Income Tax Appellate Tribunal - Hyderabad
B. Teja Raju S/O. Sri B. Ramalinga Raju, ... vs Assessee on 27 December, 2013
IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCHES "A" : HYDERABAD BEFORE SHRI D. MANMOHAN, VICE PRESIDENT AND SHRI B. RAMAKOTAIAH, ACCOUNTANT MEMBER S. WTA No. A.Y. Appellant Respondent No.
1. 02/H/12 2002-03 B. Rama Raju, Asst.
Secunderabad. Commissioner of
Wealth Tax,
PAN- ACEPB2813Q Central Circle-1,
Hyderabad.
2. 03/H/13 2002-03 B. Suryanarayana -do-
Raju, Secunderabad.
PAN- ACEPB2811N
3. 04/H/12 2002-03 B. Jhansi Rani, -do-
Secunderabad.
PAN- AGSPB2233J
4. 05/H/12 2002-03 B. Nandini Raju, -do-
Hyderabad.
PAN- ABHPB6782G
5. 06/H/12 2002-03 B. Teja Raju, -do-
Hyderabad
PAN- AFSPB9531Q
6. 09/H/11 2002-03 M/s B. Ramalinga -do-
Raju, Hyderabad.
PAN- ACVPB8311J
Assessee by : Sri K.C. Devadas
Revenue by : Shri P. Somasekhar Reddy
Date of hearing : 27-12-2013
Date of pronouncement : 08-01-2014
O RDE R
2
ITA.Nos. 02,03,04,05 & 06/H/12 & 09/H/11 B. Rama Raju and others PER BENCH:
These appeals filed by different Assessees are pertaining to the group of Satyam Computer Services Ltd. As the common issues are involved in these appeals, they were clubbed and heard together, and, therefore, a common order is passed for the sake of convenience.
2. We have heard the learned Counsel and the learned D.R.
3. To dispose of these appeals, we refer to the facts in case of B. Rama Raju in WTA No. 02/Hyd/2012. Briefly stated, assessment for the AY 2002-03 was completed on 04-03-2005 determining the taxable wealth at Rs. 1,19,44,210/- by making certain adjustments, in the return of wealth originally filed on 31-01-2003. Thereafter, the AO noted that on 07-01-2009 Sri B. Ramalinga Raju, the then Chairman of M/s Satyam Computer Services Ltd. confessed to having fudged the accounts of the company over the last several years. He further stated that the revenues and profits were manipulated by falsification of accounts for the last several years. Sworn statement of Shri B. Ramalinga Raju was recorded on 21-02-2009 in Central Prison, wherein he confirmed and reiterated his confession. Based on the information gathered, AO had reasons to believe that wealth chargeable to tax had escaped assessment. Accordingly, notice u/s 17 of the W.T. Act dated 26-03-2009 was issued which was served on Assessee on 28-03-2009. Assessee filed a return on 11-05-2009 in response to notice u/s 17 admitting the taxable wealth at Rs. 1,11,32,600/- as was admitted in the original return of wealth.
3.1 During the course of assessment proceedings, a reference was made to Sub-Registrar's offices holding jurisdiction on the assets owned by Sri B. Ramalinga Raju and his family members as well as 3 ITA.Nos. 02,03,04,05 & 06/H/12 & 09/H/11 B. Rama Raju and others various entities connected with Satyam Group, requiring them to furnish the value of the properties as on 31-03-2003 & 31-03-2007 as per SRO records. Such reference was also made in respect of immovable properties held by Assessee. From a perusal of the details furnished by the SROs, it was observed by AO that the guideline value adopted by Assessee in respect of all the properties tallied with the value as per the SROs records. However, in respect of following properties i.e. 3 plots located at Nandi Hills (held in the name of minor son), S.No. 5/3, P No. 181 & 191 admeasuring 695 sq. yds, value adopted by Assessee is Rs. 1425/- per sq. and whereas the value as per SROs records is Rs. 3,500/- per sq.yard. Thus, the total area of these 3 plots comes to 2085 sq.yds. Since, there is variation in the value adopted by Assessee, the value as per the SROs records is adopted for the purpose of valuation of the property for wealth-tax purposes. Assessee holds 2085 sq.yds of land in this area and the value at Rs. 3,500/- per sq.yd. works out to Rs. 72,97,500/-. As against this Assessee had admitted the value at Rs. 29,71,125/-. Therefore, the difference of Rs. 43,26,375/- was accordingly to the taxable wealth admitted by Assessee. Accordingly, the taxable wealth was determined at Rs. 1,75,89,900/-, which includes the exempted assets valued at Rs. 13,19,300/-.
3.2 Before the CWT(A), it was the submission of AR of Assessee that the AO had no valid reason to reopen the assessment based on certain vague information received by the AO with regard to M/s Satyam Computer Services Ltd., but, it was contended that the AO had not established any escapement of wealth in Assessee's case, therefore, there should not have been reopening of the assessment in case of Assessee after four years from the end of assessment year .
3.3 After considering the submissions of Assessee, the CWT(A) confirmed the action of AO.
4ITA.Nos. 02,03,04,05 & 06/H/12 & 09/H/11 B. Rama Raju and others
4. Aggrieved, Assessee is in appeal before us and has raised the following grounds of appeal, which are common in all the assessment years under consideration, except the difference in the amounts of additions:
"1. The order passed by the CWT(A)-VII, Hyderabad in confirming the Wealth Tax assessment passed u/s 16(3) read with section 17 of the Wealth Tax Act, 1957 is unsustainable both in facts and in law.
2. The learned CWT(A) failed to note that the entire reopening of assessment beyond four years from the end of the assessment year in question was bad in law as there was no omission on the part of the appellant to disclose all material facts and in furnishing necessary information for completion of the assessment and therefore the CWT(A) ought to have annulled the assessment passed u/s 16(3) read with section 17 of the Wealth Tax Act, 1957.
3. The learned CWT(A) failed to note that there was no nexus between the reasons recorded for reopening of wealth tax assessment and the addition of Rs. 13,19,300 and Rs. 43,26,375/-.
4. The learned CWT(A) failed to note that there was no real and substantial nexus between the wealth assessed at Rs. 1,75,89,900/- and the addition made and therefore the CWT(A) ought to have held that the aforesaid amount were not includible in the net wealth of the appellant.
5. Without prejudice to any of the aforesaid grounds the learned CWT(A) having regard to the provisions of section 2(ea) of Wealth Tax Act, 1957 ought to have clearly held that the sum of Rs. 13,19,300/- was not an asset belonging to the appellant within the meaning of the aforesaid section.
6. The learned CWT(A) failed to note having regard to the location and distance of lands which are claimed as exempt were not urban lands within the meaning of section 2(ea) of the WT Act and therefore erred in confirming its taxability.
7. The learned CWT failed to note that the claim made by the appellant for exempted asset were considered and exempted in the past wealth tax assessments and there being no chance in the facts and circumstances ought to have clearly held that they are not taxable.5
ITA.Nos. 02,03,04,05 & 06/H/12 & 09/H/11 B. Rama Raju and others
8. The learned CWT(A) erred in confirming the addition of Rs. 43,26,375/- on account of valuation of immovable properties."
5. Before us, the learned Counsel for Assessee Shri K.C. Devadas objected to issue of notice under section 17 stating that the assessment cannot be reopened after expiry of 4 years unless there is omission or failure on the part of the assessee to disclose fully and truly all the material facts necessary for assessment. It was further submitted that there is no record or evidence that any income of the assessee was siphoned off nor there is any evidence that any particular income has escaped assessment. He referred to the group cases of Satyam in the income-tax proceedings in ITA No. 1233/H/11 and others in the case of Rohini Bio-tech (P) Ltd. and others which were heard on 07-11-2013 by A Bench Hyderabad and submitted that the decision therein will equally apply to the present cases on all fours ( since pronounced on 31-12-2013 allowing all appeals). The learned Counsel also relied on the following case law:
1. G.S. Engineering and Construction Corporation vs. Dy.
Director of Income Tax, International Taxation and others 93 DTR 410.
2. Xerox Modicorp Ltd. vs. DCIT (2013) 350 ITR 308 (Del.).
3. Ganga Saran & Sons Pvt. Ltd. vs. ITO (1980) 130 ITR 1 (SC).
4. CIT vs. Jet Airways (I) Ltd. (2011) 331 ITR 236 (Bom.).
5. CIT vs. Atul Jain (2008) 299 ITR 383 (Del.)
6. CIT vs. Aslam Ulla Khan (2010) 321 ITR 150.
6. The learned D.R. Sri P. Somasekhar Reddy relied on the orders of the revenue authorities.
7. We have heard both the parties. We find that the 6 ITA.Nos. 02,03,04,05 & 06/H/12 & 09/H/11 B. Rama Raju and others assessment has already been completed under section 16(3) after scrutiny. Particularly Assessing officer has increased the value of properties by 10% over last year of the same assets ( plot in Nandi Hills). The assets which were claimed exempt were also allowed as such. Therefore, there are no reasons to take a different view in reassessment proceedings. There is no information also. This comes within the purview of change of opinion. For the concept of change of opinion, the Supreme Court has held in the case of CIT vs. Kelvinator of India Ltd. (2010) 320 ITR 561 as follows :
"The concept of "change of opinion" on the part of the Assessing Officer to reopen an assessment does not stand obliterated after the substitution of section 147 of the Income Tax Act, 1961, by the Direct Tax Laws (Amendment) Acts, 1987 and 1989. After the amendment, the Assessing Officer has to have reason to believe that income has escaped assessment, but this does not imply that the Assessing Officer can reopen an assessment on mere change of opinion. The concept of "change of opinion" must be treated as an in-built test to check the abuse of power. Hence, after April 1, 1989, the Assessing Officer has power to reopen an assessment, provided there is "tangible material" to come to the conclusion that there was escapement of income from assessment. Reason must have a link with the formation of the belief. Decisions of the Delhi High Court in Cit v. Kelvinator of India Ltd. (2002) 256 ITR 1 (FB) and CIT v. Eicher Ltd. (2007) 294 ITR 310 affirmed."
"147. Income escaping assessment.--If the AO has reason to believe that any income me chargeable to tax has escaped assessment for any assessment year, he may, subject to the provisions of ss. 148 to 153, assess or reassess such income and also any other income chargeable to tax which has escaped assessment and which comes to his notice subsequently in the course of the proceedings under this section, or recompute the loss or the depreciation allowance or any other allowance, as the case may be, for the assessment year concerned (hereafter in this section and in ss. 148 to 153 referred to as the relevant assessment year)."
After the Amending Act, 1989, s. 147 reads as under :
7ITA.Nos. 02,03,04,05 & 06/H/12 & 09/H/11 B. Rama Raju and others
4. On going through the changes, quoted above, made to s. 147 of the Act, we find that, prior to Direct Tax Laws (Amendment) Act, 1987, reopening could be done under above two conditions and fulfillment of the said conditions alone conferred jurisdiction on the AO to make a back assessment, but in s. 147 of the Act (w.e.f. 1st April, 1989), they are given a go by and only one condition has remained, viz., that where the AO has reason to believe that income has escaped assessment, confers jurisdiction to reopen the assessment. Therefore, post 1st April, 1989, power to reopen is much wider. However, one needs to give a schematic interpretation to the words "reason to believe"
failing which, we are afraid, s. 147 would give arbitrary powers to the AO to reopen assessments on the basis of "mere change of opinion", which cannot be per se reason to reopen. We must also keep in mind the conceptual difference between power to review and power to reassess. The AO has no power to review; he has the power to reassess. But reassessment has to be based on fulfillment of certain pre-condition and if the concept of "change of opinion" is removed, as contended on behalf of the Department, then, in the garb of reopening the assessment, review would take place. One must treat the concept of "change of opinion" as an in-built test to check abuse of power by the AO. Hence, after 1st April, 1989, AO has power to reopen, provided there is "tangible material" to come to the conclusion that there is escapement of income from assessment. Reasons must have a live link with the formation of the belief. Our view gets support from the changes made to s. 147 of the Act, as quoted hereinabove. Under the Direct Tax Laws (Amendment) Act, 1987, Parliament not only deleted the words "reason to believe" but also inserted the word "opinion" in s. 147 of the Act. However, on receipt of representations from the companies against omission of the words "reason to believe", Parliament re-introduced the said expression and deleted the word "opinion" on the ground that it would vest arbitrary powers in the AO. We quote hereinbelow the relevant portion of Circular No. 549, dt. 31st Oct., 1989 [(1990) 82 CTR (St) 1], which reads as follows :
"7.2 Amendment made by the Amending Act, 1989, to re- introduce the expression 'reason to believe' in s. 147. A number of representations were received against the omission of the words 'reason to believe' from s. 147 and their substitution by the 'opinion' of the AO. It was pointed out that the meaning of the expression, 'reason to believe' had been explained in a number of Court rulings in the past and was well settled and its omission from s. 147 would give arbitrary powers to the AO to 8 ITA.Nos. 02,03,04,05 & 06/H/12 & 09/H/11 B. Rama Raju and others reopen past assessments on mere change of opinion. To allay these fears, the Amending Act, 1989, has again amended s. 147 to reintroduce the expression 'has reason to believe' in place of the words 'for reasons to be recorded by him in writing, is of the opinion'. Other provisions of the new s. 147, however, remain the same."
5. For the afore-stated reasons, we see no merit in these civil appeals filed by the Department, hence, dismissed with no order as to costs
8. Therefore, the additions made in reassessment can not be sustained. We also find that CWT(A) erred in holding that the Assessing Officer had valid reasons to reopen the assessment of the assessee-company to examine the veracities and financial implications between the assessee-company and M/s. Satyam Computer Services Limited. As seen from the order of AO even though the assessment was reopened to examine the transaction between M/s Satyam computers and assessee, no such exercise was undertaken and no findings were given on that issue. The additions made are on revaluation of property which was already revalued in original assessment and denial of exemption claimed on the reason that details were not filed. There is no nexus between the reasons recorded and additions made in the guise of escapement of wealth. We rely upon the decision of the Hon'ble Supreme Court in the case of Ganga Saran & Sons P. Ltd. vs. ITO and others (supra) for the proposition that if there is no rational nexus between the "reasons" and the "belief", so that on such reasons the A.O. cannot have reason to believe that any part of the income of the assessee has escaped assessment and such escapement was by reason of omission or failure on the part of the assessee to disclose fully and truly all material facts, the notice issued by the A.O. is to be struck as invalid.
9. We find that recording of reasons before the issue of notice 9 ITA.Nos. 02,03,04,05 & 06/H/12 & 09/H/11 B. Rama Raju and others under section 17 has absolutely no nexus with the assessment made. The Assessing Officer had no tangible material to come to the conclusion that there was escapement of income from the original assessment. The assessment made under sec. 16(3) has been wrongly reopened under sec. 17 beyond period of 4 years, as there is no failure on the part of the assessee to disclose fully and truly all the material facts in the original assessment itself. The reopening was on wrong foundation of reasoning of the financial implication between the assessee-company and M/s. Satyam Computer Services Limited, which was not established in the reassessment to justify the reopening.
10. Thus, there being no nexus or live-link with the reasons recorded and the 'formation of belief' to come to a conclusion that there was escapement of income and also since the assessment has been reopened beyond the period of 4 years when there is no failure on the part of the assessee to fully and truly disclose all material facts in the original assessment itself, and there being 'no tangible material' for the reopening of the assessment, the CWT(A) erred in confirming the order of the Assessing Officer. We, therefore, hold that the reopening of the jurisdiction under section 17 is bad in law and is to be quashed.
11. Therefore, we set aside the order of the CWT(A) and allow assessee's grounds on the issue of reopening raised before us in Ground Nos. 1 & 2. Since, we have quashed the reopening of assessment itself, the other grounds on merits of the additions do not require any consideration as they become academic in nature. Accordingly, we allow the appeal WTA. No. 02/Hyd/2012 of the assessee.
12. In other cases of the group, the facts are similar and AO simply 10 ITA.Nos. 02,03,04,05 & 06/H/12 & 09/H/11 B. Rama Raju and others denied the exemption claimed and in two cases made small addition on revaluation. In the case of Sri B. Ramalinga Raju, the AO made an addition of Rs. 47.57 crores on the reason that siphoned off amount from the company is to be considered as accretion to the wealth within the meaning of section 2(ea)(vi) of the Wealth Tax Act. This is only a presumption and no evidence in this regard. Therefore, the addition per se cannot be sustained in the absence of any accretion to wealth. As the facts and grounds in WTA Nos. 03, 04, 05, 06/Hyd/2012 and WTA No. 09/Hyd/2011 are materially identical to that of the case decided by us in case of B. Rama Raju in ITA No. 02/Hyd/12 (supra), following the discussion and conclusions drawn therein, we set aside the orders of the CWT(A) in the said appeals and quash the ground raised on the issue of reopening of assessment in these appeals. Since the issue of reopening of assessment itself is quashed, additions made on such assessment become academic in nature in the said appeals. Therefore, all these appeals of Assessee are allowed.
13. In the result, all appeals under consideration are allowed.
Order pronounced in the open Court on 8 th January, 2014.
Sd/- Sd/-
(D. MANMOHAN) (B.RAMAKOTAIAH)
VICE PRESIDENT ACCOUNTANT MEMBER
Hyderabad, Dtd. 8 th January, 2014
kv
11
ITA.Nos. 02,03,04,05 & 06/H/12 & 09/H/11 B. Rama Raju and others Copy to :
1. Sri B. Rama Raju
2. Sri B. Suryanarayana Raju
3. Smt. B. Jhansi Rani
4. Sri B. Nandini Raju
5. Sri B. Teja Raju
6. Sri B. Ramalinga Raju C/o Shri K.C. Devadas, C.A., 133/4, Rashtrapathi Road, Secunderabad - 500 003.
2. ACWT, Central Circle - 1, Hyderabad.
3. Commissioner of Wealth Tax (Appeals)-VII, Hyderabad.
4. Commissioner of Income Tax (Central), Hyderabad
5. D.R. ITAT, Hyderabad.
S.No. Description Date Intls
1. Draft dictated on Sr.P.S./P.S
2. Draft placed before author Sr.P.S/PS
Draft proposed & placed before JM/AM
the second Member
3
4 Draft discussed/approved by JM/AM
second Member
5 Approved Draft comes to the Sr.P.S./P.S
Sr.P.S./PS
6. Kept for pronouncement on Sr. P.S./P.S.
7. File sent to the Bench Clerk Sr.P.S./P.S
8 Date on which file goes to the
Head Clerk
9 Date of Dispatch of order