Income Tax Appellate Tribunal - Hyderabad
Mr. Nitin Kumar Shah, Hyderabad vs Assessee on 19 August, 2013
IN THE INCOME TAX APPELLATE TRIBUNAL
HYDERABAD BENCH "B", HYDERABAD
BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER
AND SHRI SAKTIJIT DEY, JUDICIAL MEMBER
ITA No. 1489/Hyd/2012
Assessment Year : 2008-09
Mr. Nitin Kumar Shah, ... Appellant
Hyderabad.
(PAN - AFVPS4805D)
Vs.
Asst. Commissioner of Income Tax, ... Respondent
Circle - 1(2), Hyderabad.
Appellant by : Shri P. Murali Mohan Rao
Respondent by : Shri Mallikarjun
Date of Hearing : 19/08/2013
Date of Pronouncement : 11/10/2013
ORDER
PER SAKTIJIT DEY, J.M.:
This appeal preferred by the assessee is directed against the order of the CIT(A)-II, Hyderabad, dated 31/07/2012 for the assessment year 2008-09.
2. Briefly the facts of the case are, during the course of assessment proceedings, the AO noticed that the assessee sold land with old survey No. 45 and new survey No. 45/1 measuring one acre 32 guntas with 0.06 guntas kharab land situated at Heggadadevanpural village, Dasanapura Hobli, Bangalore, North Taluk Nelamanga Taluk, Bangalore. The assessee purchased the above land from Shri S. Lokanath on 06/07/2004 for Rs. 6,50,000/- and sold the same to Shri M. Neelkanta Naidu on 2 ITA No. 1489/Hyd/2012 Shri Nitin Kumar Shah 27/02/2008 for a consideration of Rs. 90 lakhs, and claimed exemption u/s 2(14)(iii) in the return of income stating that the land was agricultural land. The AO got verification of the said land made through Addl. DIT (inv.), Bangalore and as per the report Shri M. Neelkanta Naidu, purchaser of the land stated that the land was a dry land at the time of purchase and no agricultural operations were being carried out by Shri Nitin Kumar Shah, the assessee; there were foundation with pillar for the proposed three sheds; the copies of pahani obtained showed that the land was an agricultural land during the period in which the property was owned by the earlier owner Sri S. Lokanath from whom the assessee purchased the property; enquiries also revealed that there was no agricultural activity carried out in the said land for the past three years.
3. The assessee was confronted with the said enquiry asking him to show why the long term capital gain should not be considered on sale of land and disallow the claim of exemption u/s 2(14)(iii). In response, the assessee acknowledged that there was no agricultural activity carried out by him during the year under consideration and duly acknowledged the photographs of the land shown as pertaining to the said land under consideration and agreed that the structures that exist in the said land were constructed by him before the sale as per the order sheet dated 28/12/2010. Accordingly, the AO treated the land as non- agricultural land and the assessee's claim of exemption u/s 2(14)(iii) was disallowed.
4. On appeal, the CIT(A) discussed the elaborately with case laws and confirmed the action of the AO by holding that during the course of assessment proceedings the assessee had admitted that the land in question was not put to any agricultural activity 3 ITA No. 1489/Hyd/2012 Shri Nitin Kumar Shah and there were structures constructed by him before the sale and there was nothing on record to show that there was any evidences filed by him to show that the land in question was in fact agricultural land.
5. Aggrieved, the assessee is in appeal before us. Originally, the assessee has raised 13 grounds. In course of hearing before us, the learned AR filed a petition for admitting the following additional grounds of appeal:
"14. The learned CIT(A) ought to have appreciated the fact that the issuance of notice u/s 148 of the Act is not valid when the time limit for issuing the notice u/s 143(2) is available.
15. In this regard, reliance is placed on the decision of Hyderabad ITAT in the case of Eenadu Relief Fund Vs. DDIT(E) - II vide ITA No. 434/Hyd/2010 by order dated 13/01/2011.
16. The CIT(A) II ought to have appreciated the fact that the AO has erred in reopening of assessment u/s 147 without there being any 'new tangible material'.
17. The CIT(A) II ought to have appreciated the fact that the AO has erred in not issuing reasons for reopening for the assessment made u/s 147 of the Act."
6. As the additional grounds are on purely legal issues, which goes to the root of the matter and does not involve any further/additional investigation into facts other than which are already on record, relying on the decision of Hon'ble Supreme Court in the case National Thermal Power Corporation Ltd. Vs. CIT, 229 ITR 383 (SC).
7. So far as the additional grounds are concerned, the learned AR confined his arguments only to Ground No. 14 and submitted that in the present case notice u/s 148 of the Act for reopening the assessment having been issued before the expiry of time limit 4 ITA No. 1489/Hyd/2012 Shri Nitin Kumar Shah for issuance of notice u/s 143(2) of the Act, the reopening is bad in law. In support of such contention, the leaned AR relied upon the following decisions:
i) CIT vs. K.M. Pachayappan (304 ITR 264 (Mad.)
ii) CIT vs. Qatalys Software Technologies (308 ITR 349 (Mad.)
iii) 3 rd Member decision of Chennai Bench of Income-tax Appellate Tribunal in case of Super Spinning Mills Ltd. Vs. ACIT ( 3 ITR (Trib.) 258
iv) M/s Eenadu Relief Fund Vs. DDIT, ITA No. 434/Hyd/2010, dt. 13 th January, 2011.
v) CIT Vs. Ved & Co., 302 ITR 328 (Del.)
vi) CIT Vs. TCP Ltd., 323 ITR 346 (Mad.)
8. The learned DR, on the other hand, justifying the initiation of action u/s 147 of the Act, submitted that there is no legal bar in issuing notice u/s 148 of the Act within the time prescribed for issuance of notice u/s 143(2) of the Act.
9. We have considered the rival submissions and perused the material on record. We have also carefully applied our mind to the decisions relied upon by the learned AR before us. Before examining the legal issue raised, it is necessary to deal with the facts, first. For the impugned assessment year, the assessee filed his return of income on 05/02/2010 disclosing income of Rs. 1,36,600/-. As can be seen, the return was filed within the time limit u/s 139 of the Act. Section 143(2) of the Act prescribes that in a case where return is filed u/s 139 of the Act or in response to notice under sub-section (1) of section 142, the AO if he considers it necessary or expedient to enquire that the assessee has not understated the income or has not computed excessive loss or has not under-paid the taxes in any manner, then, he shall 5 ITA No. 1489/Hyd/2012 Shri Nitin Kumar Shah serve upon the assessee a notice requiring him on a date to be specified therein either to attend or to produce or caused to be produced any evidence, on which the assessee may rely in support of his return. The proviso to section 143(2)(ii), which is amended vide Finance Act, 2008 with effect from 01/04/2008 provides that no notice under clause (2) shall be served on the assessee after expiry of six months from the end of the FY in which the return is furnished. In the present case, admittedly return was filed by the assessee on 05/02/2010 and as it appears from the assessment order, the AO initiated action u/s 148 of the Act in the month of February, 2010 itself immediately after the return was filed by the assessee. Therefore, it appears from the record that action u/s 147 of the Act was initiated by issuing notice u/s 148 of the Act before the expiry of time limit for issuance of notice u/s 143(2) of the Act. Even on a specific query made by the Bench in course of hearing, the learned DR could not controvert this factual position. Therefore, in the aforesaid factual backdrop, we have to examine the issue whether the issuance of notice u/s 148 of the Act before the expiry of time limit prescribed u/s 143(2) of the Act, is legally valid or not.
10. The Hon'ble Madras High Court in the case of CIT vs. K.M. Pachayappan (supra) upheld the order of the Tribunal wherein it was held that notice u/s 148 of the Act cannot be issued when the time for issuance of notice u/s 143(2) had not been expired. The aforesaid view was again reiterated by Hon'ble Madras High Court in the case of CIT vs. Qatalys Software Technologies (supra). When identical issue came up for consideration before a division bench of Income-tax Appellate Tribunal, Chennai Bench in case of Super Spinning Mills Ltd. Vs. ACIT (supra), there was divergent view on the issue. While Hon'ble AM was of the view that the Assessing Officer cannot initiate reassessment proceedings u/s 6 ITA No. 1489/Hyd/2012 Shri Nitin Kumar Shah 147 of the Act while time limit for issuance of notice u/s 143(2) had been expired. The Hon'ble Judicial Member took a different view by holding that availability of time limit for issuance of notice u/s 143(2) of the Act would not stand as a bar for initiating proceedings u/s 147 of the Act. When the aforesaid difference of opinion was referred to Hon'ble 3 rd Member, the Hon'ble 3 rd Member held as under:-
"The Department wants to interpret the expression "no assessment has been made" in the above clause to mean that it also includes situation where assessment under section 143(3) is still possible but not yet made. If thiss interpretation is to be accepted, it will set at naught the fundamental principles underlying section 147 of the Act and which principles have been followed till date. These principles are applicable even to the extended meaning given to the term "escaped assessent" in the amended provision. The above clause is intended to cover the following two situations:
i) where a return is filed and no action is taken either under section 143(1) or under section 143(3) and the time limit for issuing notice under section 143(2) has expired;
(ii) where a return is filed and is processed under section 143(1) and the time limit for issuing notice under section 143(2) has expired.
It does not envisage a situation where a return is filed and the time limit 56 for issue of a notice under section 143(2) has not expired. Unless the return filed by the assessee is scrutinised by the Assessing Officer, he cannot come to the conclusion of any escapement. If the Assessing Officer issues notice under section 143(2), then quite obviously, he would scrutinise the return and frame the assessment under section 143(3) of the Act. Subsequently, he may notice escapement and issue notice under section 148 of the Act. Besides this, in the above two situations also he will have to look into the return to see whether there is escapement or not. If he notices any escapement, it can be called an escapement only if it is noticed after the proceedings have been terminated either by way of some assessment, either under section 143(1) or 143(3) or when 7 ITA No. 1489/Hyd/2012 Shri Nitin Kumar Shah the time-limit for issue of a notice under section 143(2) has expired. But if such time-limit has not expired, it cannot be termed as escapement and he cannot resort to proceedings under section 147. In that event he will have to issue notice under section 143(2) of the Act. In a nutshell, as per the principles laid down by the Supreme Court in several cases,
(a) the proceedings are said to have commenced once the return is filed, and
(b) the proceedings terminate when,
(i) The return is processed u/s 143(1) and the time to issue notice under section 143(2 is over,
(ii) Assessment is made under section 143(3) or,
(iii) The assessment is no longer possible under section 143(3), proceedings under section 147 can be initiated only after the earlier proceedings have terminated as mentioned in (b) above."
11. The Hon'ble third Member following the decision of CIT vs. Rajesh Javeri Stock Brokers (P) Ltd. (291 ITR 500) further held as under:-
"Now we deal with certain observations of the learned Judicial Member de in his order. In paragraph 6 of the order, it has been observed that re is no bar for issuing notice under section 148 before expiry of the time . able for issuing notice under section 143(2) of the Income-tax Act, 1, if the other conditions for reopening of the assessment and initiation proceedings under section 147 are satisfied. In this connection, the erne of the Act has to be appreciated. Chapter XIV of the Act deals with procedure for assessment. Sections 139 to 140A deals with the filing of return and matters connected with the return. Sections 142 to 145A deals with assessment procedures. It is only after section 145A the subject of reopening of assessment follows. This is one indication that an assessment be reopened only on the termination of the procedure prescribed in the pending provisions, viz., from sections 142 to 14:3A. Further, section 147 the expression "assess or reassess". The word "reassess" is used to indicate the 8 ITA No. 1489/Hyd/2012 Shri Nitin Kumar Shah termination of proceedings as a result of an assessment made under section 143(3) of the Act. The word "assess" is used to cover those sections where the return has or has not been processed under section (1) but the time limit to issue notice under section 143(2) has expired. en the Legislature has logically arranged the relevant provisions, there no need to put a specific bar in section 1471148 to the effect that the Assessing Officer cannot initiate proceedings under section 147 when the tine available for issuing notice under section 143(2) has not expired. In this view, it would be quite absurd to put such a provision and it is well known that the Legislature does not waste words. The next observation of learned Judicial Member is also in paragraph 6 which says that failure to take steps under section 143(3) will not render the Assessing Officer powerless to initiate proceedings under section 147 of the Act even when the return was processed under section 143(1) only. This observation is borrowed from the judgment in the case of Asst. CIT v. Rajesh Jhaveri Stock Brokers P. Ltd. reported in [2007] 291 ITR 500 with which we have already dealt in paragraph 10 above. The third observation is in paragraph 10 of the order. It reads as follows :
"The Hon'ble Supreme Court has emphatically made it clear that the power of the Assessing Officer is not fettered for initiating the proceedings under section 147 by issuing notice under section 148, even prior to the expiry of the period for issuing notice, under section 143(2)." .
The judgment of the Supreme Court referred to in the above observation is that in the case of Asst. ClT v. Rajesh Jhaveri Stock Brokers Pvt. Ltd. .,reported in [2007] 291 ITR 500. I have read the said judgment more once. Unfortunately, I have not found anywhere in the judgment the above observation made by the court either directly or indirectly. Nowhere in the judgment is there any reference about the time limit of notice to be under section 143(2) of the Act.
Coming to the three decisions of the jurisdictional High Court, there is indeed a divergence of opinion in the two judgments, viz..one in the of ITO v. K. M. Pachiappan [2009] 311 ITR 31 (Mad)and Qatalys Software Technologies Ltd. [2009] 308 ITR 249 in which the decision in the case K.M. Pachayappan [2008] 304 ITR 264 (Mad) has been followed. I am view that in such a situation, the decision which appeals to one's science more should be followed. The decision in the 9 ITA No. 1489/Hyd/2012 Shri Nitin Kumar Shah case of Qatalys Software Technologies Ltd. [2009] 308 ITR 249 is in consonance with Supreme Court judgments on the issue including the one in the case of Asst. ClT v. Rajesh Jhaveri Stock Brokers P. Ltd. reported in [200 ITR 500. Therefore, I am inclined to follow the said decision."
12. It would be worth mentioning here that the 3 rd member decision of Income-tax Appellate Tribunal has the same binding force as the Special Bench decision of Income-tax Appellate Tribunal. The co-ordinate bench of the Tribunal in case of Sahitya Housing Pvt. Ltd. (ITA No,.569/Hyd/2010 pertaining to assessment year 2006-07 dated 31-10-2010 while considering identical issue has held as under
"Therefore, from the judgment of the Apex Court in the case of Rajesh Jhaveri Stock Brokers Pvt. Ltd. (supra) and the decision of Special Bench in the case of Motorola Inc. (supra), it is obvious that Explanation-2 (b) to section 147 refers to a situation where no assessment order has been passed and the time limit for passing such order has been expired or time limit for issuing a notice under section 143(2) was expired. This is obvious from the decision of the Special Bench in the case of Motorola Inc. (supra) and the judgment of Apex Court in the case of Narsee Nagsee & Company (supra). The question of escapement of income from assessment would come when the assessment proceedings have been terminated/ concluded either by an order under section 143(3) or by operation of law on the expiry of time limit for issuing a notice under section 143(2) of the Act. It is observed by the Apex Court that section 147 refers to a situation where the income had escaped assessment. Section 143(2) refers to a situation where the assessing officer was of the opinion that the assessee has understated the income. When the assessing officer has time limit for making an enquiry under section 143(2) of the Act as held by the Apex Court, we may not be able to say that any income has escaped assessment. The Lucknow Bench of his Tribunal has not taken note of this factual situation in which the Apex Court decided the case in Rajesh Jhaveri Stock Brokers Pvt. Ltd. (supra). In other words, the Lucknow Bench of the Tribunal in Kailash Auto Finance Limited (supra) has not taken note of the fact that the Apex Court in the case of Rajesh Jhaveri Stock Brokers Pvt. Ltd., (supra) decided the issue on the facts on which the time limit for 10 ITA No. 1489/Hyd/2012 Shri Nitin Kumar Shah issuing a notice under section 143(2) has already expired.
Even though intimation under section 143(1) was issued, the failure of the assessing officer to take steps under section 143(3) will not render the assessing officer powerless to initiate proceedings under section 147 of the Act. In view of this factual situation, in our opinion, the decision of the Lucknow Bench of the Tribunal in the case of Kailash Auto Finance Limited (supra) may not be any assistance to the revenue. A similar view was taken by the Agra Bench of the Tribunal in Subhash Chandra Goyal (2005) 4 SOT 405 (Agra) and Mumbai Bench of the Tribunal in Fateh International (2007) 104 ITD 305 (Mum.). In view of the above discussion, by respectfully following the judgments of Apex Court in the case of Rajesh Jhaveri Stock Brokers Pvt. Ltd., and in the case of Trustees of HEH the Nizarn's Supplemental Family Trust (supra), and the decision of Special Bench of the Tribunal in the case of Motorola Inc. (supra), we hold that issue of notice under section 148 of the Act during the pendency of proceedings under section 143(2) of the Act is invalid and consequently all the orders passed by the assessing officer in pursuance of notice under section 148 of the Act cannot stand and accordingly the same are quashed. In view of the above decision it may not be necessary for this Tribunal to go into the merits of the case. "
13. Similar view has also been expressed by the Hon'ble Delhi High Court in case of CIT Vs. Ved & Co and the Hon'ble Madras High Court in case of CIT Vs. TCP Ltd. (supra). The ITAT, Hyderabad Bench in case of M/s Eenadu Relief Fund (supra) also expressed similar view by holding that no action u/s 147 of the Act can be initiated before expiry of the time limit for issuance of notice u/s 143(2) of the Act. Following the consistent view laid down in judicial precedents, discussed hereinabove, we hold that reopening of assessment made by issuance of notice u/s 148 of the Act before the expiry of time limit for issuance of notice u/s 143(2) of the Act is legally invalid and the assessment order passed in consequence thereof is also unsustainable. In the aforesaid view of the matter, we set aside the order passed by the CIT(A) and quash the assessment order passed u/s 143(3) of 11 ITA No. 1489/Hyd/2012 Shri Nitin Kumar Shah the Act. As a result ground raised by the assessee on this issue is allowed.
14. Since the assessee has not urged any argument in respect of other additional grounds as well as the grounds raised on the merits of the issue and considering the fact that we have already quashed the assessment order on legal issue raised by the assessee in ground No. 14, the other grounds 1 to 13 and 15 to 17 raised by the assessee have become redundant and, therefore, not required to adjudicate the same.
15. In the result, appeal of the assessee is allowed.
Pronounced in the open court on 11-10-2013.
Sd/- Sd/- (CHANDRA POOJARI) (SAKTIJIT DEY) ACCOUNTANT MEMBER JUDICIAL MEMBER Hyderabad, Dated: 11 th October, 2013. kv Copy to:-
1) Shri Nitin Kumar Shah, C/o P. Murali & Co., CAs., 6-3- 655/2/3, 1 st Floor, Somajiguda, Hyderabad - 500 082.
2) ACIT, Circle - 1(2), Hyderabad.
3) CIT(A)-II, Hyderabad.
4) CIT-I, Hyderabad
5) The Departmental Representative, I.T.A.T., Hyderabad.