TMI Blog2014 (9) TMI 890X X X X Extracts X X X X X X X X Extracts X X X X ..... re on the part of the assessee to disclose fully and truly all material facts necessary for his assessment. Assessee had disclosed fully and truly all material facts necessary for his assessment - The fact that short term capital gains tax is to be paid or long term capital gains tax is to be paid is a different issue and for this purpose, reassessment proceedings, if any, ought to have been drawn within four years which, in the present case had not been done - where a notice is issued after four years the jurisdiction of the AO is conferred where he has reasons to believe that income chargeable to tax has escaped assessment and that such under assessment has occurred by reason of omission or failure on the part of the assessee to make a return of his income or omission or failure on the part of the assessee to disclose fully and truly all material facts necessary for his assessment in that year - the conversion of the rights of the lessee in the property from lease hold to free hold was only an improvement of the rights over the property, which the assessee enjoyed and this would not have any effect on the taxibility of capital gains from such property. Since the property wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . This application was forwarded to the State Government. The State Government granted permission for the execution of the lease deed in favour of the heirs of Sri S.K. Verma on the same terms and conditions. As a consequence thereof, fresh and separate lease deeds on the same terms and conditions were executed on 3rd February, 1996 in favour of the heirs of Sri S.K. Verma. The State Government floated a policy for conversion of lease land into free hold. The heirs applied for free hold. After paying conversion charges, the State Government converted the lease land into free hold land and a sale deed dated 20th November, 1996 was executed in favour of the petitioner. Free hold deed in favour of Smt. Nirmala Verma was also executed on 21st November, 1996. Thereafter, some portion of the land was sold by Smt. Nirmala Verma and the petitioner to different parties on different dates. For the assessment year 1997-98, Smt. Nirmala Verma filed her return on 17th May, 1997 disclosing the premium paid for conversion of lease land into free hold and also disclosing the sale of land to a third party. Smt. Nirmala Verma also filed a chart showing the computation of capital gains tax liab ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Section 148 of the Act and notice dated 2nd September, 2003 under Section 142 of the Act. For the assessment year 2000-01, the petitioner, in his individual capacity, also sold a portion of the land. The petitioner filed his return of income on 18th September, 2000. A computation of the capital gains was also filed along with the return, which was processed under Section 143(1) of the Act. The Assessing Officer recorded his reasons for reopening the assessment on 23rd March, 2007. Approval was granted by the Additional Commissioner of Income Tax on the same date and, thereafter, a notice under Section 148 of the Act was issued on 23rd March, 2007. The reasons were supplied and the petitioner filed response to the notice indicating the Assessing Officer that his return filed on 18th September, 2000 may be treated as his reply in response to the notice under Section 148 of the Act. Subsequently, a notice under Section 143(2) of the Act was issued directing the petitioner to furnish certain information and documents. The petitioner, being aggrieved by the notice issued under Section 148 of the Act dated 23rd March, 200 for the assessment year 2000-01, has filed Writ Petition No.678 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee had fialed to disclose fully and truly all material facts, no proceedings could be initiated under the proviso to Section 148 of the Act after the expiry of four years from the end of the relevant assessment year. The learned counsel consequently submitted that the proceedings initiated under Section 148 of the Act was barred by limitation. It was further contended that the reasons to believe recorded by the Assessing Officer was nothing else but a change of opinion based on a decision of the Karnataka High Court in Commissioner of Income Tax Vs. Dr. V.V. Mody, 218 ITR 1. On the other hand, the learned counsel for the department contended that the Assessing Officer has wide powers to reopen the assessment, if he has reasons to believe that the income had escaped assessment. The learned counsel submitted that even after the expiry of four years, reassessment proceedings could be opened upon permission being granted by the competent authority, which in the instant case was taken and, therefore, the notice was not barred by limitation. The learned counsel submitted that in the instant case the petitioner disclosed the capital gains tax liability, whereas the petitioner was li ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gh his total income or the total income of any other person in respect of which he is assessable under this Act during the previous year exceeded the maximum amount which is not chargeable to income-tax; (b) Where a return of income has been furnished by the assessee but no assessment has been made and it is noticed by the Assessing Officer that the assessee has understated the income or has claimed excessive loss, deduction, allowance or relief in the return; (c) Where an assessment has been made, but - (i) Income chargeable to tax has been under assessed; or (ii) Such income has been assessed at too low a rate; or (iii) Such income has been made the subject of excessive relief under this Act; or (iv) Excessive loss or depreciation allowance or any other allowance under this Act has been computed. Explanation 3. - For the purpose of assessment or reassessment under this section, the Assessing Officer may assess or reassess the income in respect of any issue, which has escaped assessment, and such issue comes to his notice subsequently in the course of the proceedings under this Section, notwithstanding that the reasons for such issue have not been included in th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the 1st day of October, 2005 in response to a notice served under this section.] (2) The Assessing Officer shall, before issuing any notice under this section, record his reasons for doing so. A perusal of the aforesaid provisions indicates that the Assessing Officer has wide powers to reopen the assessment if he has reasons to believe that the income chargeable to tax has escaped assessment. However, this wide power is circumscribed and does not give jurisdiction to the Assessing Officer to reopen a completed assessment on a mere change of opinion. Further, the proviso indicates that if more than four years have elapsed from the end of the relevant assessment year, in addition to the satisfaction of the Assessing Officer that he has reasons to believe, must also indicate, that the assessee has failed to disclose fully and truly all material facts necessary for his assessment for that assessment year. In Ganga Saran Sons P. Ltd. Vs. Income-Tax Officer and others, 1981 Vol.130 ITR 1, the Supreme Court held : It is well settled as a result of several decisions of this Court that two distinct conditions must be satisfied before the Income Tax Officer can assume jurisdi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , any part of his income, profit or gains chargeable to income tax has escaped assessment. He may start reassessment proceedings either because some fresh facts come to light which where not previously disclosed or some information with regard to the facts previously disclosed comes into his possession which tends to expose the untruthfulness of those facts. In such situations, it is not a case of mere change of opinion or the drawing of a different inference from the same facts as were earlier available but acting on fresh information. Since, the belief is that of the Income-tax Officer, the sufficiency of reasons for forming the belief, is not for the Court to judge but it is open to an assessee to establish that there in fact existed no belief or that the belief was not at all a bona fide one or was based on vague, irrelevant and non-specific information. To that limited extent, the Court may look into the conclusion arrived at by the Income-tax Officer and examine whether there was any material available on the record from which the requisite belief could be formed by the Income-tax Officer and further whether that material had any rational connection or a live link for the for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f Explanation 2(c)(ii) of Section 147, then in view of the undisputed fact that there was no fault of the assessee, the delay could not be condoned. Limitation comes to an end even under the proviso appended to section 147. Limitation of four years had already been expired. Therefore, the amendment in the original assessment order was time-barred. We agree with the view taken by the Income-Tax Appellate Tribunal. In Foramer Vs. Commissioner of Income Tax and another, 247 ITR 436, a Division Bench of this Court held that there was 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 and, consequently, since notices were issued after a lapse of more than seven years, the proviso to Section 147 of the Act was squarely applicable and that the impugned notices were barred by limitation. The said decision was affirmed by the Supreme Court in Commissioner of Income Tax Vs. Foramer France, 264 ITR 566. In Calcutta Discount Co. Ltd. Vs. Income-Tax Officer, Companies District I, Calcutta and another, 41 ITR 191, the Supreme Court held : The position, therefore, is that if there were in fact some reas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d by the Assessing Officer, it is clear is that the assessee was required to pay short term capital gains tax instead of long term capital gains tax and, therefore, the Assessing Officer had reasons to believe that the income had escaped assessment. In the instant case, admittedly, the notice was issued after four years but before six years. In our opinion, the reasons so recorded by the Assessing Officer was not sufficient to intiate proceedings under Section 148 of the Act. The first proviso to Section 147 of the Act clearly indicates that no action could be taken under this section after the expiry of four years from the end of the relevant assessment year unless the assessee had failed to disclose fully and truly all material facts necessary for his assessment for that assessment year. In Ganga Saran (supra) it was held that if the two conditions are not fulfilled, namely, the Assessing Officer must have reasons to believe that the income of the assessee had escaped assessment and secondly, he must have reasons to believe that such escapement is by reason of the omission or failure on the part of the assessee to disclose fully and truly all material facts necessary for asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... chargeable to tax which has escaped assessment amounts to or is likely to amount to one lakh rupees or more for that year. From a perusal of the aforesaid provision, it is imperative that the Assessing Officer, in his reasons, should state that the escaped income is likely to be ₹ 1 lac or more, which is an essential ingredient for seeking the approval and satisfaction that is to be recorded by the Competent Authority under Section 151 of the Act. We find from the reasons recorded by the Assessing Officer that no such reasons has been recorded to the effect that the escaped income is likely to be ₹ 1 lac or more except for the assessment year 2001-02. In Mahesh Kumar Gupta and others Vs. Commissioner of Income Tax and another, 363 ITR 300 a coordinate Bench of this Court held that it is imperative for the Assessing Officer to record in his reasons that the escaped income is likely to be ₹ 1 lac or more so that the Chief Commissioner or Commissioner may record his satisfaction under Section 151 of the Act. The Court further held that if the said reason has not been recorded by the Assessing Officer, the initiation of the reassessment proceedings after more ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessee to disclose fully and truly all material facts necessary for his assessment in that year. Further, for the assessment year 1997-98 and 2000-01 the fact that the escaped income is likely to be ₹ 1 lac or more has also not been recorded. Consequently, we are of the opinion that the notice issued under Section 148 of the Act was without jurisdiction. In the absence of satisfaction being recorded, the notice, which has been issued after the expiry of four years was clearly barred by time. There is yet another aspect of the matter. The reason so recorded by the Assessing Officer is, that the petitioner has indicated the computation of long term capital gains tax liability, whereas the petitioner was liable to pay short term capital gains tax since the petitioner had sold off a portion of the property within three years from the date of conversion of lease land into a free hold land. Short term capital asset is defined under Section 2(42A), which is extracted hereunder:- 2(42A) 'short-term capital asset' means a capital asset held by an assessee for not more than thirty-six months immediately preceding the date of its transfer. Section 2(29B) of the Act ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntention of the learned counsel for the department that in the light of the decision of the Supreme Court in GKN Driveshafts (India) Ltd. Vs. Income Tax Officer, 259 ITR 19, the petitioner should file his objection before the Assessing Officer to the notice issued under Section 148 of the Act and, therefore, the writ petition should be dismissed on the ground of alternative remedy is misplaced. No doubt, the Supreme Court had culled out a via media of attacking the notice under Section 148 of the Act by filing an objection before the Assessing Officer. We are, however, of the opinion that the petitioner cannot be non-suited on this ground at this stage, especially when the writ petition was entertained in the year 2003, 2007 and 2008 and since affidavits have been exchanged, it would be unfair at this stage to relegate the petitioner to avail an alternative remedy. For the reasons stated aforesaid, we are of the opinion that the notices issued under Section 148 of the Act does not comply with the proviso to Section 147 and 149 of the Act. The reasons recorded does not indicate that the assessee has failed to disclose fully and truly all material facts necessary for his assess ..... X X X X Extracts X X X X X X X X Extracts X X X X
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