Keki H. Gharda v. Deputy Commissioner of Income Tax-9(1), Mumbai
[Citation -2016-LL-0923-82]

Citation 2016-LL-0923-82
Appellant Name Keki H. Gharda
Respondent Name Deputy Commissioner of Income Tax-9(1), Mumbai
Court ITAT-Mumbai
Relevant Act Income-tax
Date of Order 23/09/2016
Assessment Year 2004-05
Judgment View Judgment
Keyword Tags reassessment proceedings • relinquishment of rights • immovable property • change of opinion • colourable device • reason to believe • deemed dividend • issue of notice • tenancy right • capital gain
Bot Summary: In the second ground, the assessee has challenged the action of the AO in treating the compensation received on account of relinquishment of tenancy rights as deemed dividend under section 2(22)(e) of the Act as against Capital gains offered by the assessee in his return of income. If the AO has formed a prima facie opinion that assessee did not possess tenancy rights at that stage that belief, even only on assumption, was sufficient to reopen the assessment and it would be subsequently open to the assessee to prove or disprove the correctness or otherwise of the assumption. So far as the ground regarding the validity of reopening of the assessment is concerned, the Ld. Counsel for the assessee has invited our attention to the original assessment order dated 29.09.06 passed by the AO under section 143(3) of the Act. The assessee has also proved on the file that the factum of assessee being tenant in the property was not an afterthought version or a colourable device rather in the wealth tax return for the assessment year 1990-91 i.e. prior to the signing of the deed of relinquishment of right/development rights in the year 1995, the assessee was very much shown as a tenant in the property in question. The AO, during the original scrutiny assessment proceedings under section 143(3) of the 6 ITA No.2418/M/2010 Dr. Keki H. Gharda Act, had thoroughly examined the issue, put the queries to the assessee and thereafter had allowed the claim of the assessee. Without any new fact or information coming into his knowledge and without stating any specific reason merely saying that from the records it is observed that the assessee was not tenant, in our view, is nothing but the change of opinion on the part of the AO. As per the provisions of section 147 of the Act, the AO is authorized to reopen the assessment proceedings, if he has reason to believe that any income chargeable to tax has escaped assessment. The courts of law time and again have held that such a reason to believe that the income of the assessee has escaped assessment should be based on some tangible material which comes to the knowledge of the AO. An assessment cannot be reopened under section 147 of the Act on the basis of mere suspicion.


IN INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCH , MUMBAI BEFORE SHRI B.R. BASKARAN, ACCOUNTANT MEMBER AND SHRI SANJAY GARG, JUDICIAL MEMBER ITA No.2418/M/2010 Assessment Year: 2004-05 Dr. Keki H. Gharda, Deputy Commissioner of 48 Hill Road, Bandra (W), Income Tax 9(1), Vs. Mumbai - 50 M.K. Road, PAN: AACPG31533E Aayakar Bhavan, Mumbai - 400020 (Appellant) (Respondent) ITA No.6656/M/2013 Assessment Year: 2004-05 Deputy Commissioner of Dr. Keki H. Gharda, Income Tax 9(1), 56, Jer Mansion, R.No.223, Vs. W.P. Varde Road, Aayakar Bhavan, Bandra (W), M.K. Road, Mumbai - 400 050 Mumbai - 20 PAN: AACPG31533E (Appellant) (Respondent) Present for: Assessee by : Shri P.J. Pardiwalla, A.R. & Ms. Vasanti Patel, A.R. Revenue by : Shri A. Ramachandran, D.R. Date of Hearing : 16.08.2016 Date of Pronouncement : 23.09.2016 ORDER Per Sanjay Garg, Judicial Member: Out of above tilted two appeals one has been by assessee against order of Commissioner of Income Tax (Appeals) [(hereinafter referred to as CIT(A)] dated 03.03.10 agitating confirmation of quantum additions made by Assessing Officer (hereinafter referred to as AO) and other by Revenue against order of Ld. CIT(A) dated 06.09.13 agitating deletion of penalty levied by AO under section 2 ITA No.2418/M/2010 Dr. Keki H. Gharda 271(1)(c) of Act. First we take up assessee s appeal i.e. ITA No.2418/M/2010. ITA No.2418/M/2010 (Assessee s Appeal) 2. assessee, in this appeal, has taken there effective grounds of appeal. In first ground, assessee has challenged reopening of assessment by AO under section 147/148 of Act. In second ground, assessee has challenged action of AO in treating compensation received on account of relinquishment of tenancy rights as deemed dividend under section 2(22)(e) of Act as against Capital gains offered by assessee in his return of income. assessee has taken third ground agitating action of Ld. CIT(A) in not specifically directing AO to allow deduction under section 80L of Rs.12,000/-. 3. brief facts of case are that assessment was originally completed under section 143(3) of Act. In return of income as originally filed, assessee had declared income under head Capital Gains arising from relinquishment of tenancy rights. said income declared under head Capital Gains had been assessed as such in assessment completed under section 143(3) dated 29.09.06. Subsequently, reassessment proceedings were initiated by issue of notice under section 148 of Act. reason recorded by AO for initiating reassessment proceedings were that on examination of records, it was observed that assessee never possessed any tenancy rights. Hence, notice under section 148 was issued stating that substantial revenue had escaped assessment. 4. In appeal before Ld. CIT(A), assessee contended that relevant queries had been raised by AO regarding tenancy rights during assessment proceedings under section 143(3) of Act and that no new information had come into knowledge or possession of AO and that reopening was done merely on basis of change of opinion. Ld. CIT(A), however, rejected above contention of assessee observing that 3 ITA No.2418/M/2010 Dr. Keki H. Gharda as per scheme of amended provisions of section 147, AO need merely reason to believe that income has escaped assessment provided four year time limit has not expired. If AO has formed prima facie opinion that assessee did not possess tenancy rights at that stage that belief, even only on assumption, was sufficient to reopen assessment and it would be subsequently open to assessee to prove or disprove correctness or otherwise of assumption. He, therefore, held that at stage of issue of notice under section 148, correctness or sufficiency of material was not very relevant. He, therefore, upheld validity of reopening of assessment. Being aggrieved by above finding of Ld. CIT(A), assessee has come in appeal before us. 5. So far as ground regarding validity of reopening of assessment is concerned, Ld. Counsel for assessee has invited our attention to original assessment order dated 29.09.06 passed by AO under section 143(3) of Act. Ld. Counsel has further invited our attention to copy of notice issued under section 148 of Act for reopening of assessment and further reasons recorded by AO for reopening of assessment. said reasons for sake of convenience are reproduced as under: On examining records it is observed that assessee was not tenant for which it disclosed long term capital gain of Rs.3,91,80,750/- as relinquishment of tenancy right as he does not possess any tenancy rights. Therefore, substantial revenue has escaped assessment. Therefore, income chargeable to tax has escaped assessment for A.Y. 04-05 within meaning of section 147 of I.T. Act, 1961. 6. Ld. A.R. has further invited our attention to letter/notice dated 07.09.06 issued under section 142(1) of Income Tax Act in relation to original assessment proceedings carried out under section 143(3) of Act. He, in this respect, has invited our attention to clause (4) of said notice wherein it has been directed to assessee by AO to produce copy of 4 ITA No.2418/M/2010 Dr. Keki H. Gharda relinquishment of tenancy rights and explain since when property was in possession of assessee as tenant. Ld. Counsel has further invited our attention to letter dated 26.09.06 vide which assessee had explained nature of tenancy rights and amount of compensation received towards relinquishment of tenancy rights. Ld. Counsel for assessee has further invited our attention to page 31 to 36 of paper book which is record relating to wealth tax assessment order for assessment year 1990-91. He has invited our attention to page 34 i.e. annexure A-2 which is computation/valuation of immovable property as on 31.03.90 wherein immovable property of Gharda Chemicals Ltd. has been valued at Rs.59,625/-. On right side name of tenants who have occupied said property has also been mentioned wherein name of assessee Dr. Keki H. Gharda is duly mentioned, area occupied by him has been mentioned as 2634 sq. ft. and against which rent of Rs.5664 has been shown to be received and sum of Rs.2126/- has been shown as paid toward municipal tax. Ld. Counsel, therefore, has contended that case of Revenue is that story about tenancy rights of assessee in property in question is device adopted by assessee in year 1995 when landlord/tenant of property M/s. Gharda Chemicals Ltd. had entered into redevelopment agreement of property. That to lessen tax liability, assessee company had shown one of its directors Dr. Keki H. Gharda as tenant in some portion of property, for which compensation on relinquishment of rights was agreed to be paid to assessee Dr. Keki H. Gharda vide agreement dated 01.09.1995. Ld. Counsel, thus, has stressed that from records above, it is very much evident that agreement of 1995 was not afterthought. assessee was shown as tenant in wealth tax return of A.Y. 1990-91 itself. Ld. Counsel has further contended that even when issue had been examined by AO and after getting explanation of assessee in this respect, AO had passed scrutiny assessment order under section 143(3) of Act, then without coming into his knowledge any additional fact or information, subsequent 5 ITA No.2418/M/2010 Dr. Keki H. Gharda reopening based on same reason was nothing but change of opinion. He, in this respect, has relied upon decision of Hon ble Supreme Court in case of Kelvinator India Ltd. (2010) 228 CTR(SC) 488 and of Hon ble Bombay High Court in case of Direct Information (P) Ltd. vs. ITO (2011) 15 taxman.com 63 (Bombay). On other hand, Ld. D.R. has strongly relied upon findings of lower authorities and has stressed that reopening of assessment even from knowledge gathered from records by AO was valid in this case. 7. We have heard rival contentions and have also gone through records. Undisputedly, no new fact or information had come to knowledge of AO to form belief that income in this case had escaped assessment. As noted above, AO had formed belief stating that on examination of records, it was observed by him that assessee was not tenant for which he had disclosed long term capital gains on account of compensation received for relinquishment of tenancy rights. However, it is also fact on file that specific queries were raised by AO vide letter dated 07.09.06 regarding tenancy rights of assessee in property and assessee was asked to explain since when property was in his possession as tenant and also to produce copy of deed of relinquishment of tenancy rights. assessee has also proved on file that factum of assessee being tenant in property was not afterthought version or colourable device rather in wealth tax return for assessment year 1990-91 i.e. prior to signing of deed of relinquishment of right/development rights in year 1995, assessee was very much shown as tenant in property in question. It has not been pointed out by AO in reasons recorded for reopening of assessment as to what new fact or information had come into his knowledge to form belief that income of assessee had escaped assessment. AO, during original scrutiny assessment proceedings under section 143(3) of 6 ITA No.2418/M/2010 Dr. Keki H. Gharda Act, had thoroughly examined issue, put queries to assessee and thereafter had allowed claim of assessee. Without any new fact or information coming into his knowledge and without stating any specific reason merely saying that from records it is observed that assessee was not tenant, in our view, is nothing but change of opinion on part of AO. As per provisions of section 147 of Act, AO is authorized to reopen assessment proceedings, if he has reason to believe that any income chargeable to tax has escaped assessment. courts of law time and again have held that such reason to believe that income of assessee has escaped assessment should be based on some tangible material which comes to knowledge of AO. assessment cannot be reopened under section 147 of Act on basis of mere suspicion. perusal of reasons recorded reveals that assessment has been reopened on assumption that assessee was not tenant in property without referring to any specific document, evidence or information. There is no dispute to well settled proposition that reason to believe must have material bearing on question of escapement of income. It does not mean purely subjective satisfaction of assessing authority, such reason should be held in good faith and cannot merely be pretence. Furthermore, reasons to believe must have rational connection with or relevant bearing on formation of belief. Rational connection postulates that there must be direct nexus or live link between material coming to notice of Assessing Officer and formation of belief regarding escapement of income. powers of Assessing Officer to reopen assessment, though wide, are not plenary. words of statute are "reason to believe" and not "reason to suspect". There can be no manner of doubt that words" reason to believe" suggest that belief must be that of honest and reasonable person based upon reasonable grounds and that Income-tax Officer may act on direct or circumstantial evidence but not on mere suspicion, gossip or rumour. Income-tax Officer would be acting without jurisdiction if reason for his belief that conditions are satisfied 7 ITA No.2418/M/2010 Dr. Keki H. Gharda does not exist or is not material or relevant to belief required by section. court can always examine this aspect though declaration or sufficiency of reasons for belief cannot be investigated by court. entire law as to what would constitute "reason to believe" has been summed up by Supreme Court in Income Tax Officer v Lakhmani Mewaldas (1976) 103 ITR 437. 8. In this case, original assessment u/s 143(3) of act had already become final. AO therefore was precluded from review of assessment which had already become final. addition by AO in respect of compensation received on relinquishment of tenancy rights was nothing but review of already finalized assessment that too without any material evidence available to AO to form such belief in this respect. Hon ble Supreme Court in case of CIT vs. Kelvinator of India Ltd." has held that we must keep in mind conceptual difference between power to review and power to re-assess. Assessing Officer has no power to review; he has power to re-assess. As observed above, reopening and reassessment in this case was nothing, but, review u/s 143(3) of Act in garb of provisions of section 147 of Act, which was not permissible in view of law laid down by Hon ble Supreme Court in case of CIT vs. Kelvinator of India Ltd. (supra). Identical view has also been taken by Hon ble Jurisdictional Bombay High Court in case of Direct Information (P) Ltd. (supra) as relied upon by Ld. Counsel. 9. facts of case in hand when seen in light of legal proposition as laid down by Hon ble Supreme Court and by Hon ble jurisdictional Bombay High Court as discussed above, reopening in this case is to be held as illegal and bad in law. 10. Since we have held very reopening of assessment as bad in law, hence consequential additions made by AO have no legs to stand. 8 ITA No.2418/M/2010 Dr. Keki H. Gharda Hence, without going into merits of additions made by AO consequent to reopening of assessment, appeal of assessee is allowed on ground of validity of reopening of assessment. 11. Now coming to appeal of Revenue i.e. ITA No.6656/M/2013. ITA No.6656/M/2013 (Revenue s Appeal) 12. Revenue has come in appeal agitating action of Ld. CIT(A) in deleting penalty levied by AO relating to additions made by AO pursuant to reopening of assessment. While deciding appeal of assessee, since we have already held very reopening of assessment was bad in law and accordingly deleted consequential additions, hence under circumstances there is no reason left for sustaining of penalty levied in consequences of such additions made pursuant to reopening of assessment. appeal of Revenue has, thus, become infructuous and same is accordingly dismissed. Order pronounced in open court on 23.09.2016. Sd/- Sd/- (B.R. Baskaran) (Sanjay Garg) ACCOUNTANT MEMBER JUDICIAL MEMBER Mumbai, Dated: 23.09.2016. * Kishore, Sr. P.S. Copy to: Appellant Respondent CIT, Concerned, Mumbai CIT (A) Concerned, Mumbai DR Concerned Bench //True Copy// [ By Order Dy/Asstt. Registrar, ITAT, Mumbai. Keki H. Gharda v. Deputy Commissioner of Income Tax-9(1), Mumbai
Report Error