TCA No.440 of 2018 IN HIGH COURT OF JUDICATURE AT MADRAS Orders Reserved On Orders Pronounced On 08.07.2020 22.07.2020 CORAM: HONOURABLE MR.JUSTICE T.S.SIVAGNANAM and HONOURABLE MRS.JUSTICE V.BHAVANI SUBBAROYAN Tax Case (Appeal) No.440 of 2018 Principal Commissioner of Income Tax 1 No.63, Race Course Road, Coimbatore. .. Appellant -vs- Shri.K.R.Jayaram .. Respondent Tax Case (Appeal) filed under Section 260A of Income Tax Act, 1961, against order dated 17.10.2017 made in ITA No.1698/Mds/2016 on file of Income Tax Appellate Tribunal Madras 'C' Bench, Chennai for assessment year 2009-10. For Petitioner : Mr.T.R.Senthil Kumar, Sernior Standing Counsel & : assisted by Ms.K.G.Usha Rani Junior Standing Counsel For Respondent : Mr.Naresh Kumar for Mr.R.N.Amarnath 1/18 http://www.judis.nic.in TCA No.440 of 2018 JUDGMENT T.S.Sivagnanam, J. This Tax Case (Appeal) under Section 260(A) of Income Tax Act, 1961 (hereinafter referred to as 'the Act') has been filed by Revenue challenging order dated 17.10.2017 made in ITA No.1698/Mds/2016 on file of Income Tax Appellate Tribunal Madras 'C' Bench, Chennai (for brevity 'the Tribunal') for assessment year 2009-10. 2.The Tax Case (Appeal) was admitted on 24.06.2019 on following substantial questions of law:- (i) Whether Tribunal was justified in holding that reopening of assessment was result of mere change of opinion, even when there is no opinion formed or expressed by Assessing Officer on this issue in original assessment? (ii) Whether Tribunal was right in not considering decision of Hon'ble Supreme Court wherein reopening of assessment on basis of information possessed by Assessing Officer either from external sources or from material on record is legally tenable as held in case of Kalyanji Mavji & Co., vs. CIT [reported in 102 ITR 286] ? and 2/18 http://www.judis.nic.in TCA No.440 of 2018 (iii) Whether Tribunal was right in stating that reopening of assessment is bas in law when Section 147 of Income Tax Act clearly says that if Assessing Officer has reason to believe that any income chargeable to tax has escaped assessment, Assessing Officer can assess or re-assess assessment? 3.Heard Mr.T.R.Senthil Kumar, learned Senior Standing Counsel assisted by Ms.K.G.Usha Rani, learned Junior Standing Counsel appearing for appellant/Revenue and Mr.Naresh Kumar, for Mr.R.N.Amarnath, learned counsel appearing for respondent/assessee. 4.The issue, which falls for consideration, is whether reopening of assessment under Section 147 of Income Tax Act ('The Act' for brevity) is proper and valid. 5.The assessee is individual engaged in Real-Estate business, filed his return of income for assessment year 2009-10, declaring total income of Rs.1,31,99,850/- on 01.07.2009. Assessing 3/18 http://www.judis.nic.in TCA No.440 of 2018 Officer completed assessment under Section 143(3) of Act by making addition of Rs.23,29,000/- being disallowance of improvement cost of land claimed by assessee and assessee had shown sale of land under head of short term capital gain . Subsequently, assessment was reopened stating that on verification of document, i.e., sale deed, it is seen that Section 50C value was fixed at Rs.735.00 Lakhs by District Revenue Officer exercising powers under Indian Stamp Act and correct market value of property that should have been adopted by assessee is Rs.367.50 lakhs i.e., 50% of Rs.735 lakhs, as two persons including assessee had done business and each of them shared profit on equal ratio. Therefore, Assessing Officer proposed that sale consideration for capital gains computation should have been worked out on said amount of Rs.367.50 lakhs. Notice under Section 148 of Act was served on assessee on 26.03.2014. In response thereof, assessee filed return on 02.06.2014 showing Rs.1,16,55,725/- as business income as against earlier classification as capital gains . Assessing Officer held that assessee having filed return, which was revised return, that too, only after notice 4/18 http://www.judis.nic.in TCA No.440 of 2018 under Section 148 was issued, same cannot be accepted. Further, Assessing Officer held that in original return, assessee has shown amount as capital gains and in return filed in response to Section 148 notice, said income was shown by assessee as business income , which is not acceptable. Accordingly, assessment was completed under Section 143(3) read with Section 147 of Act, by order dated 02.07.2014. 6.The assessee preferred appeal before Commissioner of Income Tax (Appeals)-2, Coimbatore in ITA No.437/14-15. appeal was dismissed by order dated 30.03.2016. Aggrieved by same, assessee preferred appeal to Tribunal, which was allowed by order dated 17.10.2017, impugned in this Appeal. 7. Though three substantial questions of law have been framed for consideration, if we take decision as to whether reopening was justified, that would be sufficient to answer all three questions, because all three substantial questions of law are interlinked and only issue is whether reopening of assessment is valid. 5/18 http://www.judis.nic.in TCA No.440 of 2018 8.The learned counsel appearing for Revenue strenuously contended that notice under Section 148 was served on assessee on 26.03.2014, well before expiry of four years and observations of Tribunal that revision of assessment was based on change of opinion, is incorrect finding and question of obtaining fresh tangible material is not necessary when assessment is reopened within four years. In this regard, learned counsel referred to Section 147 of Act and also three provisos and four explanations contained therein. In support of his contentions, learned counsel referred to judgment of High Court of Gujarat in Chunibhai Ranchhodbhai Dalwadi vs. Assistant Commissioner of Income-tax, [2017] 81 Taxmann.com 136 (Gujarat) . 9.The learned counsel appearing for respondent/assessee submitted that Tribunal has elaborately considered issue, referred to various decisions and has rightly held that reopening was bad in law, as it is clear case of change of opinion. In support of his contention, learned counsel referred to decision of this Court in 6/18 http://www.judis.nic.in TCA No.440 of 2018 case of CIT vs. Ashley Services Ltd., (2014) 369 ITR 209 (Madras). Further, it is submitted that Section 50C, which is special provision for full value of consideration in certain cases, was inserted by Finance Act, 2002 w.e.f., 01.04.2003. In sub-Section (1) of Section 50, words or assessable were inserted by Finance (No.2) Act 2009, w.e.f., 01.10.2009 and said provision cannot be applied to case of assessee, as admittedly, sale transaction took place on 02.05.2008. Further, circular has been issued by CBDT stating that words or assessable which were inserted w.e.f., 01.10.2009, are prospective and this aspect was considered by Division Bench of this Court in CIT vs. R.Sugantha Ravindran, (2013) 352 ITR 488 (Madras). 10.We need not labour much to take decision in instant case, in light of decision of Delhi High Court in case of CIT vs. Kelvinator India Ltd., reported in (2002) 256 ITR 1, which was affirmed by Hon'ble Supreme Court in case of CIT vs. Kelvinator India Ltd., reported in (2010) 320 ITR 561. It was pointed out that schematic interpretation is to be given to words 7/18 http://www.judis.nic.in TCA No.440 of 2018 reason to believe failing which, Section 147 would give arbitrary powers to Assessing Officer to reopen assessments on basis of mere change of opinion, which cannot be per se reason to reopen. 11.It was pointed out that Assessing Officer has no power to review; he has power to reassess. power of reassessment has to be based on fulfilment of certain pre-conditions and if concept of change of opinion is removed, then, in garb of reopening assessment, review would take place and concept of change of opinion should be treated as in-built test to check abuse of power by Assessing Officer. Thus, it is clear that words reason to believe occurring in Section 147 of Act as interpreted by Hon'ble Supreme Court in Kelvinator India Ltd., (supra), does not make distinction in respect of reopening done within four years or beyond four years. 12.The provisos contained in Section 147 of Act impose conditions when reopening is done beyond four years and matters connected thereof. Thus, common issue in all cases of reopening is 8/18 http://www.judis.nic.in TCA No.440 of 2018 whether Assessing Officer had reason to believe that income chargeable to tax has escaped assessment. reason to believe cannot be on change of opinion . assessee is expected to file his return of income along with his books and documents. It is for Assessing Officer to consider same in accordance with law and complete assessment. assessee is not there to advice Assessing Officer as to how he should go about in assessing income of assessee, as it is statutory duty of Assessing Officer. Admittedly, Sale Deed dated 02.05.2008, is only document, which is subject matter of assessment. This document was very much available with Assessing Officer when he completed assessment under Section 143(3), dated 05.12.2011. At that juncture, all that Assessing Officer was concerned about is claim made by assessee as expenses for improvement of land by levelling, sand filling, road laying etc. 13.The stand taken by assessee was disbelieved, as no material evidence was produced by assessee to substantiate such expenses. Based on very same document, assessment was 9/18 http://www.judis.nic.in TCA No.440 of 2018 reopened by serving notice on 26.03.2014, stating that assessee should have adopted value of land as computed by District Revenue Officer under Indian Stamp Act for purposes of computation of stamp duty payable on such instrument. 14.As rightly pointed out by learned counsel for assessee words or assessable stood inserted by Finance (No.2) Act, 2009 w.e.f., 01.10.2009 and this provision has been held to be prospective and this issue was considered by Hon'ble Division Bench of this Court in case of R.Sugantha Ravindran (supra). Therefore, revenue cannot refer to Section 50C of Act to non-suit assessee. 15.In Ashley Services Ltd., (supra), Court on going through reasons given for reopening of assessment, held it to be review of assessment order under Section 143(3) and even though assessment was reopened within four years, when there was no fresh material to disturb reasoning arrived at, reopening of assessment was unsustainable. Therefore, Tribunal rightly held that there was no material available with Assessing Officer other than 10/18 http://www.judis.nic.in TCA No.440 of 2018 what was available with him at first instance, when he completed assessment under Section 143(3) of Act, vide order dated 05.12.2011 to come to conclusion that there were reasons to reopen assessment. 16.In Chunibhai Ranchhodbhai Dalwadi (supra), assessee sold immovable property, vide sale deed dated 19.04.2006 and sale value as per agreement is Rs.87,71,765/- and registered with Sub- Registrar on same date and stamp duty paid was Rs.11,92,500/-. As per calculation adopted by Registration Department, sale value was determined at Rs.2,12,84,400/- whereas, agreement shows consideration as Rs.87,71,765/- only. Therefore, Assessing Officer in said case stated that as per provisions of Section 50C, deemed long-term capital gain is Rs.1,25,14,635/-, which has not been offered for tax by assessee in return of income filed for assessment year 2007-08. Hence, he has reason to believe that said income has escaped assessment. Court held that Assessing Officer never examined said issue during original assessment proceedings. Further, noted that 11/18 http://www.judis.nic.in TCA No.440 of 2018 necessary relevant information was not placed by assessee during original assessment and therefore, held that reopening within four years was permissible. This decision relied on by revenue is clearly distinguishable on facts, as there is no allegation against assessee before us that he failed to fully and truly disclose all information. 17.That apart, effect of CBDT circular was taken note of and considered by this Court in R.Sugantha Ravindran (supra). At this juncture, it will be beneficial to refer to operative operation of said judgment:- 10.Even otherwise, we are of firm view that insertion of words "or assessable" by amending Section 50C with effect from 01.10.2009 is neither clarification nor explanation to already existing provision and it is only inclusion of new class of transactions namely transfers of properties without or before registration. Before introducing said amendment, only transfers of properties where value adopted or assessed by stamp valuation authority were subjected to Section 50C application. However after introduction of words "or assessable" after words "adopted or assessed", such transfers where value assessable by stamp valuation authority are 12/18 http://www.judis.nic.in TCA No.440 of 2018 also brought into ambit of Section 50C. Thus such introduction of new set of class of transfer would certainly have prospective application only and not otherwise. Hence assessee's transfer admittedly made earlier to such amendment cannot be brought under Section 50C. 18. In written submissions placed by learned Senior Standing counsel appearing for Revenue after reiterating factual position, learned counsel relied upon decision of High Court of Bombay in case of Export Credit Guarantee Corporation of India Ltd., vs. Additional Commissioner of Income-tax reported in [2013] 30 taxmann.com 211 (Bombay) wherein Court held that where there is complete failure on part of Assessing Officer to apply his mind during original assessment to points on which assessment is sought to be reopened, it can be said that there is tangible material and reason to believe that income has escaped assessment. 19. decision in case of Consolidated Photo & Finvest Ltd., vs. ACIT reported in (2006) 281 ITR 394 (Delhi), of High Court Delhi, was referred to in support of contention that where 13/18 http://www.judis.nic.in TCA No.440 of 2018 order of assessment does not address itself to aspect which is basis for reopening of assessment, it is not case of change of opinion. 20. Reliance was placed on decision of this Court in Smt.A.Sridevi vs. ITO reported in (2018) 100 Taxmann.com 434, (Mad), where reassessment was held to be justified when assessee had not filed balance sheet or statement of affairs. 21. Relying upon decision of High Court of Gujarat in case of Chunibhai Ranchhodbhai Dalwadi vs. ACIT reported in (2017) 81 Taxmann.com 136 (Gujarat), reopening of assessment was held to be justified when sale value of property as determined by Stamp Duty Authorities was much higher than declared value by assessee. 22. Further reliance was placed on decision of this Court in case of Sword Global India(P) Ltd., vs. ACIT reported in (2015) 234 Taxman 187 (Madras), which is case where assessee 14/18 http://www.judis.nic.in TCA No.440 of 2018 wilfully made false or untrue statements at time of original assessment. In our considered view, aforementioned decisions are all distinguishable on facts. 23. In case of Export Credit Guarantee Corporation of India Ltd., (supra), Court came to conclusion that there was complete failure on part of Assessing Officer to apply his mind and therefore, held reopening to be valid. We do not find any such non- application of mind by Assessing Officer, as Assessing Officer has considered affect of sale deed and there are no other complicated issues in assessment. 24. decision in case of Consolidated Photo & Finvest Ltd., (supra) was case where assessment order did not address aspect on which reopening was made. This would arise when there are several issues to be determined by Assessing Officer, not as in case of assessee on hand, where there is single issue regarding valuation of property. 15/18 http://www.judis.nic.in TCA No.440 of 2018 25. decision in case of Smt.A.Sridevi (supra) will not apply to facts of case on hand, because assessee in said case did not produce relevant documents. In case of Chunibhai Ranchhodbhai Dalwadi (supra), assessee did not declare long term capital gain in original return of income nor Assessing Officer considered same, whereas in instant case, only issue was claim of cost of improvement against capital gains and there was no other issue. Therefore, said decision will not assist case of Revenue. Equally, decision in Sword Global India(P) Ltd., (supra), would not apply to facts of instant case, as there was no allegation against assessee that he made false statement. 26. It would be worthwhile to remind ourselves about decision of Hon'ble Supreme Court in case of Calcutta Discount Co., Ltd., vs. ITO [1961] 41 ITR 191 (SC), wherein Hon'ble Supreme Court held that duty of assessee is to make full and true disclosure of all primary facts and once it is done, it is for Assessing Authority to decide what inference of fact or law could be drawn there from. law does not require assessee to state conclusion 16/18 http://www.judis.nic.in TCA No.440 of 2018 that could reasonably be drawn from primary facts and if there were, in fact, some reasonable grounds for thinking that there had been any non-disclosure as regards any primary facts, which could have material bearing on question of under assessment , that would be sufficient to give jurisdiction to ITO to issue notices under Section 34 (1922 Act) and whether these grounds are adequate or not for arriving at conclusion that there was non-disclosure of material facts could not be opened for Court's investigation. 27. For above reasons, we find that Tribunal was right in allowing assessee's appeal. 28. Accordingly, appeal filed by Revenue is dismissed and substantial questions of law are answered against Revenue and in favour of Assessee. No costs. (T.S.S., J.) (V.B.S., J.) 22 .07.2020 pbn Internet:Yes/No Index :Yes/No 17/18 http://www.judis.nic.in TCA No.440 of 2018 T.S.Sivagnanam, J. and V.Bhavani Subbaroyan, J. (pbn) To Income Tax Appellate Tribunal Madras 'C' Bench, Chennai. Pre-delivery Judgment made in Tax Case (Appeal) No.440 of 2018 22.07.2020 18/18 http://www.judis.nic.in Principal Commissioner of Income-tax 1 v. K.R.Jayaram