IN THE HIGH COURT OF JUDICATURE AT BOMBAY
CIVIL APPELLATE JURISDICTION
WRIT PETITION NO. 10437 OF 2011
Mrs. Parveen P. Bharucha
102A/1-B, Kalyaninagar,
Pune-411 006.
PAN NO.AAUPB1729P ...Petitioner.
Versus
1 The Deputy Commissioner of Income Tax
Circle 2, Pune,
PMT Bldg., 1st floor, B Wing,
Shankarsheth Road, Swargate,
Pune-411037.
2 Union of India,
through the Secretary,
Ministry of Finance,
North Block, New Delhi-110001.
-------..
Respondents.
Mr. S.N. Inamdar with Mr. Mihir Naniwadekar for Petitioner
Mr. Vimal Gupta for Respondent.
CORAM : S.J.VAZIFDAR &
M.S. SANKLECHA, JJ.
DATE : 27th June 2012.
JUDGMENT : ( Per M.S. SANKLECHA, J.)
Rule, returnable forthwith. Respondents waive service. At
the instance and request of the Advocates for the Petitioner and the
Respondents the petition is taken up for final hearing.
2 By this Petition under Article 226 of the Constitution of
India, the Petitioner challenges the following:
a) Notice dated 31.03.2011 issued by the Dy.
Commissioner of Income Tax (Respondent No.1) under
Section 148 of the Income Tax Act, 1961 (hereinafter
referred to as the said Act) seeking to reopen the
assessment for the assessment year 2006-2007 on the
ground that income has escaped assessment within the
meaning of Section 147 of the said Act; and
b) Order dated 14.11.2011 passed by Respondent No.1
rejecting the Petitioner’s objections to initiation of
proceeding under Section 147 of the said Act.
3 The facts leading to the present petition are as under :
a) During the assessment year 2006-2007, the
Petitioner sold property at Pune to a builder for the consideration of
Rs.9.23 crores. The Petitioner inter alia received an amount of Rs.
90.84 lacs as earnest money before the sale/execution of the
conveyance which took place during assessment year 2006-07. So
as to be eligible to claim a deduction under Section 54 EC of the said
Act the aforesaid amount of Rs.90.84 lacs had been invested by the
Petitioner in NABARD bonds and National Housing bonds on
18.12.2004 and 30.11.2004 respectively i. e. prior to the
sale/execution of the conveyance.
b) On 31.10.2006, the Petitioner filed her return of
income, declaring her total income to be Rs.21.58lakhs. On
28.06.2007 a notice under Section 143(2) of the said Act was issued
to the Petitioner. Thereafter, during the course of assessment
proceedings the Respondent No.1 by a communication dated
05.08.2008, called upon the Petitioner to inter alia submit details for
purposes of assessment. The information sought by the above letter
at serial No. 10 of the Annexure to the letter was with regard to the
investments made by her under Section 54F and 54EC of the said
Act. The Petitioner was duly represented by a Chartered Accountant
during the course of the assessment proceeding before the
Respondent No.1. On 28.11.2008, the Respondent No.1 passed an
assessment order under Section 143(3) of the said Act, in which it is
recorded that in response to the notices of the Respondent No.1
dated 28.06.2007 and 05.08.2008 the Petitioner’s chartered
Accountant attended and filed the required details called for.
Consequently, the Petitioner’s claim for exemption/deduction under
Section 54EC of the said Act was also considered and a deduction to
the extent of Rs. 7.40 crores on the above account was granted while
assessing the income of the Petitioner to Rs.34.44 lakhs by an order
dated 28.11.2008.
c) It appears there was an audit objection to the
Assessment order dated 28.11.2008 with regard to grant of
exemption under Section 54EC of the said Act. The Petitioner by a
letter date 4.03.2010 pointed out to the Respondent No.1 that in law
she is entitled to exemption as claimed under Section 54 EC of the
said Act.
d) On 31.03.2011, Respondent No.1 issued a notice
under Section 148 of the said Act, informing the Petitioner that for the
assessment year 2006-2007, he had reason to believe that income
chargeable to tax has escaped assessment within the meaning of
Section 147 of the said Act. The Petitioner by her Chartered
Accountant’s letter dated 01.04.2011 called upon the Respondent
No.1 to furnish/provide the reasons recorded for reopening the
assessment for the assessment year 2006-2007 for the purposes of
reassessment.
e) On 19.04.2011, the Respondent No.1 furnished
reasons for reopening of the Petitioner’s assessment for the
assessment year 2006-2007 which are as under:
“ The assessee has(sic) having income from House
property and Long term Capital Gain and income
from other source. The assessment u/s. 143(3), in
this case, has been completed on 28.11.2008 for a
total income of 34,44,080/-after allowing deduction
under Section 54EC of Rs.7,40,00,000/-.
The assessee sold a land to the developer for
9,23,00,000 (Market Value as per registration deed)
on indexation the capital gain worked out to
8,65,38,000/-out of this 85,36,483/-invested in
purchase of House Property and 740 lakhs invested
in specified bonds i.e. NABARD C.G.Bonds, Rs.200
lakh, NHB C.G.Bonds 240 Lakhs, REGCG Bonds
150 lakhs and SIDBI Bonds 150 lakhs and claimed
deduction under Section 54EC. It was seen that out
of the above investment 50 lakhs invested on 18th
December,2004 in NABARD Bonds and 50 lakhs
invested on 30th November,2004 in National Housing
Bonds i.e. prior to the date transfer of long term
capital assets.
As per Section 54EC “Where the capital gain
arises from the transfer of long term capital asset
and the assessee has at any time within a period of
six months after the date of such transfer, invested
the whole or any part of capital gain in the long term
specified asset is not to be charged on investment in
certain bonds.” In this case assessee made an
investment prior to transaction which is not
permutable (sic) for deduction U/s 54EC. In view of
this, it is submitted that, there has been escapement
of income to the tune of Rs.90,84,952/-for the A. Y.
2006-07.”
f) On 25.04.2011, the Petitioner filed her
objection to the reasons recorded for reopening her assessment for
the assessment year 2006-2007. In her objection, the Petitioner
pointed out that during the course of proceeding under Section
143(3) of the said Act, the issue with regard to the Petitioner’s claim
for deduction under Section 54EC of the said Act was discussed in
detail and particular attention at that time was also drawn to the
Board Circular No. 359 dated 10.05.1983 in support of the
Petitioner’s case and the Respondent No.1 was satisfied. The
Petitioner also submitted that the reopening of assessment was
being done only on account of audit objection and would tantamount
to only a change of opinion and therefore not justified.
g) On 14.11.2011, the Respondent No.1 passed an
order on the objection raised by the Petitioner to reopening of the
assessment for the assessment year 2006-2007 and inter alia
rejected the same on the following grounds:
“I have carefully considered the objections and the
same are not accepted because the proceeding u/s.
147 has not been initiated for the change of opinion
of the Assessing Officer, but for the incorrect
application of the law. The provision u/s. 54EC
clearly stated that the capital gain amount has to be
invested in the specified bond within a period of six
months after the date of transfer in order to claim
exemption from the capital gain tax. The circular
issued by the Hon’ble CBDT cannot override the
explicit provisions of the Act. Hence, the claim of
assessee that the reopening is based on change of
opinion is rejected.”
h) The petitioner has filed this Petition challenging the
jurisdiction of the Respondent No.1 to issue a reopening notice under
Section 148 of the said Act. The Respondent has also filed an
affidavit dated 19/12/2012 justifying the reopening of assessment
within four years even on a mere change of opinion.
Mr. S. N. Inamdar, Senior Counsel appearing on behalf
of the Petitioner submits that i) the present proceeding for reopening
an assessment completed under Section 143(3) of the said Act is
without jurisdiction as the same is merely based on a change of
opinion as the facts/material recorded for reopening of the
assessment was already available on record at the time the
assessment order dated 28.11.2008 under Section 143(3) of the said
Act was passed by the Respondent no.1 and on examination of the
material and application of law to the same the benefit was extended
to the petitioner. Consequently, the present proceeding is nothing
more than a different view on law applicable on facts already
disclosed; ii) there is no reason to believe that income has escaped
assessment as the proceedings to reopen the assessment appear to
have commenced in view of a different view of the auditors; iii) there
is no tangible material which has come to the knowledge of the
Respondent No. 1 to have a reasonable belief that there has been an
escapement of income from assessment; and iv) on merits, the
issue stands covered by the circular No. 359 dated 10.05.1983
issued by the Central Board of Direct Taxes in the context of Section
54E of the said Act on provisions identical to Section 54EC where the
Central Board of Direct Taxes has clarified that if earnest money or
advance received as a part of the sale consideration is invested in
specified assets before the date of the transfer of the assets, then the
net amount so invested would qualify for exemption notwithstanding
the fact that Section 54E specifically provides that the investment
must be made within a period of 6 months after the date of such
transfer. This view according to him has been taken by the Tribunal
in the matter of Ramesh Narhari Jakhadi v. ITO reported in 41
ITD308. Consequently, in view of the settled position in law, the
reassessment proceeding are completely without jurisdiction.
As against the above, Mr. Vimal Gupta appearing for the
respondent submits that the court should not exercise its writ
jurisdiction as there is a prima facie view on the part of the officer
that income has escaped assessment and the petitioner could justify
the deduction taken by her in the proceedings before the authorities
consequent to reopening; b) The powers of reopening an
assessment under Section 147 for a period less than 4 years is very
wide and any income chargeable to tax which has escaped
assessment could be subjected to proceeding for reopening even
where all facts have been disclosed by the assessee; c) The
Respondent No.1 while passing the order dated 28.11.2008 has not
referred to the aspect of availability of deduction under Section 54E
to receipt of earnest/advance money received prior to sale and
therefore they are entitled to reopen the proceedings d) The
power to reopen the assessment within a period of 4 years is an
unlimited power and even if there has been change of opinion the
exercise of such power of reopening assessment is perfectly justified
and permissible in terms of Section 147 of the said Act; and e)The
circular No. 359 dated 10.05.1983 relied upon by the Petitioner is
not applicable to the present case which is under Section 54EC of
the said Act, while circular dated 10.05.1983 deals with Section 54E
of the said Act.
It is a well settled position in law that the power to reopen
a completed assessment within the period of 4 years from the end of
the relevant assessment year is very wide. Nevertheless this power
to reopen an assessment within a period of 4 years does not permit
review of an assessment Order. This is settled by the Supreme Court
in the matter of CIT v. Kelvinator of India reported in 320 ITR 561
wherein it has been held as under:
“However, one needs to give a schematic
interpretation to the words “reason to believe”
failing which, we are afraid, Section 147 would
give arbitrary powers to the Assessing Officer to
reopen assessment 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 Assessing Officer
has no power to review; he has the power to
reassess. But, assessment has to be based on
fulfillment of certain preconditions 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.”
The Supreme Court further held that there must be tangible material
to come to the conclusion that there has been an escapement of
Income. The Apex Court in fact upheld the Full Bench decision of the
Delhi High Court in matter of CIT v. Kelvinator of India Ltd. reported
in 256 ITR 1 wherein it has been held that the power to reopen an
assessment cannot empower an Officer of the Department to reopen
the proceeding on the ground that an earlier order was passed
without application of mind. An exercise of power in such a manner
would amount to a review of an order which is not permissible under
the law. Consequently, when jurisdiction is exercised to reopen the
assessment even in respect of period of less then 4 years the
authorities under the Act have to strictly satisfy the conditions which
permit them to reopen the assessment under Section 147 of the said
Act. This Court in the matter of Cartini (I) ltd. v. Addl. Commissioner
of Income Tax reported in 314 ITR 275 has taken a view that
reopening of assessment on the basis of material already on record
at the time assessment was completed cannot be the basis of
reopening the assessment even within the normal period of 4 years.
6 In the present case it is not disputed that during the
course of assessment proceeding under Section 143(2) and (3) of
the said Act, the Petitioner was asked by a letter dated 05.08.2008 of
Respondent No.1 to submit details of investment made under
Section 54EC of the said Act. It is also an admitted position as is
evident in the assessment order dated 28.11.2008 that in response to
the questionnaire dated 05.08.2008, the Petitioner had filed the
required details called for.
7 Consequently, the basic/primary document showing
investment in terms of Section 54EC of the said Act was on record
before Respondent No.1 when he passed his order dated 28.11.2008
granting the benefit of deduction under Section 54EC even in respect
of the investment made of Rs.90.84 lacs in NABARD Bonds and
National Housing Bonds prior to the sale/conveyence of land to the
buyer by the Petitioner. Consequently, it follows that Respondent No.
1 while granting the above benefit to the Petitioner took a view that
investment made out of earnest money/advance received as a part of
the sale consideration before the date of the transfer of the assets
would also be entitled to the benefit of Section 54EC of the said Act.
This view was a possible view in view of the Circular No. 359 dated
10.05.1983 and the decision of the Tribunal in the matter of Ramesh
Narhari Jakhdi reported in 41 ITD 368. The Circular No.359 dated
10.05.1983 inter alia provides as under:
“1. Section 54E provides for exemption of long
term capital gains if the net consideration is
invested by the assessee in specified assets
within a period of six months after the date of
such transfer. A technical interpretation of
section 54E could mean that the exemption
from tax on capital gains would not be
available if part of the consideration is
invested prior to the date of execution of the
sale deed as the invest cannot be regarded as
having been made within a period of six
months after the date of transfer.
2 On consideration of the matter in
consultation with the Ministry of Law, it is felt
that the foregoing interpretation would go
against the purpose and spirit of the section.
As the section contemplates investment of the
net consideration in specified for a minimum
period and as earnest money or advance is a
part of the sale consideration, the Board has
decided that if the assessee invest the earnest
money or the advance received in specified
assets before the date of transfer of asset, the
amount so invested will qualify for exemption
under section 54E.”
8 The Tribunal in the case of Ramesh Narhari Jakhdi
(supra) while construing Section 54B of the said Act applied the
Circular No.359 dated 10.5.1983 to hold that an investment made in
Bonds out of advance received for transfer of land before the actual
date of transfer would be entitled to the benefit of exemption under
Section 54B of the said Act. Therefore, the view taken by
Respondent No.1 in the order dated 28.11.2008 is a possible view in
law and the notice issued to reopen the assessment is only on
account of change of opinion. In fact in the affidavit in reply dated
19.12.2012 the Respondent No. 1 has stated that reassessment
proceedings within a period of 4 years can be initiated on account of
change of opinion. This is in the face of the decision of the Apex
Court in the matter of Kelvinator (supra). The reasons recorded for
reopening the assessment refer only to facts which were already on
record at the time when assessment order dated 28.11.2008 was
passed.
Further, at the hearing Mr. Vimal Gupta contended that
Respondent No.1 while passing the order of the assessment dated
28.11.2008 did not apply his mind and/or consider the fact that Rs.
90.84 lacs had been invested in terms of Section 54EC prior to the
completion of sale. The basis of his aforesaid submission is that the
same is not discussed in the order dated 28.11.2008. This ground
urged by Mr. Gupta during the hearing is a new ground which does
not find mention in the reasons recorded for reopening of
assessment. As held by this Court in the matter of Hindustan Lever
Ltd. v. R.B. Wadkar reported in 268 ITR page 332, it is not open to
improve upon the reasons recorded at the time of reopening the
assessment by filing an affidavit and/or making oral submissions at
the hearing of the Petition. The Court very categorically held that the
reasons recorded must clearly establish some facts or material which
lead to escapement of income. In any view of the matter the
aforesaid submission is not sustainable for the reason that if a query
is raised during assessment proceedings and the assessee meets
the query and/or supplies the information called for, it must be
presumed that the officer was satisfied before allowing the claim
and there is no need to discuss the matter in his assessment order.
As observed by the Gujarat High Court in the matter of CIT v. Nirma
Chemical Works reported in 309 ITR 67.
“The contention on behalf of the
Revenue that the assessment order does not
reflect any application of mind as to the eligibility
otherwise under section-80-I of the Act requires to
be noted to be rejected. An assessment order
cannot not incorporate reasons for
making/granting a claim of deduction. If it does so,
an assessment order would cease to be an order
and become an epic tome. The reasons are not far
to seek. Firstly, it would cast an almost impossible
burden on the Assessing Officer, considering the
workload that he carries and the period of
limitation within which an order is required to be
made; and secondly the order is an appealable
order. An appeal lies, would be filed, only against
disallowances which an assessee feels aggrieved
with”.
Further the reasons recorded by Respondent No.1 for
reopening the assessment do not state that the deduction under
Section 54E was not considered in the assessment proceedings. In
fact from the reasons, it appears that all facts were available on
record and according to the respondents was only erroneously
granted. This is a clear case of review of an order. The application of
law or interpretation of a statue leading to a particular conclusion
cannot lead to a conclusion that tax has escaped assessment for
this would then certainly amount to review of an order which is not
permitted unless so specified in a statue. The order dated
14.11.2011 disposing of the Petitioner’s objection to initiation of
proceedings under Section 147 of the said Act also proceeds on the
view that there has been non application of mind during the original
proceedings for assessment. This is unsustainable and as held this
court in Asian Paints Ltd. v. Dy. C.I.T. 308 ITR 195 a fresh
application of mind by the Assessing officer on the same set of facts
amounts to a change of opinion and does not warrant reopening. In
fact our court followed the Full Bench decision of the Delhi High
Court in the matter of Kelvinator (supra) wherein it has been held as
under:
“We also cannot accept the submission of Mr.
Jolly to the effect that only because in the
assessment order, detailed reasons have not been
recorded an analysis of the materials on the record
by itself may justify the Assessing Officer to initiate a
proceeding under Section 147 of the Act. The said
submission is fallacious. An order of assessment5
can be passed either in terms of sub section (1)of
section 143 or sub-section (3) of section 143. When
a regular order of assessment is passed in terms of
the said sub-section (3) of section 143 a presumption
can be raised that such an order has been passed
on application of mind. It is well known that a
presumption can also be raised to the effect that in
terms of clause (e) of section 114 of the Indian
Evidence Act judicial and official acts have been
regularly performed. If it be held that an order which
has been passed purportedly without application of
mind would itself confer jurisdiction upon the
Assessing Officer to reopen the proceeding without
anything further, the same would amount to giving a
premium to an authority exercising quasi judicial
function to take benefit of its own wrong”.
11 One more point very strenuously urged by Mr. Gupta for
the Revenue was that the court should not at this stage quash the
proceedings as the only obligation of the Revenue is to establish
that prima facie material exists to show that income has escaped
assessment and the party can thereafter establish in reassessment
proceedings that the deductions as allowed in the original
assessment proceedings are valid.
12 The issue here is one of jurisdiction to issue notice and
not sufficiency of reasons in issuing a notice for reassessment. We
are considering the jurisdiction to issue a notice under Section 148 to
reopen proceedings. In view of what is stated earlier, we do not find
any merit in this contention.
13 In view of the above, the notice under Section 148 dated
31.03.2011 is without jurisdiction and we set aside the same.
Similarly, the order rejecting the objections raised by the Petitioner
dated 14.11.2011 is also set aside as Respondent No.1 has not
satisfied the jurisdictional requirement to issue notice under Section
148 of the said Act.
14 Rule is made absolute in terms of prayer clause (a). No
order as to costs.
(M.S. SANKLECHA, J.) (S.J.VAZIFDAR J.)
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