Income Tax Appellate Tribunal - Hyderabad
Late Kolisetty Nageswara Rao, Rep.By ... vs Income Tax Officer, Ward-13(2), ... on 20 April, 2018
THE INCOME TAX APPELLATE TRIBUNAL
HYDERABAD BENCH "A", HYDERABAD
BEFORE SMT P. MADHAVI DEVI, JUDICIAL MEMBER
ITA No.1220/Hyd/2017
Assessment Year: 2007-08
Late Kolisetty Nageswara vs. ITO, Ward - 13(2),
Rao, Rep. by L/R Hyderabad.
K.V. Krishna Charan,
Miraj
PAN - AKVPK4238R
(Appellant) (Respondent)
Assessee by : Shri K. A. Sai Prasad
Revenue by : Shri Ramakrishna Bandi
Date of hearing : 14-03-2018
Date of pronouncement : 20-04-2018
ORDER
PER P. MADHAVI DEVI, J.M.:
This is assessee's appeal for the A.Y 2007-08 against the order of the CIT(A)-10, Hyderabad dated 24.02.2017.
2. Brief facts of the case are that the assessee an individual, a retired employee of BHEL, filed his return of income on 26.07.2007 admitting a total income of Rs. 1,81,877/-, after deducting Rs. 1,20,000/- under chapter VIA of IT Act and deduction of Rs. 17,85,480/- u/s 54EC of the IT Act. The assessment was completed u/s 143(3) of the Act on 15.12.2009, after making an addition towards long 2 ITA No. 1220/Hyd/2017. term capital gains of Rs. 10,480/- and after allowing deduction u/s 54 EC of the IT Act towards investments in REC bonds. Thus, the total income was assessed at Rs. 1,92,377/-.
3. Thereafter, the A.O verified the assessment records and observed that as per the development agreement 03.02.2003, the assessee has handed over the possession of his land to the developer as per the development agreement and has taken possession of three flats on 31.03.2004 out of which one flat was sold on 30.08.2006 for a consideration of Rs. 28,25,000/- on which he offered the long term capital gains and claimed exemption u/s 54EC of the IT Act towards investments in REC bonds. The A.O observed that the assessee's claim of exemption u/s 54 EC of the IT Act is not allowable as the flat was sold on i.e 31.03.2006 within three years of acquisition on 31.03.2004. Therefore, he observed that the gain on transfer of asset is a short term capital gain and therefore the exemption u/s 54EC is not allowable. He therefore, was the opinion that the income has escaped assessment and needs to be brought to tax. Accordingly he issued a notice u/s 148 of the Act. 3 ITA No. 1220/Hyd/2017.
4. During the course of the reassessment proceedings, the assessee's legal representative appeared and submitted the necessary information through his representative. The assessee submitted that, though the entire land of 300 Sq Yards has been handed over to developer for development on the date of the development agreement, the assessee has only transferred 150 Sq yards, retaining 50% of his share and therefore while computing the capital gain, the capital gain on transfer of land is long term capital gain while, the capital gain on the transfer of the constructed area is short term capital gain. Thereafter, he adopted the land cost at 30,000 per square yard and arrived at long term capital gain of Rs. 10,80,000/- and claimed that the entire consideration is exempt from tax and there is no tax liability. The A.O, however was not convinced and held that the assessee has received undivided share of land along with the flats and therefore the same was acquired only on 31.03.2004 and gain therefrom is a short term capital gain which is not allowable as an exemption u/s 54EC of the IT Act. He accordingly brought it to tax.
4ITA No. 1220/Hyd/2017.
5. The assessee filed an appeal before the CIT(A) who confirmed the order of the A.O, and the assessee is in second appeal before us, by raising the following grounds of appeal:
"1. The Ld. CIT(A) is not justif ied in dismissing the appellant's claim of long term capital gain, on the transf er of the undivided portion of 36 Sq. yards of land, sold along with the constructed portion.
2. The Ld. CIT(A) is not justif ied holding that the working of the long term capital gains has no basis, since the appellant 'did not give any details as to how the land value is taken on the date of transf er and cost of acquisition of the land'.
3. The ld. CIT(A) is not justif ied in not entertaining the appellant's claim of cost of improvement of the f lat in computing the short term capital gain.
4. The Ld. CIT(A) is not justif ied in refusing to take the cost of construction, as per the certif icate issued by the builder.
5. The Ld. CIT(A) is not justif ied in not entertaining the appellant's claim of commission of Rs. 1,75,000 incurred by the appellant towards the sale of the f lat.
6. The appellant reserves his right to add, alter, substitute or omit any of the ground or grounds during the course of hearing".
6. Subsequently, the assessee has also raised the following additional grounds of appeal along with petition for admission for the same:
"The appellant f iled on 26.07.2007 his return of income for the assessment year 2007-08 admitting, inter alia, income from capital gains at nil on the sale of a Flat, af ter claiming exemption u/s 54EC. The assessment u/s 143(3) was completed on 15.12.2009, inter alia, computing the long term capital gains at Rs. 10,480. During the course of assessment proceedings, the appellant f urnished all the details about the acquisition of the f lat by way of development agreement and sale of f lat, etc., as required by the Ld. A.O. There is no material, 5 ITA No. 1220/Hyd/2017. which was not produced bef ore the learned assessment and found subsequently. The provisions of Sec. 147, in the f acts and circumstances of the case, are not applicable. The appellant now raises the following additional ground, not emanating f rom the order of the Ld. CIT(A).
The very initiation of the proceedings u/s 147, in the f acts and circumstances of the case, is not valid and, theref ore, the assessment order basing on such invalid initiation deserves to be struck down.
The appellant, by inadvertence and lack of proper advice could not raise this objection either bef ore the A.O, or before the Ld. CIT(A). This is a f resh legal claim and not bases on any f resh material.
7. In support of admission of this additional ground of appeal, it is submitted by the Ld. Counsel for the assessee that the assessee had furnished all the details about the receipt of possession of the flat by virtue of development agreement and sale of the flat thereafter, during the assessment proceedings and that the A.O has considered the issue before accepting the long term capital gain offered by the assessee. It is submitted that there was no material, which was found by the A.O subsequently to come to the conclusion that there was escapement of income due to failure of the assessee to disclose fully and truly all material facts relevant to assessment of his income, and therefore, the provision to Sec 147 of the IT Act would apply the reopening of the assessment in this 6 ITA No. 1220/Hyd/2017. case is after the expiry of four years from the end of the relevant assessment year. It is submitted that this is a legal claim and is not based on any fresh material and therefore should be admitted and adjudicated.
8. The Ld. DR however, opposed the admission of the additional ground, stating that the assessee has participated in the reassessment proceedings without any objection and therefore he cannot raise such an objection at the second appellant stage.
9. Having regard to the rival contentions and the material on record, I find that the additional ground of appeal raised by the Assessee is a legal ground which does not need any fresh verification of facts. Therefore, placing reliance upon the judgment of the Hon'ble Supreme Court in the case of NTPC Ltd, reported in TIOL-199-SC.IT dated 02 May 2017, I admit the additional ground of appeal and adjudicate the same as under.
10. Admittedly, assessment in the case of the assessee was completed u/s 143(3) on 15.12.2009 after examining the correctness of the computation of 7 ITA No. 1220/Hyd/2017. the long term capital gain declared by the assessee. I find that an addition of Rs. 10,480/- was made to the returned income of the assessee towards long term capital gain. Thus, it is evident that the A.O has verified the assessee's claim of long term capital gain and also the exemption eligible u/s 54EC of the Act. It is also not in dispute that the reopening of the assessment is made after the expiry of four years from end of the relevant assessment year. The notice u/s 148 of the IT Act was issued on 17.7.2013. It is also noticed that in the reasons recorded for the reopening of the assessment the A.O are as follows:
" On verif ication of the assessment record it observed that as per the development agreement dated 03.02.2003 with the Builder the assessee took possession of 3 flats on 31.03.2004. Out of which one flat was sold on 31.08.2006 for a consideration of Rs. 28,25,000/- worked out capital gains by claiming exemption u/s 54EC towards investment in REC Bonds. The Long term capital Gains on the date of development agreement should be brought to tax. However, the exemption U/s 54EC is not allowable as one of the f lat was sold within three years i.e 31.03.2004 (date of possession to 31.08.2006)(date of sale) and 54EC is not allowable as the asset transferred is the short term asset and needs to be disallowed".
11. Thus it is clear that there was no material which has come to the knowledge of A.O subsequent to the completion of the assessment u/s 143(3) of the Act. The Ld. Counsel for the assessee had placed reliance 8 ITA No. 1220/Hyd/2017. upon the following decisions to argue in such circumstances that the reopening of the assessment is bad in law.
1. Shri G. V. Madan Mohan Reddy and others VS ITO, in ITA Nos. 454, 453, 830/Hyd/2015 dated 23.03.2016.
2. M/s. Gland Pharma Ltd., Vs Dy CIT, in ITA No. 45/Hyd/2015 dated 06.07.2016.
3. Tecumseh Products India Pvt., Ltd. Vs ACIT, reported in 361 ITR 429 (AP).
4. CIT Vs Arvind Remedies Ltd., reported in 378 ITR 547 (MAD).
12. I find that the coordinate bench of the Tribunal in the case of Shri G.V Madan Mohan Reddy in ITA No. 454/Hyd/2015 and others 23.03.2016 has held as under:
"2. If we examine the f acts of the present case vis-a-vis the af oresaid statutory provision, two clear f acts emerge. Firstly, in assessee's case as assessment order u/s 143(3) has already been passed, and as there is no evidence that there is f ailure on the part of assessee; proceedings initiated are in violation of statutory requirement. It is noticed that while recording the satisf action, the AO has not given any finding that there is f ailure on the part of assessee to disclose fully and truly all material f acts necessary for his assessment. As can be seen f rom the satisf action extracted above, AO notices that 'it is verif ied f rom the ledger account and transport charges paid'. Therefore, it cannot be stated that there is f ailure on the part of assessee to disclose. The entire material which was the basis f or A.0's satisf action is available on record. Consequently, reopening of assessment af ter end of four years f rom the relevant assessment year cannot be approved, unless it satisf ies the conditions prescribed by the statute."9 ITA No. 1220/Hyd/2017.
13. Further, in the case of M/s Gland Pharma Ltd., the coordinate bench of the Tribunal in ITA No. 45/Hyd/2015 dated 06.07.2016 has observed as under:
"We have noted earlier, 'material f acts' are akin to primary facts only. Theref ore, we see f rom the recorded reasons that the conditions precedent as benchmarked by f irst proviso to S.147 is found to be not complied with. Consequently, the action taken under S.147/148 in the case of the assessee herein, where the assessment was originally completed under S.143(3) of the Act and notice under S.148 was issued only af ter the end of four years from the relevant assessment year is clearly invalid and not sustainable in law. As a corollary, we hold that the Assessing Off icer has wrongly usurped the jurisdiction under S.147 without compliance of strict conditions laid down in S.147. Coupled with this, we also observe that no new facts were discovered after the completion of the original scrutiny assessment while issuing notice f or reopening the assessment. The Assessing Off icer had taken note of the capitalization of assets etc. in the original assessment. The notice under S.148 has apparently been issued on review of existing f acts on record. In these circumstances, the subsequent order under S.147 is nothing but seeking review of completed assessment on some change of opinion on the inference earlier drawn which is to permissible in law as per the ratio laid down in Kelvinator India Ltd. (supra) and other long line of judicial precedents. Hence, in our considered opinion, the Assessing Off icer has misdirected himself in law in reopening the completed assessment without any legal f oundation. In this view of the matter, impugned assessment made under S.143(3) read with S.147 of the Act is liable to be set aside cancelled. We do so accordingly."
14. The Hon'ble Andhra Pradesh High Court in the case of Tecumseh Products Inida Pvt Ltd., reported in 2014 361 ITR 429 AP has held as under:
"3. Theref ore, the aforesaid conditions are sine qua non. In other words, the af oresaid conditions must ref lect 10 ITA No. 1220/Hyd/2017. in the notice itself . In the absence of the same, exercise of jurisdiction in issuance of the notice under af oresaid provision is patently illegal. To draw an analogy, if the plaint does not disclose any cause of action in a suit, then such plaint is liable to be rejected. Similarly, if a complaint lodged under section 154 of the Code of Criminal Procedure does not disclose prima f acie, any cognizable offence, then such a complaint is liable to be quashed.
4. The Legislature has created a right in f avour of the assessee that assessment which has been made cannot be reopened af ter expiry of four years. But, such right is sought to be taken away in the situation as mentioned in the f irst proviso. Unless that situation exists, the issue is always a closed chapter.
5. Mr. J. V. Prasad, learned counsel appearing f or the Revenue submits that there are conditions in this regard.
6. Unfortunately, as rightly pointed out by Mr. Ratnakar, nothing has been disclosed or shown even in the subsequent stages. Under the circumstances, we have no option, but to set aside the f irst notice dated March 30, 2012, and the consequential steps being order dated January 15, 2013, issued by respondent No.2. However, it would be open f or the Revenue, if so advised, to proceed in accordance with law taking impartial decision by taking note of the records, if there exists a strong ground for issuance of such notice.
15. The Hon'ble Madras High Court in the case of CIT Vs Arvind Remedies Ltd., reported in 2015 378 ITR 547 Madras has also held as under:
"Held, dismissing the appeal, that the Assessing Off icer had f ailed to record anywhere his \ satisf action or belief that income chargeable to tax had escaped assessment on account of the f ailure of the assessee to disclose truly and fully all material f acts necessary f or assessment. On the contrary, it was the Assessing Off icer who had f ailed to consider the materials placed bef ore him at the time of regular assessment. Assuming that the claim i f 1 respect of those two heads had not been properly made, it could if at all be a ground f or the Department to initiate proceedings under section 263 and not under section 147. The reassessment proceedings were not valid".11 ITA No. 1220/Hyd/2017.
16. As the facts and circumstances in the case before us are similar, i.e the A.O has not recorded that the escapement of income is due to any reason due to the failure of the assessee to disclose fully and truly all necessary facts for assessment of his income, the reopening of the assessment cannot be sustained. Therefore, the additional ground of appeal filed by the assessee is allowed and the assessment u/s 143(3) r.w.s 147 of the IT Act is set aside and he assessment completed u/s 143(3) of the IT Act, dated 15.12.2009 is restored. Since, I have held that the reassessment is bad in law, the grounds of appeal on merits of the addition are not adjudicated it would only result in an academic exercise. In view of the same, the assessee's appeal is partly allowed.
17. In the result, the appeal filed by the assessee is partly allowed.
Pronounced in the open court on 20th April, 2018.
Sd/-
(P. MADHAVI DEVI) JUDICIAL MEMBER Hyderabad, Dated: 20 th April, 2018 12 ITA No. 1220/Hyd/2017. KRK 1 K.V. Krishna Charan C/o Ch. Parthasarathy & Co., 1- 1-298/2/B/3, 1st Floor, Sowbhagya Avenue, St No. 1, Ashoknagar, Hyderabad - 500 020.
2 ITO, Ward-13(2), Hyderabad 3 CIT(A)-10, Hyderabad.
4 The Pr. Commissioner of Income tax-IV, Hyderabad. 5 The DR, ITAT Hyderabad 6 Guard File