Case Law Details
Chordia Buildcon Pvt. Ltd. Vs DCIT (ITAT Jaipur)
The issue under consideration is whether the action taken by the AO u/s 147 r.w.s 148 is justified in law?
The case of assessee was originally selected for scrutiny and a detailed questionnarie was issued alongwith notice u/s 142(1). The AO asked specific queries with regard to subject compensation debited in P&L Account. After considering the reply of the assessee, no disallowance of compensation was made and revenue expenditure was allowed by the AO in the original assessment proceedings completed u/s 143(3). Thereafter, after lapse of four years, notice u/s 148 was issued. It is relevant to note that case was reopened based upon the assessment records and submission filed during the course of original assessment proceedings and the same is evident from the reasons recorded, which is reproduced in para 2 of the reassessment order passed u/s 147 of the Act.
In the instant case, ITAT find that the reopening of the completed assessment u/s 143(3) is without bringing any fresh material on record and where the material relied upon has already been examined by the Assessing officer during the original assessment proceedings, it clearly amounts to change of opinion which as per settled jurisprudence, as ITAT have noticed supra, cannot be sustained and notice so issued u/s 148 seeking to reopen the assessment is liable to be set-aside.
FULL TEXT OF THE ITAT JUDGEMENT
This is an appeal filed by the assessee against the order of the ld. CIT(A)-II, Jaipur dated 30.12.2019 for the assessment year 2011-12 wherein the assessee has taken the following grounds of appeals:-
“1.The impugned additions and disallowances made in the order u/s 143(3)/147 of the Act, dated 16.02.2018 is bad in law and on facts of the case, for want of jurisdiction and various other statutory reasons and hence, kindly be deleted.
2. The Ld.CIT(A) erred in confirming the very action taken by the AO u/s 147 r.w.s 148 of the Act, which is bad in law, without jurisdiction, merely based on change of opinion and being void ab-initio, the same kindly be quashed. Consequently, the impugned assessment framed u/s 143/147 of the act dated 16.02.2018 kindly also be quashed.
3. The ld. CIT(A) erred in law as well as on the facts of the case in confirming the action of the AO in holding that compensation of Rs.52,27,012/- is liable to be capitalized. The addition so made and confirmed by the Ld. CIT(A), is contrary to the provisions of law and facts, merely based upon suspicion hence, kindly be deleted.
4. The ld.CIT(A) erred in law as well as on the facts of the case in confirming action of the AO in making addition of Rs. 50,820/- on account of non deduction of TDS on interest treating the payment made as interest instead of compensation as claimed by the assessee. The addition so made and confirmed by the Ld.CIT(A), is contrary to the provisions of law and facts, merely based upon suspicion, and not appreciating the submissions of the assessee, hence kindly be deleted.”
2. Briefly the facts of the case are that the assessee is engaged in the business of real estate and filed its return of income on 28.09.2011 declaring loss of Rs. 27,04,932/- and the assessment was completed U/s 143(3) on 14.03.2014 at NIL income. Subsequently, notice u/s 148 was issued on 28.3.2018 after recording the reasons and seeking appropriate approvals. In response, the assessee filed its return of income declaring NIL income, subsequently, notice u/s 148 was supplied to the assessee and objections so received from the assessee were disposed off vide order dated 13.12.2018. Thereafter, notice u/s 143(2) and 142(1) were issued and after considering the submissions of the assessee, the reassessment was completed at an assessed income of Rs 52,77,832/- disallowing compensation paid to plot owners amounting to Rs 52,72,012/- and another disallowance of Rs 50,820/- was made under section 40(a)(ia) of the Act. Being aggrieved, the assessee carried the matter in appeal before CIT(A) who has upheld the re-opening of assessment u/s 148 as well as sustained the disallowances made by the Assessing officer. Against the said findings, the assessee is in appeal before us.
3. In Ground no. 1 & 2, the assessee has effectively challenged the assumption of jurisdiction by the Assessing officer u/s 147 of the Act.
4. During the course of hearing, the ld AR submitted that the assessee is a real estate developer who has floated a township project comprising of residential as well as commercial shops and started getting the bookings. At the time of booking, according to the approved map, there was a 60 Feet Road passing under HT Line. Subsequently, the Electricity Board change the policy of having 180 Feet Road under HT Line, consequently, JDA revised the map and the some plots under consideration got merged in the road, hence, become not saleable. The assessee had already received the booking for these plots but this subsequent event made these plots not saleable, hence the assessee company had to compensate them which was debited in P&L Account under the head “compensation paid due to HT Line” and “compensation paid due to booking cancellation”. Thus, the nature of expenditure was clearly disclosed in the financial statement itself. The case was originally selected for scrutiny and a detailed questionnarie was issued alongwith notice u/s 142(1) dated 19.08.2013. The AO asked specific queries with regard to subject compensation debited in P&L Account vide Point Nos. 27 and 28 of the questionnaire. After considering the reply of the assessee, no disallowance of compensation was made and revenue expenditure was allowed by the AO in the original assessment proceedings completed u/s 143(3) vide order dated 14.03.2014. Thereafter, after lapse of four years, notice u/s 148 was issued on 28.3.2018. It is relevant to note that case was reopened based upon the assessment records and submission filed during the course of original assessment proceedings and the same is evident from the reasons recorded, which is reproduced in para 2 of the reassessment order passed u/s 147 of the Act.
5. It was further submitted that in respect of compensation of Rs.50,820/- against booking cancellation, similar reasons were recorded based upon queries and reply submitted during original assessment proceedings completed u/s 143(3) of the Act. It was submitted that this issue was also discussed in detail at the time of original assessment proceedings. The AO had asked specific query in this respect vide notice u/s 142(1) dated 19.08.2013 at Point No.28. The query was duly replied by the assessee along with name of the person to whom payment has been made, amount of payment, date of payment etc. These details have also been reproduced by the AO in the reasons recorded and therefore, this being also a case of change of opinion.
6. It was further submitted that the AO while making the reassessment u/s 147 had infact, taken note in para 5.4 of his order, the submission made on the issue under consideration during the original assessment proceedings u/s 143(3) and the same reads as under:
“In addition to the above, in one of its replies made during the assessment proceedings u/s 143(3), the assessee has stated that the compensation has been given to save the goodwill of the company, thus clearly the position taken in regard to such expenditure by the assessee himself is in nature of capital expenditure. The said expense is, alternatively, to be treated as an expense to enhance the goodwill of the company. Such expense has the nature of a capital expense. of the order under consideration. The compensation paid to the buyer were claimed in the Profit & Loss Account. “
7. It was further submitted that as the reopening of the assessment has been done after 4 years from the end of the assessment year and as evident from the reasons recorded by the AO, he has no where alleged that there is failure on the part of the assessee to disclose fully and trully all material facts.
8. It was accordingly submitted by the ld AR that payment under consideration is compensation paid to plot buyers which was clearly disclosed in the financial statements. During the original assessment proceedings, queries were raised and issue was examined by the Assessing officer. The present reassessment proceedings have been initiated based solely upon the assessment records wherein submissions of the assessee filed duirng the original assessment proceedings have been taken as the basis and there is no fresh material which has been brought on record. Admittedly, submission made and issue discussed during the original assessment proceeding have also been reviewed and reappreciated by the AO while passing the reassessment order u/s 148. It is a case where assessment has been reopened after four years and it is also admitted fact that full and true disclosure was made by the assessee during the original assesmsent proceedings and there is no failure on part of the assessee. The AO while reopening merely reviewed the order passed by his predecessor and it is clearly a case of change of opinion based on review of existing facts and submissions filed during the original assessment proceedings. During the course of first appellate proceedings also, the contention regarding change of opinion was raised before Ld.CIT(A) but no specific findings was recorded on this issue and action of AO for initiation of reassessment proceedings was sustained summarily. It was accoridngly submitted that it is a case of mere case of change of opinion and which is not permissable as per settled legal propsition and therefore, cannot hold on the legal scrutiny of the requirement for initiation of proceedings u/s 148 and accordingly, the notice issued u/s 148 and consequent reassessment proceedings u/s 147 should be quashed and set-aside.
9. In support of his contentions, the ld AR has placed reliance on the decisions in the case of Krish Homes Pvt. Ltd. vs ITO (ITA No. 237/JP/2019 dated 23.12.2019), ACIT vs Manglam Cement Limited (2017) 78 Taxmann.com 334 (Jaipur Trib) affirmed by the Hon’ble Rajasthan High Court (in DBITA No.211/2017 dated 04.09.2017, CIT vs Vaishali Avenue (2014) 48 Taxmann.com 289 (Raj), CIT vs Hindustan Zinc Limited (2016) 70 Taxmann.com 262 (Raj) and CIT vs Kelvinator of India Ltd (2010) 187 Taxman 312.
10. Per contra, the ld DR submitted that the AO reopened the assessment proceedings after recording the due reasons and due satisfaction after following due process. The case of the assessee was reopened in the light of information/documents to the extent which were available with the AO. The material before the Assessing Officer was relevant and affords a live link or nexus to the formation of the prima facie belief that income chargeable to tax has escaped assessment in the hands of the assessee. The sufficiency and correctness of material need not be looked at the initial stage at the time of reopening of the case. While considering whether commencement of reassessment proceedings was valid, the Courts have held that what has to seen is whether there was prima facie some material on the basis of which the Department could reopen the case. The sufficiency or correctness of the material is not to be considered at that stage. The “reasons to believe” would mean cause or justification. If the Assessing Officer has cause or justification to know or suppose that income had escaped assessment, he can be said to have reason to believe that an income had escaped assessment. The expression cannot be read to mean that the Assessing Officer should have finally ascertained the fact by legal evidence or conclusion and what is required is “reasons to believe” but not the established fact of escapement of income. At the stage of issue of notice, the only question is whether there was relevant material on which a reasonable person could have formed a requisite belief. It was accordingly submitted that there is no infirmity in the assumption of jurisdiction by the AO u/s 147 in the present case and there is no merit in the contention so advanced by the ld AR. In support of her contentions, the ld DR relied on the decision in case of Raymond Woollen Mills vs ITO [1999] 236 ITR 34(SC) and ACIT vs Rajesh Jhaveri Stock Brokers (P) Ltd [2007] 291 ITR 500 (SC).
11. We have heard the rival contentions and perused the material available on record. There is no dispute and it is a settled legal proposition that for assumption of jurisdiction u/s 147, the Assessing Officer must form a prima facie opinion on the basis of material that there is an escapement of income, the opinion formed may be subjective but the reasons recorded or the information available on record must show that the opinion is not a mere suspicion, the reasons recorded and/or the documents available on record must show a nexus and relevancy to the opinion formed by the Assessing Officer regarding escapement of income and the reasons are required to be read as they were recorded by the Assessing officer. It is for the Assessing officer to disclose and open his mind through the reasons recorded by him and he has to speak through the reasons. In the present case, the reasons recorded by the Assessing officer before issuance of notice u/s 148 read as under:-
“ On going through the assessment records, it was noticed that the assessee has debited an amount of Rs.52,27,012/- in his P&L Account as compenstion paid to plot owners due to high tention line over such plots. The assessee has got back the plots for which compensation was paid by the assessee. These plots have now become the part of his closing stock. The assessee has itself admitted that the prices of land have gone up and he had to compensate the plot holders for the enhanced value. This increase in value of land would go on to increase the cost of the closing stock. In view of this matter, instead of debiting the expenditure as revenue, the expenditure ought to have been capitalized which would have gone to increase the closing stock. by the relevant amount. In one of its reply, the assessee has stated that the compensation has been given to save the goodwill of the company, thus clearly the position taken in regard to such expenditure by the assessee himself is in nature of capital expenditure. Further in the case of Asst. Commissioner Vs Seven Arts Films (2014) 33 ITR Trib. 694 (Chennai), it has been held that the compensation paid to save the goodwill of he company was capital in nature. Also it is pretinent to mention here that the compensation paid to such plot owners is to be made part of the cost of plots itself and not to treat the same as revenue expenditure. Thus in view of above there shall be made addition of Rs.52,27,012/- in the income of the assessee for the year under consideration.”
12. On perusal of the reasons so recorded by the Assessing officer, it is noted that the material and information on the basis of which he has formed the belief that the income has escaped assessment is the assessment records, wherein on perusal of the profit and loss account, it was noticed that the assessee has debited an amount of Rs.52,27,012/- as compenstion paid to plot owners due to high tention line over such plots and submissions filed by the assessee during the assessment proceedings stating that the prices of land have gone up and he had to compensate the plot holders for the enhanced value and in another submission where the assessee has stated that the compensation has been given to save the goodwill of the company. The fact that the assessee has got back the plots for which compensation was paid by the assessee and these plots have now become the part of his closing stock are also emerging from the existing assessment records wherein the assessment has been completed u/s 143(3) dated 14.03.2014. The treatment of such an expenditure, which has been claimed as revenue by the assessee, as capital expenditure is therefore a point of view and an opinion basis the existing facts and material available on record and not on the basis of any further facts which have come on record or any fresh enquiry conducted by the Assessing officer as also apparent from the reasons so recorded where the Assessing officer has admitted that “no enquiries are required to be made at the end of AO as the facts are subject to verification of books and assessment records.” Similar is the position regarding compensation paid against booking cancellation where the Assessing officer refers to the assessment records and ledger account of Shri Krishan Kumar Gupta and held that the payment has been made in the nature of interest amounting to Rs 68,320/- which should suffer TDS and in absence of the same, the disallowance should have been made u/s 40(a)(ia) of the Act. The position which is therefore emerging from the reasons so recorded by the Assessing officer is that there is no new material brought on record by the Assessing officer and basis the existing material available on record, he has formed the belief that the income has escaped assessment. In this case, the assessment was originally completed u/s 143(3) and as apparent from the queries raised by the Assessing officer and reply submitted by the assessee company, matter pertaining to compensation paid on account of HT Line and compensation paid against booking cancellation were duly examined by the Assessing officer during the original assessment proceedings. Therefore, the facts that there was compensation paid on account of HT Line and compensation was paid against booking cancellation and debited in the profit/loss account were available on record at the time of original assessment proceedings and the Assessing officer was duly ceased of such factual position and claim of the assessee company and basis examination thereof, the claim of the assessee company was allowed by the Assessing officer while completing the original assessment proceedings under section 143(3) of the Act. It is therefore clearly a case of change of opinion where on the same facts and material on record, the Assessing officer wishes to take a different view than the view already taken by his predecessor and such change of opinion cannot be a basis for reopening as the AO has the power to reassess but no power to review his or his predecessor order, as held by the Hon’ble Supreme Court in case of Kelvinator of India ltd (supra) where affirming the full Bench decision of the Hon’ble Delhi High Court, it was held as under:
“4. On going through the changes, quoted above, made to section 147 of the Act, we find that, prior to Direct Tax Laws (Amendment) Act, 1987 , re- opening could be done under above two conditions and fulfilment of the said conditions alone conferred jurisdiction on the Assessing Officer to make a back assessment, but in section 147 of the Act [with effect from 1-4-1989], they are given a go-by and only one condition has remained, viz., that where the Assessing Officer has reason to believe that income has escaped assessment, confers jurisdiction to re-open the assessment. Therefore, post 1-4-1989, 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, section 147 would give arbitrary powers to the Assessing Officer to re-open 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 re-assess. The Assessing Officer has no power to review; he has the power to reassess. But reassessment has to be based on fulfilment 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 re-opening 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 Assessing Officer. Hence, after 1-4-1989 , Assessing Officer 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 section 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 section 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 Assessing Officer. We quote hereinbelow the relevant portion of Circular No. 549 , dated 31-10-1989, which reads as follows:
“7.2 Amendment made by the Amending Act, 1989, to reintroduce the expression ‘reason to believe’ in section 147. —A number of representations were received against the omission of the words ‘reason to believe’ from section 147 and their substitution by the ‘opinion’ of the Assessing Officer. 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 section 147 would give arbitrary powers to the Assessing Officer to reopen past assessments on mere change of opinion. To allay these fears, the Amending Act, 1989 , has again amended section 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 section 147, however, remain the same.”
13. Similarly, in case of Hindustan Zinc (supra), the Hon’ble Rajasthan High Court has held as under:
“12. In the instant case, it is to be noticed that the assessee had made true and full disclosure of all relevant facts relating to the claim of additional depreciation and also in respect of claim for grant of deduction under section 80-IA. A separate audit report in the prescribed form 10CCB in support of the claim for deduction under section 80-IA/80-IB was also duly submitted. The assessee had also submitted reply pursuant to all queries made by Assessing Officer during the assessment proceedings under section 143(3). In this view of the matter, the contention sought to be raised by the revenue about nondisclosure on the basis of the failure on the part of the assessee in mentioning bifurcated amount of additional depreciation allowable in the depreciation chart is absolutely baseless. It is to be noticed that all that has been said by the Assessing Officer is that after scrutiny assessment, it was observed that assessee has made incorrect claim of additional depreciation on Captive Power Plant whereas, the claim for additional depreciation on Captive Power Plant was allowed by the Assessing Officer while framing the assessment under section 143(3) after conscious consideration of the material on record. It is not even the case of the revenue that the formation of the belief regarding the escapement of income by the Assessing Officer is based on any new material coming on record. Apparently, the formation of the belief by the Assessing Officer regarding escapement of the assessment is based on re-appreciation of the material already available on record at the time of scrutiny assessment which amounts to mere change of opinion. Obviously, in the garb of purported exercise of the power to reassess, the Assessing Officer cannot be permitted to review his own order or the order passed by his predecessor. Thus, the finding arrived at by the Tribunal that the reassessment proceedings initiated by the Assessing Officer by mere change of opinion is patently illegal, cannot be faulted with.”
14. In the instant case also, we find that the reopening of the completed assessment u/s 143(3) is without bringing any fresh material on record and where the material relied upon has already been examined by the Assessing officer during the original assessment proceedings, it clearly amounts to change of opinion which as per settled jurisprudence, as we have noticed supra, cannot be sustained and notice so issued u/s 148 seeking to reopen the assessment is liable to be set-aside.
15. Another contention which has been raised by the ld AR is that in the reasons so recorded, the Assessing officer has not alleged that there is failure on the part of the assessee to disclose fully and trully all material facts and where the powers under Section 147 of the Act have to be exercised by the Assessing officer after a period of four years, there has to be a failure to disclose fully and truly all material facts and information by the assessee which is not alleged by the Assessing officer in the instant case. In this regard, we note that the original assessment was completed u/s 143(3) vide order dated 29.02.2016 for the impugned assessment year 2011-12 wherein the returned income declaring total income at NIL was accepted and subsequently, the notice u/s 148 was issued on 28.03.2018 which is clearly after the expiry of four years from the end of the relevant assessment year and as per proviso to section 147 of the Act, for assumption of jurisdiction in such cases, additional requirement which has to be satisfied is that there has to be a failure on part of the assessee to disclose fully and truly all material facts necessary for his assessment for that assessment year. In this regard, the observations of the Hon’ble Delhi High Court in case of CIT v. Multiplex Trading & Industrial Co. Ltd. 378 ITR 350 are relevant in this respect wherein it was held that:
“24. In our view, the question whether the Assessee could have been stated to disclosed fully and truly all material facts have to be examined in the light of facts of each case and also the reasons that led the AO to believe that income of an Assessee has escaped assessment. In a case where the primary facts have been truly disclosed and the issue is only with respect to the inference drawn, the AO would not have the jurisdiction to reopen assessment. But in cases where the primary facts as asserted by the Assessee for framing of assessment are subsequently discovered as false, the reopening of assessment may be justified”.”
Therefore, the fact that there is failure on the part of the assessee to disclose primary facts have to be seen and such failure should be discernable on reading of the reasons so recorded by the Assessing officer. In the instant case, as we have noted above, on the reasons so recorded, the Assessing officer has referred to the assessee’s financial statements, the profit/loss account and submissions filed during the course of original assessment proceedings and basis the same, has held that the income has escaped assessment. To our mind, these are all primary facts as to the treatment done by the assessee in its books of accounts of the compensation so paid by it which are duly disclosed and where on appreciation of such primary facts, the Assessing officer is of the view that such expenditure is in nature of capital expenditure and not revenue expenditure, it is his inference and analogy which has drawn basis review of such primary facts. However, as far as onus on the assessee to disclose the primary facts are concerned, the same has been satisfied and there is no such failure and infact, in the reasons so recorded, there is no allegation made by the Assessing officer that there is any such failure on the part of the assessee company and as we have stated above, it is for the Assessing officer to disclose and open his mind through the reasons recorded by him and he has to speak through the reasons.Therefore, we agree with the contention so advanced by the ld AR that this being a jurisdiction requirement and in absence of any such failure on part of the assessee company, the Assessing officer cannot assume jurisdiction u/s 147 of the Act.
16. In light of aforesaid discussions and respectfully following the decisions referred supra, we are of the considered view that in the instant case, the Assessing officer doesn’t have the legal basis to acquire jurisdiction for reassessment and thus, the notice issued under section 148 and consequent reassessment proceedings are quashed and set-aside.
17. The other grounds raised on merits of the additions have therefore become academic and we do not propose to adjudicate them and the same are dismissed as infructious.
In the result, the appeal filed by the assessee is allowed.
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