W.P.No.41441 of 2016 IN HIGH COURT OF JUDICATURE AT MADRAS Reserved On 22.01.2020 Pronounced On 11.02.2020 CORAM HON'BLE MR.JUSTICE C.SARAVANAN W.P.No.41441 of 2016 and W.M.P.Nos.35418 & 35419 of 2016 B.Kasi Viswanathan Petitioner Vs. Income Tax Officer Non Corporate Ward 15 (2), 121 MG Road, Nungambakkam, Chennai 600 034. ...Respondent Writ Petition filed under Article 226 of Constitution of India praying to issue Writ of Certiorarified Mandamus, to call for records of respondent contained in its proceedings bearing ITO/NCW15(2)/ADLPV3666R/16-17, dated 10.11.2016 and to quash order contained therein as arbitrary, unjust and illegal and to consequently restrain respondent from passing any assessment order for assessment year 2009-10 against petitioner pursuant to notice issued under Section 148 of Income Tax, 1961, dated 30.03.2016. For Petitioner : Mr.Suhrith Parthasarathy For Respondent : Mr.A.N.R.Jayaprathap Government Advocate (T) http://www.judis.nic.in Page No 1 of 14 W.P.No.41441 of 2016 ORDER In Writ Petitioner, petitioner has challenged impugned communication dated 10.11.2016 bearing reference ITO/NCW15(2)/ADLPV3666R16-17. 2. By impugned communication dated 10.11.2016, respondent has overruled objection of petitioner against invocation of machinery prescribed for reopening of assessment under Section 148 read with Section 147 of Income Tax Act, 1961. 3. impugned communication was issued to petitioner in response to objection of petitioner vide letters/communications dated 05.04.2016 and 26.09.2016 against notice dated 30.03.2016 bearing reference No. PAN: ADLPV3666R/ACIT/NCC-15/AY 09-10 issued under Section 148 read with Section 147 of Income Tax Act, 1961. 4. petitioner had purchased property in year 2001 in Mumbai for sum of Rs.54,32,000/-. petitioner registered said property vide sale deed in year 2008 and perfected http://www.judis.nic.in Page No 2 of 14 W.P.No.41441 of 2016 title. Later petitioner sold same for total consideration of Rs.1.20 crores during Assessment Year 2008-09. 5. petitioner filed income tax returns on 31.07.2009 for Assessment Year 2009-10, wherein, petitioner declared total income of Rs. 47,54,535/- and claimed deduction under Section 54 of Income Tax Act, 1961. 6. said return was processed under Section 143(1) of Income Tax Act, 1961 and was later selected for scrutiny and notice was issued under Section 143(2) of Income Tax Act, 1961. Details were called for recording same and explanations were offered on behalf of petitioner on 03.10.2011 and on 20.10.2011. Thereafter, assessment order was also passed by then Asst. Commissioner of Income Tax on 29.10.2011. 7. last date for reopening assessment under Section 148 of Income Tax Act, 1961 within period of four years and six years would have expired on 31.03.2014 and 31.03.2016 respectively for purpose of Section 147 of Income Tax Act, 1961. http://www.judis.nic.in Page No 3 of 14 W.P.No.41441 of 2016 8. impugned notice was issued on 30.03.2016 under Section 148 of Income Tax Act, 1961. Under these circumstances, petitioner called upon respondent to furnish reasons for reopening assessment as per decision of Hon ble Supreme Court in G.K.N.Driveshafts (India) Ltd. Vs. Income Tax Officer and Others, (2003) 1 SCC 72. By communication dated 08.08.2016 bearing reference No. ITO/NCW15(2)/ADLPV366R/16-17, reasons were furnished to petitioner. 9. It is stated that petitioner has wrongly claimed Long- Term Capital Gain of Rs.41,39,650/- on transfer of house property for sale consideration of Rs.1.2 crores and had claimed exemption under Section 54 by depositing sum of Rs.50 lakhs under Capital Gain Scheme Corporation Bank on 13.07.2009 and that from recital of Agreement of Sale dated 18.03.2009, it was noticed that petitioner had acquired house property only on 30.01.2008 and transferred it within fourteen months of its purchase and therefore wrongly claimed benefit of Long Term Capital Gains under Section 54 of Income Tax Act, 1961. http://www.judis.nic.in Page No 4 of 14 W.P.No.41441 of 2016 10. respondent concluded that capital asset transferred was only short-term capital asset as it was held for period less than thirty six months ie. only for period of fourteen months and therefore petitioner was not entitled to Long-Term Capital Gain under Section 54 of Income Tax Act, 11. petitioner sent its objections to above reasons stating that property was indeed purchased in year 2001 and sold only in year 2008 on 30.01.2008 and that petitioner has been holding property for more than period of thirty six months and therefore petitioner was entitled to treat asset is Long-Term Capital is claim exemption under Section 54 of Income Tax Act, 1961. It was further stated that petitioner has all along claimed deduction on interest paid on housing loan under Section 24 of Income Tax Act, 1961 from Assessment Year 2001-2002, which was accepted by Department. 12. learned counsel for petitioner submitted that impugned notice dated 30.03.2016 and impugned communication dated 10.11.2016 are liable to be quashed in light of decision of Hon ble Supreme Court in http://www.judis.nic.in Page No 5 of 14 W.P.No.41441 of 2016 Commissioner of Income Tax Vs. Kelvinator of India Ltd., (2010) 2SCC 723, wherein Hon ble Supreme Court held that there is conceptual difference between power to review and power to re-assess. Assessing Officer has no power to review and re-assessment has to be based on fulfilment of certain pre- conditions and if concept of change of opinion was removed as was contended on behalf of Department said case, then in garb of reopening of assessment review would take place. 13. learned counsel for petitioner also submitted that view of Division Bench of this court in Joint Commissioner of Income Tax Vs. Kalanithi Maran, 2014 3 LW 846, was overruled by Hon ble Supreme Court. 14. learned counsel for petitioner also submitted that Hon ble Supreme Court in Jeans Knit Private Limited Vs. Deputy Commissioner of Income Tax, (2018) 12 SCC 36, has reiterated principle laid down by Hon ble Supreme Court in Calcutta Discount Private Limited Vs. CIT, (1961) 41 ITR 191. reliance was also placed on recent decision of learned Single Judge in M/s.Asianet Star Communication Private Limited Vs. Asst Commissioner of Income Tax in http://www.judis.nic.in Page No 6 of 14 W.P.No.41441 of 2016 W.P.Nos.25328, 25331 and 25336 of 2018 pronounced on 16.04.2019. 15. Opposing this Writ Petition, learned Government Advocate (T) for respondent submits that this writ petition was liable to be dismissed as respondent is indeed empowered to reopen assessment as long as notice issued under Section 148 meet criteria under Sections 149 to 153 of Income Tax Act, 1961. It is submitted that views expressed in communication dated 10.11.2016 is only prima facie view and therefore petitioner should be directed to participate in adjudicatory mechanism prescribed Act. 16. learned Government Advocate (T) for respondent has relied on decision of learned Single Judge in Seshasayee Paper Boards Ltd. Vs. Union of India in W.P.Nos.12603 & 12604 of 2002 and W.P.No.33239 of 2002 dated 25.01.2019, wherein, in somewhat identical case, writ petitions were dismissed. 17. I have considered arguments advanced on behalf of petitioner and learned Government Advocate (T) for respondent. Vast powers have been vested with officers under http://www.judis.nic.in Page No 7 of 14 W.P.No.41441 of 2016 provisions of Income Tax Act, 1961 to reopen assessment under Section 148 for purpose of Section 147. notice to be issued under Section 148 of Income Tax Act, 1961, has to be within period of limitation prescribed. 18. Hon ble Supreme Court has taken view that if in absence of any material to conclude that there was failure on part of assessee to either fully and/or truly disclose materials required for assessment, machinery under Section 147 of Income Tax Act cannot be invoked beyond period of four years. Hon ble Supreme Court has also held that if there is change of opinion, Department cannot resort to Section 147 of Income Tax Act, 1961. 19. From facts of case, it is evident that petitioner had claimed Long-Term Capital Gains under Section 54 of Income Tax Act, 1961, in his return filed for Assessment Year 2009-10 on 30.07.2009. Before assessment was completed, petitioner was called upon to furnish evidence in support of his claim for deduction under Section 54 of Income Tax Act, 1961 vide letter dated 09.09.2011. http://www.judis.nic.in Page No 8 of 14 W.P.No.41441 of 2016 20. By reply dated 03.10.2011, petitioner partly furnished certain informations followed by another letter dated 20.10.2011. In reply/representation dated 20.10.2011 following documents were furnished:- i. sheet containing workings for capital gains on sale of residential house is enclosed (Annexure 1). Kindly note that while computing capital gains cost inflation index for financial year 2008-09 was inadvertently taken as 551 instead of 582. Hence capital gains was shown as Rs.41,39,650 as against amount of Rs.37,24,891. ii. Copy of deposit receipt evidencing deposit of Rs.50 lakhs in Capital Gains Account Scheme before due date of filing of return is enclosed (Annexure 2). iii. Copy of sale deed evidencing sale of residential house is enclosed as Annexure 3. iv. Copy of sale agreement in connection with purchase of residential flat along with copy of registered deed is enclosed evidencing cost of acquisition of flat (Annexure 4). 21. Therefore, on this issue, respondent cannot proceed to pass order under Section 147 of Act by treating sale of house property in Mumbai was short-term capital gains in light of decision of Hon ble Supreme Court in Kelvinator of India s case referred to supra. http://www.judis.nic.in Page No 9 of 14 W.P.No.41441 of 2016 22. respondent will have to therefore pass order dropping proposal contained in notice dated 13.03.2016 on this issue as it cannot be said that income chargeable to tax had escaped assessment by reason of failure on part of petitioner to either make return under Section 139 or in response to notice issued under Section 142(1) or Section 148 to disclose fully and truly all material facts necessary for his assessment. 23. At same time, while dropping proposal contained in notice invoking Section 148 of Income Tax Act, 1961, rights of respondent to exercise power in terms of Explanation 3 to Section 147 of Income Tax Act, 1961 cannot be curtailed. 24. issue of notice under Section 148 for purpose of passing order of re-assessment Section 147 has to merely satisfy requirement of Section 149 to 151 of Income Tax Act, 1961. 25. At same time, while passing orders under Section 147 of Income Tax Act, 1961, Assessing Officer is required to keep in mind settled principles of law on subject. If there is change of opinion which prompted issue of notice under http://www.judis.nic.in Page No 10 of 14 W.P.No.41441 of 2016 Section 148 of Income Tax Act, 1961, officer while passing order under Section 147 can not proceed further. Proviso to Section 147 makes it clear that no action shall be taken under it, unless any income chargeable to tax has escaped assessment for such assessment year by reason of failure on part of assessee to make return under Section 139 or in response to notice issued under sub-section (1) of Section 142 or Section 148 or to disclose fully and truly all material facts necessary for his assessment, for that assessment year. 26. While conducting proceedings, Assessing Officer is bound by proviso to Section 147 of Income Tax Act, 1961. Therefore, while exercising powers vested with officer at time of re-assessment under Section 147 of Income Tax Act, 1961 pursuant to issue notice under Section 148 of Income Tax Act, 1961, officer concerned has to not only keep in mind express language of proviso to Section 147 of Income Tax Act, 1961 but also well settled principles of law. 27. In light of above discussion writ petition is disposed with following directions / observations:- http://www.judis.nic.in Page No 11 of 14 W.P.No.41441 of 2016 i. respondent cannot have re-look into issue arising out of claim of petitioner for Long-Term Capital Gains which was allowed in assessment order passed on 29.10.2011 as there was true and full disclosure of all material required for assessment by petitioner for claiming deduction; ii. Therefore, proposal to re-determine taxable income and tax payable by petitioner for reasons stated in impugned communication is unsustainable.; iii. At same time, while passing final order under Section 147 of Income Tax Act, 1961, respondent can examine any other aspect for escaped assessment of tax in light of Explanation 3 to Section 147 of Income Tax Act, 1961. iv. While passing such order, respondent shall not disturb deduction allowed under Section 54 of Income Tax Act, 1961 in assessment order dated 29.10.2011. v. Since dispute pertains to assessment year 2009-10, respondent is hereby directed to pass appropriate order within period of thirty days from date of receipt of copy of this order without disturbing claim of petitioner for Long-Term Capital Gains allowed under Section 54 of Income Tax Act, 1961. vi. No cost. http://www.judis.nic.in Page No 12 of 14 W.P.No.41441 of 2016 vii.Consequently, connected Miscellaneous Petitions are also closed. 11.02.2020 Index :Yes/No Internet :Yes/No jen To Income Tax Officer, Non Corporate Ward 15 (2), 121 MG Road, Nungambakkam, Chennai 600 034. http://www.judis.nic.in Page No 13 of 14 W.P.No.41441 of 2016 C.SARAVANAN, J. Jen Pre-Delivery Order in W.P.No.41441 of 2016 and W.M.P.Nos.35418 & 35419 of 2016 11.02.2020 http://www.judis.nic.in Page No 14 of 14 B. Kasi Viswanathan v. Income-tax Officer, Non-Corporate Ward-15(2), Chennai