Income Tax Appellate Tribunal - Hyderabad
Kushal Kumar Kankaria, Hyd, Hyderabad vs Dcit, Circle-14(1), Hyderabad, ... on 7 April, 2017
ITA No 134 of 2016 Kushal Kumar Kankaria Hyderabad
IN THE INCOME TAX APPELLATE TRIBUNAL
Hyderabad ' A ' Bench, Hyderabad
Before Smt. P. Madhavi Devi, Judicial Member
AND
Shri S.Rifaur Rahman, Accountant Member
ITA No.134/Hyd/2016
(Assessment Year: 2007-08)
Shri Kushal Kumar Kankaria Vs Dy. Commissioner of Income
Hyderabad Tax, Circle 14(1)
PAN:ACEPJ 2001 J Hyderabad
For Assessee : Shri Y. Ratnakar
For Revenue : Ms. Suman Malik, DR
Date of Hearing: 13.03.2017
Date of Pronouncement: 07.04.2017
ORDER
Per Smt. P. Madhavi Devi, J.M.
This is assessee's appeal for the A.Y 2007-08. The assessee has raised the following grounds of appeal.
"1. The order of the Hon'ble Commissioner of Income Tax is against the facts of the case and provisions of law.
2. The Hon'ble Commissioner of Income Tax is not justified in sustaining the re-opening of the assessment when all the facts relating to the transaction in respect of which addition was made in the re-assessment, are available with the Department when the original assessment was made.
3. The Hon'ble Commissioner of Income Tax is not justified in sustaining the addition of Rs.62,23,OOO/- under the head "Capital Gain".Page 1 of 10
ITA No 134 of 2016 Kushal Kumar Kankaria Hyderabad
4. The Hon'ble Commissioner of Income Tax should have appreciated that the difference between the value of the property transferred, as per the Sub Registrar and the value for which the property was transferred to his wife, is declared by the appellant as a gift to his wife. Therefore, the Hon'ble Commissioner of Income Tax should have seen that the provisions of Section 5OC do not apply.
The Hon'ble Commissioner of Income Tax is incorrect in applying the provisions of Section 5OC to the transaction when the amount of Rs.62,23,OOO/is a gift by the appellant to his wife.
5. The Hon'ble Commissioner of Income Tax should have seen that it is permissible for the appellant to gift the amount involved to his wife.
6. The Hon'ble Commissioner of Income Tax is not justified in coming to a conclusion that the provisions of Section 5OC shall apply on the ground "anyone transferring a property for a value below SRO value could claim to have gifted the differential amount".
7. The Hon'ble Commissioner of Income Tax is not justified in holding that the gift by the appellant to his wife is in the nature of application of income and it does not amount to diversion by overriding title.
8. The Hon'ble Commissioner of Income Tax should have seen that the gifting is possible even because of the amendment to Section 56 with effect from the Assessment Year 2014-15.
For these and other grounds that may be urged at the time of hearing of the appeal, it is requested that the Assessment Order U/s.143(3) of the Income Tax Act, 1961, be set aside or modified as may be deemed fit".
Page 2 of 10ITA No 134 of 2016 Kushal Kumar Kankaria Hyderabad
3. Brief facts of the case are that the assessee is an individual who derived income from business and other sources. He filed his original return of income on 6.11.2007 admitting total income at Rs.11,15,450. There was a search and seizure operation in M/s. P. Manoharlal Jewellers Group on 11.09.2007 and the assessee was also related to the group. Therefore, a notice u/s 153A of the Act was issued on 23.06.2008 in response to which the return of income was filed admitting income of Rs.11,15,440. The return was accepted by the AO. Subsequently, during the course of scrutiny for the A.Y 2008-09, the AO observed that the assessee had entered into an agreement of sale- cum-GPA with Smt. Chaya Kankaria for the sale of property for a total sale consideration of Rs.44,73,000 whereas the SRO value of the property was Rs.1,06,96,000. The AO therefore, believed that as per section 50C, there was an escapement of income to the tune of Rs.62,23,000. Therefore, the AO issued a notice u/s 148, dated 3.5.2013. The assessee during the course of the re- assessment proceedings submitted that the sale deed was executed on 4.4.2006 in respect of the property admeasuring 420 sq. yards situated at Shaikpet Village, Road No.36, Jubilee Hills, Hyderabad in favour of his wife and that the assessee has received only a sum of Rs.44,73,000. It was submitted that the transaction was entered into with his wife to regulate the family finances and the assessee had not received a single rupee in excess of the sale consideration mentioned in the sale deed. It was further submitted that the excess of the market value over the actual sale consideration agreed to by the assessee may be considered as a gift from the assessee to his wife and to dispel any doubt, a formal MOU had also been entered on 4.1.2006 by which Page 3 of 10 ITA No 134 of 2016 Kushal Kumar Kankaria Hyderabad it was agreed that the difference between the market value as determined by the Sub Registrar and the agreed price, the same would be treated as gift from the assessee to his wife. The assessee filed all the relevant documents before the AO. AO however, did not agree with the assessee's contentions and held that the assessee had sold the property to his wife for a sale consideration which was less than the SRO value and therefore, the provisions of section 50C are clearly applicable. Therefore, he treated the balance sum of Rs.62,23,000 as the income of the assessee and brought it to tax.
4. Aggrieved, the assessee preferred an appeal before the CIT (A) challenging both the validity of the re-assessment proceedings as well as the merits of the additions made by the AO. As regards validity of the re-assessment, the assessee submitted that the reopening of the assessment is being done after the expiry of 4 years and that the AO has not recorded any finding that there was a failure on the part of the assessee to disclose fully and truly all the material facts necessary for assessment of his income. The CIT (A) however, rejected the assessee's ground holding that no regular assessment has been made in the first place and even during the assessment u/s 153A, there was no seized material and therefore, the assessee's returned income was accepted in the assessment u/s 153A and therefore, it may not have been permissible to make any addition without any reference to the incriminating seized material. She further held that the fact of the difference between the sale consideration allegedly received by the assessee and the SRO value has came to the notice of the AO only during the Page 4 of 10 ITA No 134 of 2016 Kushal Kumar Kankaria Hyderabad assessment proceedings for the A.Y 2008-09 wherein in the computation of income furnished by the assessee, the sale consideration as per the agreement of sale was furnished and there was no mention of the value of the land as per the SRO rate. Thus, the CIT (A) was of the opinion that there was a definite failure on the part of the assessee to disclose all the material facts for the computation of the assessee's total income. She therefore, upheld the assessment proceedings.
5. As regards the merits of the addition are concerned, the CIT (A) was of the opinion that the capital gains are to be computed with respect to the full value of the consideration which accrued to the assessee and as per the provisions of section 50C of the Act, the full value of the consideration in relation to the immovable property is to be adopted and there is no distinction between related or unrelated party transactions. She further held that the assessee's claim that the difference in the value being gift of the assessee to his wife cannot be accepted as it could only be in the nature of application of income and not diversion of the same by overriding title. She accordingly confirmed the order of the AO. Further aggrieved, the assessee is in second appeal before us.
6. Ground of appeal No.2 is against the validity of the re- assessment proceedings. The learned Counsel for the assessee has advanced the following arguments in support of his contention that the reopening of the assessment is not valid:
(i) The assessment in the case of the assessee was completed u/s 153A and the notice u/s 148 was issued after the expiry of 4 years from the end of the relevant A.Y and therefore, Page 5 of 10 ITA No 134 of 2016 Kushal Kumar Kankaria Hyderabad the AO is required to record the reasons for reopening of the assessment along with the finding that there was a failure on the part of the assessee to disclose fully and truly all material facts necessary for computation of assessee's income. He submitted that the reason for reopening does not disclose any such finding.
(ii) The AO is also required to record such a finding in the notice u/s 148 of the Act and as there is no such recording in the notice, the reopening of the assessment is void abinitio. Further, he submitted that the reopening of the assessment cannot be done on mere change of opinion and additional reasons cannot be looked into to justify reopening. In support of this contention, the learned Counsel for the assessee has relied upon various case law and also filed copies in the form of a paper book.
7. The learned DR, on the other hand, supported the orders of the authorities below and submitted that there was no assessment u/s 143(3) of the Act and during the assessment u/s 153A also, the returned income of the assessee only was accepted and there was no scrutiny assessment.
8. Having regard to the rival contentions and the material on record, we find that the relevant A.Y is 2007-08 and the proviso to section 147 provides that where an assessment u/s 143(3) has been made for the relevant A.Y, no action shall be taken u/s 147 after the expiry of 4 years from the end of the relevant A.Y, unless any income chargeable to tax has escaped assessment for such A.Y by reasons of the failure on the part of the assessee to make a return u/s 139 or any response to a notice Page 6 of 10 ITA No 134 of 2016 Kushal Kumar Kankaria Hyderabad issued under sub-section (1) of section 142 or section 148 or to disclose fully and truly all material facts necessary for the assessment of his income, for that assessment year. In the case before us, the relevant A.Y ended on 31.03.2009. The period of 4 years therefrom would come to an end on 31.3.2013. The notice u/s 148 has been issued on 3.5.2013. Therefore, it is clear that the notice u/s 148 is issued beyond the period of 4 years. The CIT (A) has given a finding that the assessment u/s 153A is not a regular assessment and that the proviso to section 147 could apply only where the regular assessment u/s 143(3) is made. We are unable to agree with this finding of the CIT (A). The assessment u/s 153A is made consequent to a search and the proviso to sub section-1 thereto provides that the AO shall assess or reassess the total income in respect of each A.Y falling within such six A.Ys and the second proviso thereof provides that the assessment or re-assessment if any, relating to any A.Y falling within the period of six A.Y referred to in sub section 1 is pending on the date of initiation of the search u/s 132 or making the requisition u/s 132A, as the case may be, such assessment shall abate. In the case before us, the original return of income was filed on 6.11.2007 whereas the search had taken place on 11.09.2007. Therefore, the search had taken place prior to the assessee's filing of the original return of income on 6.11.2007 and therefore, the assessment completed u/s 153A of the Act is a regular assessment and the AO had an opportunity to verify and complete the assessment u/s 153A r.w.s. 143(3) of the Act and the AO is therefore, required to record reasons for reopening of the assessment and further record the finding that there is an escapement of income due to the failure of the assessee to Page 7 of 10 ITA No 134 of 2016 Kushal Kumar Kankaria Hyderabad disclose fully and truly all material facts for computation of assessee's income is also the condition precedent to be fulfilled. The reasons for reopening of the assessment are recorded in the assessment order at Para 3 which read as under:
"During the scrutiny proceedings in the case of the assessee for the A.Y 2008-09, it was noticed that the assessee entered into an agreement of sale-cum-GPA with Smt. Chaya Kankaria for sale of property for a total consideration of Rs.44,73,000. However, as seen from the registered document, the market value as per SRO is Rs.1,06,96,000. In view of section 50C of the IT Act, there is an escapement of income to the tune of Rs.62,23,000/-".
9. Thus, it is clear that the AO has not recorded any such finding. In the following decisions relied upon by the learned Counsel for the assessee, it has been held by the Hon'ble Courts that the recording of the failure of the assessee to disclose fully and truly all material facts necessary for computation of assessee's income is a condition precedent for initiation of proceedings u/s 147 of the Act:
a) Dulichand Sinhania vs. ACIT 299 ITR 192 (P&H)
b) Haryana Acrylic Mft. Co. Vs. CIT & Anr. 308 ITR 38 (Del.)
c) JSRS Udyog Ltd & Anr. Vs. Income Tax Officer 313 ITR 321 (Del.)
d) Sita Diamonds P Ltd vs. DCIT & others. 345 ITR 91 (Bom.)
e) Dynacraft Air Controls vs. Smt. Sneha Joshi & Others, 355 ITR 102 (Bom.)
f) Gulf Oil Corpn. Ltd. ACIT B Bench Income Tax Appellate Tribunal Hyderabad ITA No.999/Hyd/2013
10. We find that the CIT (A) has tried to justify the reopening of the assessment by giving her own reasons. The learned Counsel for the assessee has relied upon the following Page 8 of 10 ITA No 134 of 2016 Kushal Kumar Kankaria Hyderabad judgments in support of his contentions that the reasons for reopening cannot be subsequently be improved:
i) Godrej Industries Ltd. Vs. B.S.Singh, DCIT & Others, 377 ITR 1 (Bom.)
ii) CIT vs. Living Media India Ltd 359 ITR 106 (Del.)
iii) N.D. Bhatt, Inspecting ACIT & Others. 715 ITR 714
iv) Equitable Investment Co. (P) Ltd vs. ITO 715 ITR 714
v) Mohinder Singh Gill & Anr. Vs. Chief Election Commissioner & Others. AIR 1978 (Del.)
11. In view of the above judgments and also the fact as recorded by us, the initiation of the re-assessment proceedings by issuance of notice u/s 148, without recording a finding that the escapement of income is due to the failure of the assessee to disclose fully and truly all material facts, is void ab initio. In view of these findings on the validity of the assessment and the assessment being held to be void ab initio, we see no reason to adjudicate the appeal on merit. The assessee's ground of appeal No.2 is accordingly allowed and the other grounds are not adjudicated at this stage.
12. In the result, assessee's appeal is partly allowed. Order pronounced in the Open Court on 7th April, 2017.
Sd/- Sd/-
(S.Rifaur Rahman) (P. Madhavi Devi)
Accountant Member Judicial Member
Hyderabad, dated 7th April, 2017.
Vinodan/sps
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ITA No 134 of 2016 Kushal Kumar Kankaria Hyderabad Copy to:
1 Shri Kushal Kumar Kankaria C/o. Venugopal & Chenoy, CAs, 4- 1-889/16/2 Tilak Road, Hyderabad 500001 2 DCIT Circle 14(1) Hyderabad 3 CIT (A)-6 Hyderabad 4 Pr. CIT - 6 Hyderabad 5 The DR, ITAT Hyderabad 6 Guard File By Order Page 10 of 10