Wp/22965/2014 Of Smt.chandrabai v. The Income Tax Officer

In the High Court of Judicature at Madras Dated : 02-9-2014 Coram: The Honourable Mr.Justice V.RAMASUBRAMANIANWrit Petition Nos.22965 & 22966 of 2014 and MP.Nos.1 and 1 of 2014 Smt.Chandrabai ...Petitioner inWP.22965/2014Sri.Jhumarlal…Petitioner inWP.22966/2014VsThe Income Tax Officer, Business WardX(3), III Floor, Kannammai BuildingNo.611, Anna Salai, Chennai-2. …Respondent in WP.22965/2014The Income Tax Officer, Business WardX(2), III Floor, Kannammai BuildingNo.611, Anna Salai, Chennai-2. …Respondent inWP.22966/2014 PETITIONS under Article 226 of The Constitution of India prayingfor the issuance of Writs of Certiorari to call for the records onthe file of the respondent and quash the notices issued under Section148 of the Act respectively in (i) PAN= AADPC 6871E dated 21.3.2014and consequential proceedings in F.No.BW-X(3)/ /2003-04dated 10.7.2014 and (ii) PAN= dated 21.3.2014 andconsequential proceedings in F.No.BW-X(2)/AAFPJ7980F/2003-04 dated10.7.2014.For Petitioners : Mr.R.SivaramanFor Respondents : Mr.T.Pramod Kumar Chopda COMMON ORDER The petitioners have come up with the above writ petitionschallenging the orders passed by the respondents, refusing to https://hcservices.ecourts.gov.in/hcservices/ withdraw the notices for reopening the assessment in respect of theassessment year 2003-2004. 2. Heard Mr.R.Sivaraman, learned counsel for the petitioners.Mr.T.Pramod Kumar Chopda, learned Standing counsel for the departmenttakes notice. 3. The petitioners, along with two others purchased land andbuilding No.87, Mint Street, Sowcarpet, Chennai-1, during theassessment year 2000-2001. They demolished the existing building andstarted constructing a new building during the financial year 2001-2002. It appears that the petitioners showed a particular amount inthe assessment year 2004-2005 as their share of investments towardsthe purchase of the land and the cost of construction. Thepetitioners accordingly filed their return of income for theassessment year 2004-2005. 4. It also appears that in the course of assessment proceedingsof one of the co owners by name Shivlal, the Assessing Officerconcerned required details of the cost of construction and theassessee produced a detailed valuation report from a registeredvaluer. The registered valuer valued the building at Rs.72,22,621/-.Thereafter, a reference was made to the Departmental ValuationOfficer. He valued the building at Rs.1,74,20,000/-, by his reportdated 29.12.2006. Consequently, the Assessing Officer of that co-owner, adopted 1/4th of the said value for that Assessee. 5. Based upon the information provided by the Assessing Officerof that co-owner by name Shivlal, a notice under Section 148 wasissued to the petitioners on 11.3.2008. The Assessing Officers passedan order dated 18.12.2008 under Section 143(3) read with Section 147(a), determining a particular amount as unexplained investment underSection 69B. 6. Aggrieved by the said order, the petitioners filed firstappeals before the Commissioner of Income Tax (Appeals). By an orderdated 15.6.2009, the Commissioner of Income Tax (Appeals) allowed theappeals on the ground that the reopening of assessment under Section148 was not justified. 7. As against the said orders, the respondents preferred twoappeals before the Income Tax Appellate Tribunal in I.T.A.Nos.1370and 1371/MDS/2009. The Tribunal allowed the appeals by an order dated20.11.2009 and remitted the matter back to the Appellate Authorityfor a consideration on merits. 8. The Commissioner of Income Tax (Appeals) thereafterconsidered the matter on merits and passed orders on 13.12.2011 and15.12.2011 respectively holding that 20% deduction had to be given https://hcservices.ecourts.gov.in/hcservices/ 7. As against the said orders, the respondents preferred twoappeals before the Income Tax Appellate Tribunal in I.T.A.Nos.1370and 1371/MDS/2009. The Tribunal allowed the appeals by an order dated20.11.2009 and remitted the matter back to the Appellate Authorityfor a consideration on merits. 8. The Commissioner of Income Tax (Appeals) thereafterconsidered the matter on merits and passed orders on 13.12.2011 and15.12.2011 respectively holding that 20% deduction had to be given https://hcservices.ecourts.gov.in/hcservices/ from the value determined by the Departmental Valuation Officer, toarrive at the State PWD rates. Accodingly, the Appellate Authoritydetermined the cost of construction at a particular amount and heldthat the cost of construction could be apportioned or spread overbetween two years namely assessment years 2003-2004 and 2004-2005 inthe ratio of 63.63% and 36.37% respectively. Aggrieved by the orderof the Commissioner of Income Tax (Appeals), the Department filedappeals and the petitioners also filed cross objections. TheTribunal, by its order dated 11.10.2012, set aside the orders of theAppellate Authority and remitted the matter back to the file of theAssessing Officers for a fresh consideration on the aspect of cost ofconstruction. 9. It appears that the Department had taken up the matterfurther and filed a tax case appeal before this Court under Section260A. It is now pending. At this stage, the respondents issued thenotices under Sections 148 read with 150(1) of the Act on 21.3.2014.The petitioners filed objections requesting the respondents tofurnish reasons for reopening the assessment. In reply, therespondents furnished reasons. 10. Thereafter, the petitioners filed detailed objections on11.6.2014. By the said objections, the petitioners requested therespondents to withdraw the notices, on the ground that the noticeunder Section 148 is barred by time and that it is not saved bySection 150(1). But, by the impugned orders dated 10.7.2014, therespondents refused to withdraw the notices. Therefore, thepetitioners have come up with the above writ petitions. 11. The short ground on which the petitioners challenge theinitiation of proceedings for re-assessment is that the time limitstipulated under section 149 (1) for issuing a notice under Section148 has already expired and that the case cannot come under section150 (1). Under Clause (a) of Sub-Section (1) of Section 149, the timelimit is normally four years unless the case falls under Clause (b)or Clause (c). The time limit is six years under Clause (b), if theincome chargeable to tax, which has escaped assessment amounts to oris likely to amount to Rs.1 lakh or more for that year. We are notconcerned with Clause (c), since it relates to an asset includingfinancial interest in any entity located outside india. UnderSection 150(1), a notice under Section 148 may be issued at any time,notwithstanding anything contained in Section 149, if it is for thepurpose of making an assessment or re-assessment or recomputation inconsequence of or to give effect to any finding or directioncontained in an order passed by any authority in any proceeding underthe Act. https://hcservices.ecourts.gov.in/hcservices/ reproduced as follows: "150. Provision for cases where assessmentis in pursuance of an order on appeal, etc.—(1)Notwithstanding anything contained in Section149, the notice under Section 148 may be issuedat any time for the purpose of making anassessment or reassessment or recomputation inconsequence of or to give effect to any findingor direction contained in an order passed by anyauthority in any proceeding under this Act by wayof appeal, reference or revision or by a Court inany proceeding under any other law. https://hcservices.ecourts.gov.in/hcservices/ reproduced as follows: "150. Provision for cases where assessmentis in pursuance of an order on appeal, etc.—(1)Notwithstanding anything contained in Section149, the notice under Section 148 may be issuedat any time for the purpose of making anassessment or reassessment or recomputation inconsequence of or to give effect to any findingor direction contained in an order passed by anyauthority in any proceeding under this Act by wayof appeal, reference or revision or by a Court inany proceeding under any other law. (2) The provisions of sub-section (1) shallnot apply in any case where any such assessment,reassessment or recomputation as is referred toin that sub-section relates to an assessment yearin respect of which an assessment, reassessmentor recomputation could not have been made at thetime the order which was the subject-matter ofthe appeal, reference or revision, as the casemay be, was made by reason of any other provisionlimiting the time within which any action forassessment, reassessment or recomputation may betaken." 13. As seen from a bare reading of the provision, therequirement of Section 150(1) is that to escape the limitationstipulated in Section 149, the reopening of assessment should be inconsequence of or to give effect to any finding or directioncontained in an order passed by any authority in any proceeding underthe Act. There are two limbs to Section 150(1), either of whichshould be satisfied for invoking Section 150(1). They are (i)reopening of assessment should be in consequence of an order passedby an authority in any proceeding under the Act by way of appeal,reference or revision or by a court in any proceeding under any otherlaw; alternatively (ii) the reopening of assessment should be for thepurpose of giving effect to any finding or direction contained in anyorder passed by any authority in any proceeding under the Act by wayof appeal, reference or revision or by a court in any proceeding inany other law. 14. In the case on hand, the reopening of assessment is proposedto be made in relation to the assessment year 2003-2004. Therefore,the period of six years prescribed under Section 149, is alreadyover. Hence, the Department should establish that this case fallswithin anyone of the two requirements of Section 150(1). 15. The respondents rely upon the order passed by the Income TaxAppellate Tribunal on 11.10.2012, setting aside the orders of theAppellate Authority and remitting the matter back to the AssessingOfficers for a fresh consideration on the aspect of cost ofconstruction. This was in relation to an order of assessment relatingto the assessment year 2004-2005. 14. In the case on hand, the reopening of assessment is proposedto be made in relation to the assessment year 2003-2004. Therefore,the period of six years prescribed under Section 149, is alreadyover. Hence, the Department should establish that this case fallswithin anyone of the two requirements of Section 150(1). 15. The respondents rely upon the order passed by the Income TaxAppellate Tribunal on 11.10.2012, setting aside the orders of theAppellate Authority and remitting the matter back to the AssessingOfficers for a fresh consideration on the aspect of cost ofconstruction. This was in relation to an order of assessment relatingto the assessment year 2004-2005. 16. A brief history of what happened in two rounds of litigationthat went up to the Income Tax Appellate Tribunal may be necessary atthis juncture. As stated earlier, the petitioners along with twoothers including a person by name Shivlal purchased land and buildingduring the previous year relevant to the assessment year 2000-2001.All the co-owners demolished the building and started newconstruction in the financial year 2001-2002. The Assessing Officerconcerned called upon the other co-owner Shivlal to furnish detailsof the cost of construction. Not satisfied with the valuation reportgiven by him, the Assessing Officer concerned made a reference to theDepartmental Valuation Officer. On the basis of the valuation made bythe Departmental Valuation Officer, the Assessing Officer concernedarrived at the investment made by Shivlal. Based upon the assessmentmade in respect of Shivlal, the Assessing Officers of the petitionersherein reopened their assessments, for making an addition ofunexplained investment in the house property. The orders of theAssessing Officers were challenged by the petitioners before theCommissioner of Income Tax (Appeals). The Commissioner of Income Tax(Appeals) allowed the appeals and held that the Assessing Officersought not to have reopened the assessment, on the ground that thevaluation report made by the Departmental Valuation Officer could notbe a conclusive material. 17. The above decision of the Commissioner of Income Tax(Appeals) was challenged in two appeals by the Department inI.T.A.Nos.1370 and 1371/MDS/ 2009. The appeals were allowed by theIncome Tax Appellate Tribunal by an order dated 20.11.2009 and thematter was remitted back to the Commissioner of Income Tax (Appeals)to be dealt with on merits. 18. By orders dated 13.12.2011 and 15.12.2011, the Commissionerof Income Tax (Appeals) went into the merits of the case, comparedthe cost of construction as estimated by the Departmental ValuationOfficer with the State PWD rates and arrived at the addition to bemade towards unexplained investment. After doing so, the Commissionerof Income Tax (Appeals) directed the amounts to be spread over fortwo assessment years namely 2003-2004 and 2004-2005 in the ratio of63.63% and 36.37% respectively. As against the orders of theCommissioner of Income Tax (Appeals), one set of appeals were filedby the Income Tax Officer and one set of cross objections were filedby the assessees. All the appeals and the cross objections were heardtogether and by a common order dated 11.10.2012, the Income Tax https://hcservices.ecourts.gov.in/hcservices/ Appellate Tribunal remitted the matter back to the Assessing Officersfor a fresh consideration regarding the cost of construction. https://hcservices.ecourts.gov.in/hcservices/ Appellate Tribunal remitted the matter back to the Assessing Officersfor a fresh consideration regarding the cost of construction. 19. It is seen from the order of the Income Tax AppellateTribunal that the grievance of the Revenue was that the Commissionerof Income Tax (Appeals) should not have adopted the State PWD ratesand should not have allowed spreading over of investment for twoyears. The grievance of the assessees was that the Commissioner ofIncome Tax (Appeals) ought not to have given any direction other thanfor the original assessment year and that the actual amount spent asreflected in the books of account should have been believed. Afterconsidering the materials before them and the law laid down byvarious courts, the Tribunal found that for determining the cost ofconstruction, the matter required a re-visit by the AssessingOfficers. 20. On the second grievance of the Department that spreadingover ought not to have been permitted, the Tribunal relied upon thedecision of the Supreme Court in Rajinder Nath Vs. CIT [120 ITR 14]and held that when the assessees themselves claimed that the cost ofconstruction was spread over to 2-3 years, the finding that theunexplained cost of construction should also be spread over cannot befound fault with. Therefore, the Tribunal rejected in paragraph 17,the objection of the Department that the Commissioner of Income Tax(Appeals) had no power to direct spreading of unexplained portion ofinvestment. 21. In the light of paragraph 17 of the order of the Income TaxAppellate Tribunal dated 11.10.2012, it is contended by Mr.T.PramodKumar Chopda that there was a finding/direction by an authority underthe Act and that therefore, this case is covered by the requirementsof Section 150(1). 22. But, it is contended by Mr.R.Sivaraman, learned counsel forthe petitioners that the appeals and the cross objections before theIncome Tax Appellate Tribunal arose out of reopening of assessmentfor the year 2004-2005 and that eventually, the Tribunal set asideall the orders and remitted the matter back to the Assessing Officersfor a fresh consideration on the cost of construction. Therefore, thelearned counsel contends that once the orders of the Commissioner ofIncome Tax (Appeals) had been set aside and the matter remitted backwith respect to the assessment year 2004-2005, there was no findingor direction that was available for the Department to invoke Section150(1). 23. I have carefully considered the above submissions. 24. Since the question raised in these writ petitions revolvesaround the order of the Income Tax Appellate Tribunal and since the https://hcservices.ecourts.gov.in/hcservices/ question as to whether the requirements of Section 150(1) aresatisfied or not, has to be found out only from the order of theTribunal, it is necessary to have a look at paragraphs 17 and 18 ofthe order of the Tribunal. Hence, they are extracted as follows : "In the result, we are not agreeing with theargument of learned D.R. that CIT (Appeals) hadno such power to direct spreading of theunexplained portion of investment, if any, to theperiod of construction. Nevertheless, in view of the factualsituation of the case, we are setting aside theorders of authorities below and remitting theissue back to the file of the A.O. forconsideration afresh. The A.O. has to considerthe aspect of cost of construction in accordancewith law and he has to give an opportunity to theassessees to explain their case and justify thecost of construction as returned by them." "In the result, we are not agreeing with theargument of learned D.R. that CIT (Appeals) hadno such power to direct spreading of theunexplained portion of investment, if any, to theperiod of construction. Nevertheless, in view of the factualsituation of the case, we are setting aside theorders of authorities below and remitting theissue back to the file of the A.O. forconsideration afresh. The A.O. has to considerthe aspect of cost of construction in accordancewith law and he has to give an opportunity to theassessees to explain their case and justify thecost of construction as returned by them." 25. From the operative portion of the order of the Income TaxAppellate Tribunal extracted above, it is seen that the Tribunalremitted the matter back to the Assessing Officers for a freshconsideration on the aspect of cost of construction. But at the sametime, the Tribunal also rejected the stand taken by the Departmentthat spreading over is not possible. Therefore, the AssessingOfficers are now required to do two things namely (a) to arrive atthe correct cost of construction and find out whether there is anyunexplained portion of investment; and (b) to allow the assessees tohave the benefit of spreading the unexplained portion of investmentover two assessment years namely 2003-2004 and 2004-2005. 26. In case the assessees do not want the benefit of spreadingover, the Assessing Officers may simply arrive at the cost ofconstruction and load the unexplained portion of investment on thedeclared income of the assessment year 2004-2005. In case theassessees choose to have the spread over, the Assessing Officers arenow bound to grant the benefit, in view of the observations made bythe Tribunal in paragraph 17 of its order. In such circumstances,what is recorded in paragraph 17 of the order of the Tribunal, isactually a finding. As I have pointed out earlier, the necessity toreopen the assessment beyond the period of six years may arise, byinvoking Section 150(1), either as a consequence of an order passedor in pursuance of a finding or direction by an authority. 27. In Rajinder Nath Vs CIT, the Supreme Court was concernedwith the definition of the expressions 'finding' and 'direction'. TheSupreme Court held that a finding given in an appeal, revision orreference arising out of an assessment must be a finding necessary https://hcservices.ecourts.gov.in/hcservices/ for the disposal of the particular case that is to say in respect ofthe particular assessee and in relation to the particular assessmentyear. The Supreme Court pointed out that to be a necessary finding,it must be directly involved in the disposal of the case. If, inorder to render a finding in respect of A, a finding in respect of Bis also called for, such a finding may only be an incidental finding. 28. But, in so far as the case on hand is concerned, what wasobserved by the Tribunal in paragraph 17 is not merely incidental,but is actually consequential. It may be seen from the observationsof the Tribunal in paragraph 15 of its order that the assesseehimself appears to have claimed that the construction was spread overto 2-3 years. This is why the Tribunal upheld the orders of theCommissioner of Income Tax (Appeals) granting the benefit of spreadover. 28. But, in so far as the case on hand is concerned, what wasobserved by the Tribunal in paragraph 17 is not merely incidental,but is actually consequential. It may be seen from the observationsof the Tribunal in paragraph 15 of its order that the assesseehimself appears to have claimed that the construction was spread overto 2-3 years. This is why the Tribunal upheld the orders of theCommissioner of Income Tax (Appeals) granting the benefit of spreadover. 29. If we go back once again to the order of the Commissioner ofIncome Tax (Appeals) dated 13.12.2011 and 15.12.2011 respectively,the assessees themselves claimed that the construction was spreadover for two years namely during the assessment years 2003-2004 and2004-2005 as per the valuation report in a particular proportion.This is why the Commissioner of Income Tax (Appeals) directed thespreading over at the ratio of 63.63% and 36.37%. The petitionersherein are the beneficiaries of this finding rendered by theCommissioner of Income Tax (Appeals). This finding has been upheld bythe Income Tax Appellate Tribunal. Therefore, the contention of thelearned counsel for the petitioners that there was no finding ordirection and that the Tribunal had set aside the orders of theCommissioner of Income Tax (Appeals), cannot be accepted. 30. In I.T.O. Vs. Murlidhar Bhagwan Das , theSupreme Court held that the expressions 'finding' and 'direction' canbe given full meaning and that the finding is a finding necessary forgiving relief in respect of the assessment of the year in questionand a direction is a direction, which the Appellate or RevisionalAuthority is empowered to give. In so far as the words 'inconsequence of and to give effect to' are concerned, the SupremeCourt pointed out that they have to be collated with and cannotenlarge the scope of the finding or direction under the SecondProviso to Section 34(2) of the 1922 Act. Similarly, in BhanjiBhagwandas Vs. CIT , the Supreme Court reiteratedthe very same principles and held that a finding could only be thatwhich was necessary for the disposal of an appeal in respect of anassessment of a particular year. Again in Daffadar Bhagar Singh Vs.I.T.O , and in CIT Vs. Md.Shakoor , the Supreme Court reiterated the same principles. 31. If we have a look at the orders of the Commissioner ofIncome Tax (Appeals), a portion of which alone was set aside by the https://hcservices.ecourts.gov.in/hcservices/ Tribunal, it could be seen that the Commissioner of Income Tax(Appeals) rendered a finding that the unexplained investment shouldbe allowed to be spread over. That finding is upheld by the Tribunal,though the ultimate conclusion of the Commissioner of Income Tax(Appeals) was set aside on a different aspect. 32. Therefore, the contention of Mr.T.Pramod Kumar Chopda,learned Standing Counsel for the Department that there was a findingand that this has lead to the reopening of the assessment, has to beupheld. As a matter of fact, the reopening of assessment is a naturalconsequence of the claim for spread over. Suppose the AssessingOfficers arrive at a cost of construction in pursuance of the orderof remand now passed by the Income Tax Appellate Tribunal, theAssessing Officers are obliged, by virtue of the orders of theCommissioner of Income Tax (Appeals) and the Income Tax AppellateTribunal, to allow the assessees to spread it over. At that stage,the reopening becomes inevitable. Hence, I do not find anyjustification to interfere with the impugned orders. 33. Therefore, the writ petitions are liable to be dismissed.Accordingly, they are dismissed. No costs. Consequently, the aboveMPs are also dismissed. Sd/- Assistant Registrar //True Copy// Sub Assistant Registrar 33. Therefore, the writ petitions are liable to be dismissed.Accordingly, they are dismissed. No costs. Consequently, the aboveMPs are also dismissed. Sd/- Assistant Registrar //True Copy// Sub Assistant Registrar To1.The Income Tax Officer, Business Ward X(3), III Floor, KannammaiBuilding No.611, Anna Salai, Chennai-2. 2.The Income Tax Officer, Business Ward X(2), III Floor, KannammaiBuilding No.611, Anna Salai, Chennai-2. ng(co)pmk.8.7.2014