sq.ft. (including terrace areas) proves the fact that the assessee hadnot disclosed fully and truly all material facts necessary for itsassessment or that the facts of the case are covered by theExplanation 1 to Section 147 of the Act.” 5.From the reasons recorded in support of the impugned notice, it is evident that the basis for issuing the impugned notice is the reportdated 24[th] March, 2014 of Mr. Lele, the Government approved Valuer toprima facie form a reasonable belief that income chargeable to tax hasescaped assessment. This on the ground that in view of the abovereport, the petitioner is not eligible to the benefit of Section 80IB(10) ofthe Act. 6.The petitioners filed its objections on 7[th] August, 2018 to thereopening notice. However, the objections were rejected by an orderdated 27[th] November, 2018 by the Assessing Officer. 7.Mr. Naniwadekar, learned Counsel appearing in support of thepetition submits that the impugned notice is without jurisdiction and insupport made the following submissions :- (a)The impugned notice is issued in respect of an assessmentcompleted under Section 143(3) of the Act, beyond the period of fouryears from the end of the relevant assessment year and in the absenceof any failure to disclose fully and truly all material facts, is withoutjurisdiction. This particularly when the Government approved Valuer'sReport dated 24[th] March, 2014 was a part of assessment under Section143(3) of the Act; and (b)The reasons recorded in support of the impugned notice clearlyindicate a change of opinion on the part of the Assessing Officer asreport dated 24[th] March, 2014 of the Government approved valuer wasa subject matter of consideration by the Assessing Officer in his orderdated 25[th] March, 2015 passed under Section 143(3) of the Act. 8.On the other hand, Mr. Walve supports the impugned notice andthe order disposing of the objections and submits that the AssessingOfficer would examine the issues during the re-assessment proceedingsand do justice between the parties. Thus, the Court should notinterfere at this stage. 9.It is a settled position in law that when an assessment iscompleted by scrutiny under Section 143(3) of the Act, then areopening notice beyond a period of four years is barred, unless there isa failure to disclose fully and truly all material facts necessary forassessment. This is in fact the mandate of the first provisio to Section147 of the Act. So also, it is settled position of law that reopening ofassessment is not to review the assessment order passed under Section143(3) of the Act. Therefore, no reopening is permissible on merechange of opinion. 9.It is a settled position in law that when an assessment iscompleted by scrutiny under Section 143(3) of the Act, then areopening notice beyond a period of four years is barred, unless there isa failure to disclose fully and truly all material facts necessary forassessment. This is in fact the mandate of the first provisio to Section147 of the Act. So also, it is settled position of law that reopening ofassessment is not to review the assessment order passed under Section143(3) of the Act. Therefore, no reopening is permissible on merechange of opinion. 10.In the present facts, we note the reopening notice is issuedbeyond a period of four years from the end of the assessment year2011-12 in respect of assessment completed under Section 143(3) ofthe Act. The basis of the impugned notice is the Government approvedValuer's Certificate dated 24[th] March, 2014. We note that this verycertificate was a subject of consideration while passing the assessmentorder dated 25[th] March, 2014 under Section 143(3) of the Act. Thereason do not state that the above certificate dated 24[th] March, 2014came to the notice of the Assessing Officer after passing the AssessmentOrder dated 25[th] March, 2014. Thus, there is no failure to disclose allmaterial facts truly and fully on the part of the petitioner during regularassessment proceedings. Thus, on the above ground itself, theimpugned notice is bad. We further find that in the assessment orderdated 25[th] March, 2014 under Section 143(3) of the Act, the abovecertificate dated 24[th] March, 2014 was considered before passing theorder. In the above circumstances, the impugned notice is an attemptto reopen an assessment completed under Section 143(3) of the Actbased on the change of opinion. The Government approved valuer'sreport dated 24[th] March, 2014 was considered and a view was taken.The Assessing Officer now seeks to take a different view to form a reasonable belief that income chargeable to tax has escaped assessment. This also is clearly without jurisdiction. 11.Thus, the impugned notice dated 29[th] March, 2018 is quashedand set aside as being without jurisdiction. 12.Petition allowed. (M.S. SANKLECHA, J.) (AKIL KURESHI, J.)