Re-assessment held to be void if AO has not analysed in detail the reasons of reopening

IN THE ITAT CHANDIGARH BENCH ‘A’

Bhajan Singh

v/s.

Commissioner of Income-tax-II, Chandigarh

IT Appeal No. 574 (Chd.) of 2012

[Assessment year 2002-03]

July 31, 2012

ORDER

T.R. Sood, Accountant Member

In this appeal the assessee has raised the following effective grounds:

“1.  The Ld. Commissioner has erred in invoking the jurisdiction for revision u/s 263 of the Income-tax Act, 1961 and in cancelling the assessment order passed u/s 147 r.w.s. 148 of the Act, without establishing the error in the assessment order or its prejudicial interest to the revenue. The revision order be cancelled and the assessment order be restored.

 2.  The order of the ld. Commissioner is barred by period of limitation and deserves cancellation.”

2. After hearing both the parties we find that examination of assessment order passed u/s 143(3) r.w.s. 147, ld. Commissioner was of the view that the order is erroneous as well as prejudicial to the interest of the revenue because the Assessing Officer has failed to gather the facts and carry out proper investigation on the following issues (as extracted by the Commissioner in his order u/s 263):

“(i)  The assessee had made investment in purchase of land to the tune of Rs. 43,11,250/- during the previous year relevant to A.Y 2002-03.

(ii)  The assessment was completed at an income of Rs. 16,10,500/-. A perusal of the assessment record reveals that the assessee had entered into an agreement with Smt. Kailashwati on 14.12.2001 for purchase of land measuring 9 kanals situated in village Manimajra, Chandigarh. The purchase price was fixed as per the agreement at Rs. 72,00,000/-. A sum of Rs. 4,00,000/- was paid as earnest money and the balance amount was to be paid at the time of finalization i.e. on the bargain date which was fixed on or before 30.12.2002. The sale deed in respect of the land showed that the assessee had paid a sale consideration of Rs. 2,62,500/- which was adjusted against the earnest money of Rs. 4,00,000/-.

(iii)  As per agreement to sell dated 14.12.2001 the sale price of 9 kanals of land was fixed at Rs. 72,00,000/- and the actual price of 2 kanal 2 marla land worked out to Rs. 16,80,000/- instead of Rs. 2,62,500/- shown in the sale deed. It is evident that the assessee had paid balance amounts of Rs. 14,17,500/- (Rs. 16,80,000/- minus Rs. 2,62,500/-) out of undisclosed sources and this amount needed to be added back to the returned income..”

3. A show cause notice was accordingly issued in response to the notice, written submissions were made in which it was stated as under :-

“This is in response to your notice dated 15.3.2012, proposing to make addition of Rs. 14,17,500/- on the basis that the assessee has entered into agreement to sell dated 14.12.2001 for the purchase of 9 kanals land in village Manimajra, Chandigarh with one Smt. Kailashwati for a sum of Rs. 72 lacs, which gives the average rate of 8 lacs per kanal. Against this agreement, the assessee paid Rs. 4 lacs as advance money and was required to finalise the agreement by 31.12.2002.

This agreement could not be acted upon and only 2 kanal 2 marla land was purchased for consideration of Rs. 2,62,500/- in July 2002 for intervening circumstances, viz the Chandigarh Administration had notified the land for acquisition under the Land Acquisition Act, 1894 u/s 4 of the Land Acquisition Act, 1894 vide notification No. 43/3/143-1(5)/8368 dated 1.10.2002 for the development of Information Technology Park. As a consequence the entire agreement became unfeasible and executable. The Chandigarh Administration announced the Award vide Award No. 574 (Land, Trees, Tubewell) dated 15.12.2004, (copy of award is enclosed) acquiring the land for Rs. 1,31,260/- per kanal. The only alternative left was to somehow adjust the money advanced to the seller and under the then prevailing circumstances, the seller parted with only 2 kanal 2 marla of the agricultural land.

In the light of the circumstances explained above the assessee has disclosed the actual and correct value of the transaction, and hence the present proceedings are not called for and so may kindly be vacated.”

4. A supplementary reply dated 26.3.2012 was also furnished which is also reproduced as under:-

“The assessee, by way of Preliminary Objection to the present proceedings, ha to submit that the original return of income was filed on 20.12.2012 and assessed vide order dated 21.2.2003 and reassessment proceedings were initiated vide notice u/s 147 r.w.s. 148 dated 26.3.2009 hence the present proceedings are barred by period of limitation u/s 263(2) from dated 21.2.2003. Reference CIT v. M/s Distillers Co. Ltd. (SC-TIOL-49-ITC) dated 5.4.2007 (copy of order enclosed).

The Hon’ble Supreme Court has held, that u/s 263(2) – Clock of limitation starts ticking from the date of assessment order and not from reassessment order.

In the light of the circumstances explained above the present proceedings are not called for and so may kindly be vacated.”

5. Ld. Commissioner, after examining the submissions that the agreement to sell has clearly stated that 9 kanals of land was to be purchased for a sum of Rs. 72.00 lakhs giving an average rate of Rs. 8.00 lakhs per kanal. Therefore, for purchasing 2 kanals the assessee was required to spend Rs. 16,80,000/-and since the Assessing Officer has not made proper enquiry in this respect, therefore, the order was erroneous and prejudicial to the interest of the revenue. He also observed that case laws cited by the assessee regarding limitation is not relevant because the same was not for reassessment. In the light of these observations he set aside the assessment order of the Assessing Officer which was passed by Assessing Officer on 13.12.2009 u/s 143(3) and directed to make fresh assessment after proper investigation in these issues.

6. Before us, the ld. counsel of the assessee submitted that the Department has issued a notice u/s 148 because it seems that the Department was in possession of certain sale agreement pertaining to the assessee. The assessee has filed return in pursuance to notice u/s 148 declaring the same income and copies of the same is placed at page 5 to 7 of the paper book. He argued that the assessee had filed copies of statement of affairs explaining the investment in land during re-assessment proceedings in pursuance of notice issued u/s 143(1) and 143(2). He contended that re-assessment was done on the basis of these replies and certain additions amounting to Rs. 15,21,067/-were made and therefore, the assessment could not be called erroneous and prejudicial to the interest of the revenue. In any case since the copies of statement of affairs and detailed submissions were filed before the ld. Commissioner who has passed the order without considering the same in detail therefore, revision order passed by the Commissioner was not justified. In this regard he strongly relied on the decision of Smt. Lila Choudhury v. CIT [2007] 289 ITR 226.

7. On the other hand, the ld. DR for the revenue submitted that the reasons given for issuing notice u/s 148 copy which is enclosed at page 8 & 9 of paper book clearly shows that various agreements to sell showing purchase of land by the assessee were there and the Assessing Officer has never even bothered to ask for these agreements during re-assessment proceedings. Therefore, re-assessment has been completed without making proper enquiries and on this count itself the assessment order is erroneous as well as prejudicial to the interest of the revenue. He also contended that the decision of Hon’ble Gauhati High Court in case of Smt. Lila Choudhury (supra) is totally distinguishable on facts.

8. In the rejoinder the ld. counsel of the assessee submitted that the Department already had the information that the assessee had purchased certain lands which means so called agreement to sell were already in the possession of the Assessing Officer. There was no need to requisite the same again.

9. We have heard the rival submissions carefully and find force in the submissions of the ld. DR for the revenue. The reasons given for issuing of notice u/s 148 reads as under:-

“The assessee has filed the return of income for A.Y 2002-03 on 20.12.2002 at the total income of Rs. 89,429/- and agricultural income at Rs. 3,20,000/-. This office has received the TEP from the O/O Commissioner-II, Chandigarh and the O/O Director of Income-tax (Investment) Panchkula enclosing therein a list of transactions entered into by the assessee (alongwith his brother Shri Kulwinder Singh) during the F.Y 2001-02 relevant to A.Y 2002-03. The above said list is further supported by the documentary evidences in the form of agreement to s ell and sale deeds. From the perusal of the above said records and documents, it has transpired that the assessee has not declared these transactions in his return of income for A.Y 2002-03 and as such the undersigned has reasons to believe that the transactions whose details are enumerated below have escaped assessment and notice u/s 148 of the Income-tax Act, 1961 is required to be issued. Necessary approval as per the provisions of the Income-tax Act, 1961 has been obtained from the Addl Commissioner of Income -tax-V, Chandigarh and has been taken on record.

Total investment made during Financial Year 2001-02 is Rs. 43,11,250/-. In view of the above facts, notice u/s 148 of the Income-tax Act, 1961 is issued today i.e. 26.3.2009.”

10. From the above it is clear that revenue was in possession of information that the assessee had purchased various lands which were not reflected in the return. Once the issue was reopened to investigate the purchase of various lands then the Assessing Officer was duty bound to make enquiries to examine the purchase of these land as well as the sources for the same. The Assessing Officer has simply issued notice u/s 142(1) and 143(2) dated 2.12.2009 which is standard for format of the notice. The Assessing Officer never bothered to call for copies of various agreements of sale. On a specific query of the Bench the ld. counsel of the assessee had admitted that these agreement were neither called for by the Assessing Officer nor furnished by the Assessing Officer. In fact these agreements were not furnished by the Commissioner or even before us. The Assessing Officer has proceed to make assessment u/s 143(3) r.w.s. 147 merely on the basis of statement of affairs and made addition in respect of amounts stated in the statement of affairs which could not be proved. This clearly shows that the Assessing Officer has not examined what was actual consideration for purchase of land and what were the sources. It is settled position of law that failure to make enquires which are required in the facts of the case would itself make the assessment order erroneous and prejudicial to the interest of the revenue. Reference may be made to the decision of Hon’ble Supreme Court in case of Rampyari Devi Saraogi v. CIT [1968] 67 ITR 84 and Smt. Tara Devi Aggarwal v. CIT [1973] 88 ITR 323. The reasoning for this rule that in the absence of proper enquiry the assessment order would become erroneous and prejudicial to the interest of the revenue has been given by Hon’ble Delhi High Court case of Gee Vee Enterprises v. Addl CIT [1975] 99 ITR 375 discussing the case of Rampyari Devi Saraogi (supra) and Tara Devi Aggarwal (supra) in the following paragraphs:-

“The reason is obvious. The position and function of the Income-tax Officer is very different from that of a civil court. The statements made in a pleading proved by the minimum amount of evidence may be accepted by a civil court in the absence of any rebuttal. The civil court is neutral. It simply gives decision on the basis of the pleading and evidence which comes before it. The Income-tax Officer is not only an adjudicator but also an investigator. He cannot remain passive in the face of a return which is apparently in order but calls for further inquiry,. It is his duty to ascertain the truth of the facts stated in the return when the circumstances of the case are such as to provoke an inquiry. The meaning to be given to the work “erroneous” in section 263 emerges out of this context. It is be cause it is incumbent on the Income-tax Officer to further such an inquiry prudent that the work “erroneous” in section 263 includes the failure to make such an inquiry. The order becomes erroneous because such an inquiry has not been made and not because there is anything wrong with the order if all the facts stated therein are assumed to be correct.”

In the case before us, the reasons for issuing notice u/s 148 clearly warranted that the Assessing Officer should have called for agreement to sell and then to make enquiry. Accordingly the Assessing Officer has not taken even this basic step. There is no force in the submissions that the Department already had agreement to sell even if assuming they were in the possession of the Department they were available with Ld. Commissioner-II, Chandigarh from whom information was received. Since the Assessing Officer has not even mentioned anything about such agreements, it is clear that they were not examined at all. Therefore, the assessment order has been definitely passed without proper enquiries and the Ld. Commissioner had rightly held the assessment order to be erroneous and prejudicial to the interest of the revenue.

11. As far as decision cited by the ld. counsel of the assessee is concerned in that case the assessment was completed by the Assessing Officer and the Assessing Officer had assessed the investment made by the assessee in the house property on substantive basis without making any enquiry as to whether the investment in the house property could be made from the known sources of income of the assessee. In the notice the issued, ld. Commissioner recorded that the Assessing Officer had accepted an addition in house property at Rs. 7.02 lakhs without holding any enquiry. It was further mentioned that from the report of CBI, ACB Gauhati that according to CBI investment made in the aforesaid house property was made by one Shri Moti Lal Datta son-in-law of the assessee and according to the CBI, the cost of acquisition of the house was Rs. 16,16,500/-. On these facts the Ld. Commissioner in the notice issued recorded his opinion that the assessment in question being without necessary enquiries was erroneous and prejudicial to the interest of the revenue. On the receipt of this notice the assessee filed detailed explanation and enclosed various annexures showing yearly investment made which was supported by the balance sheets which were annexed. The detail of funds available to the assessee were also disclosed. Thereafter through impugned order the Commissioner after recording his opinion that the assessment was made without making enquiries in respect of house properties and investment in the house property and source of income and written submissions giving exhaustive explanation were filed and the matter required further examination and therefore, assessment was set aside with a direction to examine the submissions advanced by the assessee. Before the Hon’ble Court it was argued that the power of section 263 can be invoked only on the basis of material available to the Assessing Officer and could not be invoked on the basis of report of CBI which was available only before the ld. Commissioner. This argument was negated by the Court because of Court’s own decision in case of Shree Auto Mobiles (P.) Ltd. v. Commissioner of Taxes [2003] 3 GLT 40 (Gau.) and the Court has given further reasons for negating this argument and at page 233 of the report.

12. However, Hon’ble High Court quashed the order passed u/s 263 because the finding that the assessment order was erroneous because of lack of enquiry was given in the notice but not in the order. However, the reasons for quashing the same has been given by the Hon’ble Gauhati High Court itself in para 17 of the order which reads as under:-

“The basis on which this court had thought it proper to interfere with the order dated Nov 1, 1996 as discussed above, ordinarily and in the normal course would not have precluded the Commissioner to redo the exercise if the said authority so desires. However, from the materials placed before the court by means of the additional affidavit filed by the petitioner it would appear that the competent criminal court, i.e., the court of the Special Judge, Assam, in Special Case No. 27(c)/1994 by judgment and order dated June 9, 2003 has exonerated the son-in-law of the petitioner from any liability on account of the house property in question by holding the same to be belonging to the petitioner. The findings recorded by the ld. Special Judge in this regard cannot be brushed aside by the Revenue. In such circumstances, I am of the view that any de novo proceedings at this stage would be futile and may turn into a weapon of harassment against the petitioner. In such circumstances, I am of the view that after recording the interference made with the impugned order dated Nov 1, 1996, passed by the Ld. Commissioner of Income-tax, N.E. Region, Shillong, this court should proceed to direct the Revenue to treat the assessment of the petitioner for the assessment year 1992-93 made by order dated May 16,1994, to be complete and final.”

13. The highlighted portion of the above clearly shows that the Court has itself very clearly stated that ordinarily in the normal course, ld. Commissioner was entitled to re-do revisionary exercise if he so desires. The Court has given peculiar circumstances because of which the order passed u/s 263 was quashed. This clearly shows that this kind of extra jurisdiction can be exercised only in specific circumstances and not in all the cases. Therefore, this decision can not be taken as a precedent in all the cases. In any case in the case before us, the finding has been given in the revisionary order also stating why the assessment order passed u/s 143(3) r.w.s. 147 was erroneous because of lack of enquiry. Therefore, we are of the opinion that the ld. Commissioner has clearly exercised the revisionary jurisdiction u/s 263 of the Act because the Assessing Officer has clearly failed to make any enquiry in the given facts of the case as stated above.

14. In this appeal one more ground has been taken in respect of limitation but no arguments were made before us by the ld. counsel of the assessee or the Department. However, from the reading of revisionary order u/s 263 it becomes clear that the revisionary order has been passed in respect of assessment order passed u/s 143(3) r.w.s. 147 on 31.12.2009. It is settled position of law that power u/s 263 is available to revise any order passed by the assessing authority and re-assessment order is definitely an order which was passed on 31.12.2009. Therefore, limit would start u/s 263(2) from the end of Financial Year in which the order has been passed i.e. 31.3.2010 and would expire on 31.3.2012 whereas the order challenged before us has been passed before 28.3.2012 i.e. well within time limit prescribed u/s 263(2). Therefore, the order is very much within the limitation period.

15. In view of above discussion, we uphold the order passed u/s 263 of the Act.

16. In the result, appeal filed by the assessee is dismissed.