Reopening of assessment beyond 4 years unsustainable as full and true material facts disclosed

Crown Real Estate Pvt Ltd Vs ITO (ITAT Chennai)

ITAT Chennai held that reopening of assessment beyond 4 years without any failure on the part of the assessee to disclose fully and truly all material facts necessary for its assessment is bad in law and hence liable to be quashed.

Facts- The main contention of the appellant is assumption of jurisdiction u/s.148 of the Act by the AO and confirmed by the CIT(A) is against, for the reason that the reopening is beyond 4 years and original assessment was completed u/s.143(3) of the Act vide order dated 15.03.2016 and there is no failure pointed out by the AO in the reasons recorded on the part of the assessee to disclose fully and truly all material facts for completion of assessment for the relevant assessment year.

Conclusion- Held that reopening is beyond 4 years and as the original assessment was framed u/s.143(3) of the Act, the Revenue could not establish any failure on the part of the assessee to disclose fully and truly all material facts necessary for its assessment, the reopening in present case is bad in law. Hence, reopening is quashed and this jurisdictional issue is allowed in favour of assessee.

FULL TEXT OF THE ORDER OF ITAT CHENNAI

This appeal by the assessee is arising out of the order of the Commissioner of Income Tax (Appeals), National Faceless Appeal Centre (NFAC), Delhi in order No.ITBA/NFAC/S/250/2022-23/1048970692(1) dated 20.01.2023. The re-assessment was framed by the DCIT, Corporate Circle 1(2), Chennai for the assessment year 2013-14 u/s.144 r.w.s.147 of the Income Tax Act, 1961 (hereinafter ‘the Act’), vide order dated 13.12.2019.

2. The first issue on the assumption of jurisdiction u/s.148 of the Act by the AO and confirmed by the CIT(A) is against, for the reason that the reopening is beyond 4 years and original assessment was completed u/s.143(3) of the Act vide order dated 15.03.2016 and there is no failure pointed out by the AO in the reasons recorded on the part of the assessee to disclose fully and truly all material facts for completion of assessment for the relevant assessment year. For this, assessee has raised following ground No.3 & 4:-

3. The National Faceless Appeal Centre (NFAC) ought to have seen that re­opening of assessment beyond 4 years without any additional tangible material to show that income has escaped assessment smacks of lack of jurisdiction. The Notice under section 148 was issued on 29.03.2019 which is beyond 4 years from the end of the assessment year Viz .31.03.2014.

4. The National Faceless Appeal Centre (NFAC) ought to have seen that the assessee has furnished full and true particulars of its income at the time of original assessment with reference to income alleged to have escaped assessment and it is settled position of law that the assessment cannot be validly reopened under Section 147 of the Act, within four year or beyond 4 years, merely on the basis of change of opinion.

3. Briefly stated facts are that the assessee is a resident domestic company and engaged in the business of real estate and aquaculture. The assessee filed its return of income for the relevant assessment year 2013-14 on 01.10.2013 and subsequently the same was revised on 06.02.2014. This return of income was selected for scrutiny under CASS and notice u/s.143(2) of the Act was issued and assessee filed details called for. In view of the details provided by assessee and explanation offered and material filed were considered and assessment was completed u/s.143(3) of the Act originally vide order dated 15.03.2016 by the AO.

3.1 Subsequent to completion of assessment u/s.143(3) of the Act, the AO recorded the reasons u/s.147 of the Act for issuance of notice u/s.148 of the Act and accordingly, notice u/s.148 of the Act dated 20.03.2019 was issued calling for the return of income on the ground that for the assessment year 2013-14, there is escapement of income. The assessee replied that it had already filed return of income u/s.139(1) and same was revised u/s.139(5) of the Act, which was scrutinized vide assessment order passed dated 15.03.2016 u/s.143(3) of the Act, may be considered as return filed in response to notice u/s.148 of the Act. Accordingly, the AO framed the reassessment u/s.144 r.w.s.147 of the Act, vide order dated 30.12.2019. The assessee challenged this re-assessment order before the CIT(A).

4. The assessee raised the first issue before CIT(A) on reopening which reads as under:-

“1. Appellant submits that the Order of Assessment dated 13.12.2019 passed under section 144 r.w.s 147 of the Income Tax Act for the assessment year 2013-14, in so far as it goes against the appellant, is contrary to law and facts, against the weight of evidence and probabilities of the case.”

Now, the ld.counsel for the assessee before us pointed out that the CIT(A) has not adjudicated this jurisdictional issue and just confirmed the addition by adjudicating and treating the only effective grounds as under:-

“6.2. There is only one effective ground of appeal and i.e., pertains the addition of Rs.3,93,01,801/- as unexplained cash credits u/s 68 of the Income-tax Act.”

Now, the ld. counsel for the assessee stated that complete facts relating to the jurisdictional issue i.e., framing of reassessment beyond 4 years and there is no failure pointed out by the AO in the reasons recorded on the part of the assessee to disclose fully and truly all material facts necessary for its assessment for the relevant assessment year are available on record and the Tribunal can decide the issue being a jurisdictional issue.

5. First of all, the ld. counsel for the assessee drew our attention to reasons recorded, which reads as under:-

Reasons for reopening of the assessment in the case of M/s. Crown Real Estates Private Limited for the Asst. Year 2013-14 u/s. 147 of the Act.

1. Brief details of the Assessee:

The assessee Company is engaged in the business of real estate.

2. Brief details of information collected/received by the AO:

There had been share application money pending and not shares not allotted. There is an increase of Rs.77,20,610/- when compared to the amount for AY 2012-13. The genuineness and creditworthiness of the persons who subscribed for shares are to be verified. In addition to this it is seen that authorized capital is Rs. 5 lakhs whereas the share application money pending is Rs.4.42,72,411/- Thus there is a violation as far as share application money is concerned when compared to the authorized capital.

3. Analysis of information collected/received:

The above analysis shows that the income exceeding Rs. 1 lakh has escaped assessment there by subjecting the assessee’s case for reopening u/s.148 for the AY 2013-14.

4. Enquiries made by the AO as sequel to information collected/received:

Nil.

5. Findings of the AO:

Share application money brought in has to be verified with proper evidences. The same is also in huge excess than the authorized capital.

6. Basis of forming reason to believe and details of escapement of income: The reason to believe that the income has escaped has already been detailed in para 2 & 5 above.

7. Escapement of income chargeable to tax in relation to any assets (including financial interest in any entity) located outside India.

Nil

8. Applicability of the provisions of Sec.147/ 151 to the facts of the case:

In view of the above, it is requested that necessary sanction may be accorded to issue notice u/s. 148 for the Asst. Year. 2013-14.

The ld.counsel for the assessee subsequently took us through the reassessment order and drew our attention to the following paras:-

Subsequently on analysis of the balance sheet of the assessee it was found that there was increase in share application money received, from Rs.3,65,51,801/- to Rs.4,42,72,411/-. Since the said share application money was standing in the books of the assessee company remaining unallotted, the case of the assessee was reopened u/s. 147 of the IT Act after seeking prior approval. Notice u/s. 148 dated 29.03.2019 was issued and served on assessee. No return of Income has been filed in response to Notice u/s.148 on the 1.T. Act. Further, Notice u/s. 142(1) issued on 19-11­2019 calling for return of income and intimating change of incumbent.

The details of the parties form whom share application money received, date of receipt & reasons for non-allotment of shares was called for. In response the assessee furnished the party wise breakup of share application money received as under:

5.1 In view of the above, the ld. counsel for the assessee stated the fact that the assessee received share application money and the details are as under:-

The ld. counsel submitted that these funds were initially received towards share application money and were subsequently converted into secured loans in financial year 2012-13 relevant to this assessment year 2013-14 but inadvertently it is shown as share application money in its financials. The ld. counsel stated that majority of share application money pertains to financial year 2011­12 relevant to assessment year 2012-13 and in this year only share application money that is being differential share application money is to the extent of Rs.77,50,000/-. The ld. counsel stated that from the above reasons recorded, it is clear that the AO has gone into the financials of the assessee which were available before the AO during the course of assessment proceedings and even the reassessment order also speaks that the information i.e., balance sheet as well as the complete accounts were available before the AO during the course of original assessment proceedings and there is no failure on the part of the assessee to disclose material facts fully and truly for the assessment of its income for the relevant assessment year. He stated that once the original assessment is completed u/s.143(3) of the Act, the assessee’s case clearly falls under proviso to section 147 of the Act and no reopening possible beyond 4 years unless and until the Revenue could show that there is failure on the part of the assessee to disclose fully and true particulars of income for assessment for the relevant assessment year, as in the present case the facts are exactly identical. The ld.counsel for the assessee also relied on certain judicial decisions and particularly the case law of Hon’ble Supreme Court in the case of CIT vs. Foramer France, (2003) 264 ITR 566.

6. On the other hand, the ld.Senior DR heavily relied on the reasons recorded, reassessment order and the order of the CIT(A). Alternatively he made submissions, matter can be referred back to the file of the CIT(A) for adjudication of jurisdictional issue because he has not gone into the facts of the case and there is no adjudication by him on this issue.

7. We have heard rival contentions and gone through the facts and circumstances of the case. Admittedly, the AO during the course of assessment proceedings was aware about the share application money received by assessee because the audited accounts were available before him during the course of original assessment proceedings. From the reasons recorded, there is no iota of thinking or words in the reasons recorded that there is any failure on the part of the assessee to disclose fully and truly all material facts relating to the income for the relevant assessment year. Admittedly the reopening is beyond 4 years because relevant assessment year involved is 2013-14 and notice u/s.148 of the Act is issued on 29.03.2019, which means admittedly it is beyond 4 years. In our view, there is no failure on the part of the assessee to disclose fully and truly all material facts necessary for framing of assessment and assessment was completed originally u/s.143(3) of the Act and admittedly the reopening is beyond 4 years because notice u/s.148 of the Act was issued on 29.03.2019, no re-opening is possible. This view of ours is supported by the decision of Hon’ble Supreme Court in the case of CIT vs. Foramer France, (2003) 264 ITR 566, wherein the Supreme Court has affirmed the decision of Hon’ble Allahabad High Court in the case of Foramer France vs. CIT, (2001) 247 ITR 436 by observing as under:-

14. Having heard learned counsel for the parties, we are of the view that these petitions deserve to be allowed.

15. It may be mentioned that a new Section substituted Section 147 of the Income-tax Act by the Direct Tax Laws (Amendment) Act, 1987, with effect from April 1, 1989. The relevant part of the new Section 147 is as follows :

“147. If the Assessing Officer, has reason to believe that any income chargeable to tax has escaped assessment for any assessment year, he may, subject to the provisions of sections 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 sections 148 to 153 referred to as the relevant assessment year) :

Provided that where an assessment under Sub-section (3) of Section 143 or this Section has been made for the relevant assessment year, no action shall be taken under this Section after the expiry of four years from the end of the relevant assessment year, unless any income chargeable to tax has escaped assessment for such assessment year by reason of the failure on the part of the assessee to make a return under Section 139 or in response to a notice issued under Sub-section (1) of Section 142 or Section 148 or to disclose fully and truly all material facts necessary for his assessment for that assessment year.”

16. This new Section has made a radical departure from the original Section 147 inasmuch as clauses (a) and (b) of the original Section 147 have been deleted and a new proviso added to Section 147.

17. In Rakesh Aggarwal v. Asst. CIT (1997] 225 ITR 496, the Delhi High Court held that in view of the proviso to Section 147 notice for reassessment under Section 147/148 should only be issued in accordance with the new Section 147, and where the original assessment had been made under Section 143(3) then in view of the proviso to Section 147, the notice under section 148 would be illegal if issued more than four years after the end of the relevant assessment year. The same view was taken by the Gujarat High Court in Shree Tharad Jain Yuvak Mandal v. ITO [2000] 242 ITR 612.

18. In our opinion, we have to see the law prevailing on the date of issue of the notice under Section 148, i.e., November 20, 1998. Admittedly, by that date, the new Section 147 has come into force and, hence, in our opinion, it is the new Section 147 which will apply to the facts of the present case. In the present case, there was admittedly no failure on the part of the assessee to make a return or to disclose fully and truly all material facts necessary for the assessment. Hence, the proviso to the new Section 147 squarely applies, and the impugned notices were barred by limitation mentioned in the proviso.”

7.1 In view of above facts and circumstances, we are of the view that reopening is beyond 4 years and as the original assessment was framed u/s.143(3) of the Act, the Revenue could not establish any failure on the part of the assessee to disclose fully and truly all material facts necessary for its assessment, the reopening in present case is bad in law. Hence, reopening is quashed and this jurisdictional issue is allowed in favour of assessee.

8. Coming to the merits of the case, since we have quashed the reassessment on reopening, we need not to adjudicate the issues on merits. In term of the above, the appeal of the assessee is allowed.

9. In the result, the appeal filed by the assessee is allowed.

Order pronounced in the open court on 14^th July, 2023 at Chennai.