TMI Blog2004 (7) TMI 308X X X X Extracts X X X X X X X X Extracts X X X X ..... ate Shri B.V. Gopalakrishna, father of Shri B. Papa Raju, for a consideration of Rs. 11,50,000. Shri B.V. Gopalakrishna died on 28-4-1980. The property got devolved on late Shri B. Papa Raju, his brother Shri B.V. Raju, Smt. Radhamma and Smt. Y. Rajyalakshmi. The share of Shri B.V. Raju was further divided between himself and his two sons Shri B.V. Krishna Jayant and Shri B.V. Naveen Krishna. The assessees before us were four of the co-owners of the property. The property was held jointly. It was stated that they were trying to dispose of the property and that the Department of Telecommunications published an advertisement for purchase of land in or around Anna Salai on 7-2-1993 and also on 20-2-1994. The co-owners of the property were residents of Hyderabad. They entered into a Memorandum of Understanding with M/s. Sri Ram Vilas Services Ltd. and M/s. Amalgamations Ltd., on 22-5-1994, for relinquishing the tenancy rights and handing over vacant possession of the property. Accordingly, an amount of Rs. 1,30,000 was paid to M/s. Sri Ram Vilas Services Ltd. and Rs. 2,60,000 was paid to M/s. Amalgamations Ltd. for relinquishment of tenancy rights. Shri B.V. Gopalakrishna, while purcha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ings, the Assessing Officer disallowed the claim of commission paid to Tele Data Informatics Ltd. as well as the claim of interest payment to Indian Bank and to Shri J.D. Italia. These three claims, which were rejected by the Assessing Officer as well as the CIT(A), are the issues in I.T.A. Nos. 573 to 576/Hyd./1999. 7. The Assessing Officer issued a notice under section 148 on 12-3-1999 for reopening of the completed assessments in all these cases and this notice was served on the assessees on 13-3-1999. Another notice under section 148 was issued to the assessees on 19-4-1999 and this was served on the assessees on 22-4-1999. In the reassessment proceedings, the Assessing Officer adopted the market value of the property as on 1-4-1981 at Rs. 39,063 per ground as declared by the assessees in their wealth-tax returns, and revised the capital gain. Aggrieved by this reassessment, which was confirmed by the CIT(A), the assessees have filed I.T.A. Nos. 948 to 951/Hyd./2002. I.T.A. Nos. 573 to 576/Hyd./1999: 8. The learned counsel for the assessees submitted that the Department of Telecommunications is one of the customers of Tele Data Informatics Ltd. (hereinafter referred to as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... itting that the statement recorded from Shri K. Padmanabhan was not validly recorded. 10. The learned counsel further submitted that the amount of Rs. 25,00,000 was paid by the co-owners in connection with the sale of the property to the Department of Telecommunications and in this connection, he relied on the statement of Shri Shakti Vel, recorded on 29-1-1996 by the Assistant Director of Investigation under section 131, wherein Shri Shakti Vel had clearly stated that he had received Rs. 25,00,000 from Shri B.V. Raju and Smt. B. Subhadra through a cheque drawn in favour of TDIL for the information supplied by him to Shri B. Paparaju about the intention of the Department of Telecommunications to purchase property and also for assisting in various procedures for the sale of the said property. He also brought to the notice of the Bench that Shri Shakti Vel had stated that he had incurred an expenditure of Rs. 3,00,000 in the process. He also referred to the portions of the statement wherein Shri Shakti Vel stated that his company was developing software for Madras Telephones and he met the General Manager (Development) who intimated that they were interested to buy property at Moun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... summons were not issued in connection with the assessment proceedings of the assessees. He further submitted that the ADI, Inv. Unit 3(3), Madras, could examine Shri Padmanabhan as a witness only if the Assessing Officer issued a commission to him under section 131. He submitted that no such commission was issued by the Assessing Officer at Hyderabad to the ADI at Chennai and this is evident from the fact that nothing is mentioned in the summons issued to Shri K. Padmanabhan or in the so-called affidavit filed by the ADI Shri S. Balasubramanyam. Thus, he submitted that the authorities did not follow the procedure laid down for issue of commission as required under section 131 read with Order 26 Rule 9 of Code of Civil Procedure. He relied on the judgment of Hon'ble Madhya Pradesh High Court in the case of Umashankar Mishra v. CIT [1982] 136 ITR 330 and submitted that the provisions of section 292B of the Income-tax Act, 1961, do not come to the rescue of the revenue in respect of provisions which are governed by the Code of Civil Procedure. He reiterated that the person before whom the sworn statement was recorded had to sign the statement at the time of administering oath as well ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the period after relinquishment of tenancy rights by the tenants and that this was evident from the copy of agreement entered into with Madras Telephones which clearly stated that the tenants had relinquished the tenancy rights and handed over vacant possession of the property only on 26-3-1994. Thus, he submitted that the interest related to the period after the tenants vacated the premises and that the same was not allowable under section 24, that the assessees had not made such a claim under the head "income from house property", that the expenditure was incurred in connection with the transfer and that the deduction from the capital gains was allowable. 17. Referring to the claim for interest paid to Indian Bank, the learned counsel submitted that the Assessing Officer was wrong in holding that the interest was not allowable as what was adopted was market value as on 1-4-1981 and as all these factors were taken into consideration while arriving at the cost of the asset as on 1-4-1981 and that the assessees claimed expenditure in addition to fair market value adopted as the cost price as on 1-4-1981. He contended that the Assessing Officer was wrong in holding that the interes ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sale deed was contrary to the statement of Shri Shakti Vel. He further submitted that the statement of Shri Shakti Vel was recorded four days after that of Shri Padmanabhan, that this statement was made after due consideration by the assessees and that the statement of Shri Shakti Vel should not be relied upon. He submitted that the sale deed does not disclose the role of the company TDIL. He referred to the profit and loss account of TDIL for the period 1-4-1994 to 31-3-1995 which is at page 9 of the paper book filed by the revenue, as well as computation of income for the relevant assessment year which is at page 10 of the paper book, and submitted that the receipt of Rs. 25,00,000 was not recognised as income by that company during the relevant assessment year. He further submitted that this income was recognised by TDIL in its balance sheet for the assessment year 1996-97, i.e. for the period 1-4-1995 to 31-3-1996. He submitted that on a query from the Bench he had gathered information from the Assessing Officer at Chennai and as per the information which is filed before the Bench by way of paper book, TDIL had taxable income for assessment year 1995-96, that for the assessmen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that TDIL had good acquaintance and is undertaking certain works with Madras Telephones Department. It is also not disputed that the assessees paid the amount through crossed cheque that the amount had been shown as income by TDIL and that they had paid tax on this income. At this point, it is relevant to observe that TDIL, being a company, pays tax at the flat rate which is maximum marginal rate of 35 per cent, and the assessees pay tax at a maximum rate of 20 per cent as in their case it is tax on long-term capital gains. If indexation of cost is taken into account, it can be seen that there is a long-term capital loss in the assessees' case as computed by them resulting in 'nil' tax. On the other hand, the balance sheets filed by TDIL show that for the financial year ending 31-3-1995 the profit is Rs. 6,74,049 and the profit for the period ending 31-3-1996 is Rs. 60,40,945. Thus, this is a case where the revenue had gained by way of tax due to this payment as TDIL paid 35 per cent of this amount by way of tax and the assessees had shown a loss, and at best, the disallowance goes to reduce the loss. So, the arguments of the learned departmental representative that the assessees s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the hands of the assessees as expenditure incurred in connection with transfer. This ground of the assessees is, therefore, allowed. 23. Coming to the interest payments made to Indian Bank and Shri J.D. Italia, we find that M/s. Indian Bank and Shri J.D. Italia had a lien on the property and without settling the legal rights of these parties, the assessees could not get free title to sell the property. The interest payments relate to the period after 31-3-1994 i.e. after the assessees had got vacant possession of the property. The same had not been claimed under section 24 of the Act. We hold that they are clearly relatable to the transfer of the asset and that they are allowable as expenditure incurred in connection with the transfer. The encumbrances and rights of the bank and Shri J.D. Italia had necessarily to be settled by the assessees. 24. It is relevant to observe that interest of Rs. 33,08,055 had to be paid by the assessees to the tenants for surrender of tenancy rights over and above the amount of compensation payable to them. The CIT(A), in paragraph 4.1 at page 14 of his order has held that the assessees are entitled to the deduction for the reasons mentioned there ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... course of assessment proceedings, an Evasion of Tax petition was received in which it was alleged that the certificate obtained from the Sub-Registrar's office and produced before the Department was not correct. (c) Verification was made by making a reference to the Sub-Registrar through the ADI, Madras, and the Sub-Registrar had given a reply that the value of the property sold by the assessees as on 1-4-1981 was Rs. 1,10,000 per ground. On this ground the Assessing Officer reopened the assessments. The learned counsel submitted that the assessees had filed returns on 8-4-1999/16-4-1999 in response to the notice under section 148 dated 12-3-1999 and requested the Assessing Officer to treat the returns as those filed in response to notice under section 148 dated 19-4-1999. In the new returns, he submitted, the assessees declared the same income as declared in the returns filed originally. 29. The learned counsel submitted that during the course of reassessment proceedings, the Assessing Officer issued a show cause notice mentioning that he would estimate the market value as on 1-4-1981 on the basis of the value of the property determined for wealth-tax purposes. The Assessing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e rate per ground was Rs. 3,87,580.37 in the year 1980 itself, vide his letter dated 7-3-2000 which is at page 101 of the paper book. 30. The learned counsel vehemently contended that the Sub-Registrar had made it clear that the market value per ground as on 1-4-1981 was Rs. 3,87,580.37 and not Rs. 1,10,000, that the Assessing Officer had committed no error in the regular assessment and that there was no escapement of income. He thus submitted that the reopening of the assessment was not validly made. He reiterated that there was no difference in the information on record of the Assessing Officer at the time of completion of regular assessment and the information obtained by the Assessing Officer after the completion of the regular assessment. He submitted that the assessee's request to the Assessing Officer to drop the reassessment proceedings on these grounds was rejected. 31. The learned counsel for the assessee vehemently contended that the Assessing Officer was wrong in considering the values determined for wealth-tax purposes as the fair market value for determination of capital gains. He referred to page 47 of the paper book which is copy of letter dated 13-3-2001 filed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... which created some confusion, was obtained only after the reopening of the assessment. He contended that - (a) there was no information whatsoever in the possession of the Assessing Officer other than what was available with him at the time of the completion of the original assessment proceedings; (b) the CIT(A) was wrong in justifying the reopening on the basis of letter No. 493/99 dated 26-11-1999 of the Sub-Registrar [paragraph 4.12 on page 9 of the order of the CIT(A)] as this letter was received after the issue of notice under section 148; and (c) the reopening was invalid. He relied on the following case laws for his proposition that the reopening was bad in law:- CIT v. Kelvinator of India Ltd. [2002] 256 ITR 1 (Delhi) (FB) Kaira Distt. Co-operative Milk Producers Union Ltd. v. Asstt. CIT [1996] 220 ITR 194 (Guj.) VXL India Ltd. v. Asstt. CIT [1995] 215 ITR 295 (Guj.) Jindal Photo Films Ltd. v. Dy. CIT [1998] 234 ITR 170 (Delhi) Vipan Khanna v. CIT [2002] 255 ITR 220 (Punj. Har.) CIT v. Sun Engineering Works (P.) Ltd. [1992] 198 ITR 297 (SC) Jai Marwar Co. (P.) Ltd. v. Asstt. CIT [2003] 131 Taxman 191 (Jodh.) (Mag.) 33. On the issue of reopening of assessm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e arrived at as per Schedule III of the Wealth-tax Act is not the general market value, as can be seen from section 7 of the Wealth-tax Act which uses the term "value" but not "market value". He argued that it is a well known fact that under the Wealth-tax Act market value is not taken while for arriving at the cost of acquisition under section 55(2)(b) of the Income-tax Act, the term used is "fair market value of the asset". He submitted that "fair market value" is not defined under the Income-tax Act and for the definition he referred to Black's Law Dictionary, 6th edition, and read out the same. Thus, he submitted that the value as per the Wealth-tax Act and the fair market value as per the Income-tax Act are two different things. He submitted that there is no reference to Wealth-tax Act in section 55 of the Income-tax Act and a plain reading of section 55 shows that the market value is to be determined as on 1 -4-1981 and the same should be adopted. He, therefore, submitted that the value under the Wealth-tax Act has no relevance whatsoever and should not be adopted for income-tax calculation. For this proposition, he relied on the following case laws:- Addl. CIT v. Smt. Indr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gher than the other value of Rs. 70,000. He submitted that the subsequent letter of the Sub-Registrar, Chennai, showed that the value was much less. 37. The learned departmental representative contended that the Assessing Officer initiated proceedings under section 147 based on the higher value appearing in the Sub-Registrar's letter dated 8-10-1998 which was much less than the value shown by the assessees. He referred to the extract forwarded by the Sub-Registrar and submitted that the value was not actually guideline value but some sale instance for which it was not mentioned as to whether the sale was a comparable sale or not. He referred to the encircled value of Rs. 1,10,000 in the copy of the guidelines register and submitted that this value was much less than the reported value of Rs. 3,85,000. Thus, he argued that the Assessing Officer had reason to believe that income chargeable to tax had escaped assessment, that this belief was formed by the Assessing Officer on the basis of subsequent facts which came to light and that the argument that there was a mere change of opinion was wrong in law. He vehemently contended that what was required for reopening of assessment was e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as that if there is reason to believe for the Assessing Officer after the date of completion of assessment, it may be a sound foundation for exercising powers under section 147 read with section 148 of the Act. In this connection, he referred to the judgment of the Hon'ble Supreme Court in the case of Phool Chand Bajrang Lal. 41. He further vehemently contended that no comparable instances of sale were quoted by the assessee before the Assessing Officer during the original assessment proceedings. He submitted that tenanted property cannot in any way be compared to undivided share in land and that the decision of the Hon'ble Supreme Court in the case of Appropriate Authority v. Kailash Suneja [2001] 251 ITR 1, and decisions of other High Courts make it clear that the rent capitalization method is the correct method for determining the market of property in the case of tenanted property. Thus, he submitted that the so-called comparable sale instances quoted by the assessees in the reassessment proceedings have no meaning. He further relied on the following case laws: CIT v. Panchanan Das [1979] 116 ITR 272 (Cal.) Smt. Indira Bai's case Subhkaran Chowdhury v. IAC [1979] 118 IT ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... distinguished that judgment by submitting that the Hon'ble High Court referred to the specific circumstances that the value of property had gone down between 1954 and 1957 and also the fact that there was no certainty as to whether the valuation returned by the assessee was accepted by the Department. 43. On the issue of the reassessment being time-barred, the learned DR submitted that the first notice issued under section 148 on 12-3-1999 was issued without approval of the Joint Commissioner of Income-tax which is mandatory, that the notice issued on 12-3-1999 was a defective notice and that the same should be ignored as bad in law. While admitting that if the first notice is taken into consideration the reassessment should have been completed within two years from the end of the financial year in which the notice was served on the assessee, as per section 153(2) which required the assessment to be completed on or before 31-3-2001, he pleaded that the mandatory approval of the Joint Commissioner of Income-tax had not been obtained for the first notice and that the defective notice should be ignored. He also submitted that the assessee filed return in response to the notice on 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ore the issue of the notice under section 148; the Assessing Officer had no basis whatsoever for forming the belief that income chargeable to tax had escaped assessment as existence of a reason is a must though the sufficiency of the reason cannot be gone into. 46. The Assessing Officer, before issuing notice under section 148, recorded the reasons as under [extracted by the CIT(A) in his order in the case of Smt. B. Subhadra]:- "The assessee, Smt. B. Subhadramma has filed return of income for the assessment year 1995-96 on 28-8-1995 declaring an income of Rs. 1,06,374. The return was initially processed under section 143(1)(a). Subsequently, assessment was completed under section 143(3) on a total income of Rs. 30,42,270. The assessee has shown long term capital gains on the sale of property bearing R.S. 97/1, Block 3, Dinrose Estate, Mount Road, Madras. The property was purchased in the year 1979 for a sum of Rs. 13,16,160. At the time of purchase, two tenants were occupying the said premises. The total sale consideration of the property consisting of 36 grounds amounts to Rs. 8,19,00,000. Out of this, the tenants share amounts to Rs. 3.90 crores. At the time of filing the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ue for R.S. No. 97/Part, Mount Road as on 1-4-1981 was Rs. 1,10,000 per ground. The true extract of the guidelines register being the evidence is enclosed for your ready reference. The value furnished on 18-5-1995 Rs. 3,85,000 per ground not found in the records of our office. The actual government guidelines value as on 1-4-1981 for R.S. No. 97/Part of Mount Road is Rs. 1,10,000 per ground' Keeping in view of the facts of the case and the judicial decisions, I am of the opinion that the Assessing Officer was fully justified in reopening the assessment under section 147 and no legal infirmity was therein such of the Assessing Officer." These extracts clearly show that the letter of the Sub-Registrar, Chennai, bearing No. 493/99 dated 26-11-1999 triggered the issual of notice under section 148. The notice under section 148 was issued on 12-3-1999 and 19-4-1999. Thus, the reasons for issual of notice are based on information that was received after the issual of notice. This clearly shows that there was no information whatsoever obtained by the Assessing Officer after completion of the original assessment proceedings under section 143)(3) on 31-3-1998 and the issual of notice ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s that the same has been replaced by a fresh figure. Thus, the letter dated 26-11-1999 was an error, which the same Sub-Registrar on a further enquiry by the Revenue clarified in letter No. 493/99 dated 7-3-2000. This final letter is not disputed by the Revenue, and it is the result of a repeated and thorough enquiry by the Department through its various wings. Thus, there is ultimately no change whatsoever in the stand taken by the Sub-Registrar, Triplicane, and also there is no difference whatsoever between the copy of the guidelines register filed by the assessee during the course of regular assessment proceedings and the copy of such register and fair market values obtained by the Assessing Officer as per the final reply of the Sub-Registrar consequent to repeated enquiries made by the Department. 48. In the reasons for reopening of assessment recorded by the Assessing Officer, it was mentioned that during the assessment, an E.O.T. petition was received in which it was alleged that the said certificate obtained from the Sub-Registrar's office and produced before the Department during the course of original assessment proceedings was not correct. Thus, it cannot be said that d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... per head-note (v) which reads as under:- "(v) on the facts, the notices were bad as they were only on the basis of a change of opinion and the law that an assessment could not be reopened on a change of opinion was the same before and after amendment by the Direct Tax Laws (Amendment) Act, 1987, of section 147". We respectfully follows the decision of Full Bench of Hon'ble Delhi High Court and uphold the contention of the assessees in this regard and hold that the Assessing Officer re-opened the assessments on a mere change of opinion. On the other arguments of the assessees that the assessment order is time-barred etc., we hold that the first notice issued on 12-3-1999 was bad in law as it was issued without the approval of the Joint Commissioner of Income-tax. Thus, the second notice should be taken as the valid notice and hence the argument of the assessees on this ground fails. 51. The next issue to be considered is as to whether the values adopted under the Wealth-tax Act have to be adopted under the Income-tax Act. 52. Rule 3 of Schedule III of the Wealth-tax Act, 1957 reads as follows: "PART B IMMOVABLE PROPERTY Valuation of immovable property 3. Subject ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le, even though the assessee had not indicated as to how exactly the value of Rs. 4 lakhs was arrived at and in terms of which statutory rule. At any rate, if there had been any under statement for wealth-tax purposes, that is a separate matter and it cannot be held as conclusive in the income-tax proceedings, which are separate and distinct." Similar is the view taken by the Tribunal, Delhi Bench, in the case of Smt. Vasavi Pratap Chand. We respectfully follows this decision as a plain reading of Schedule III of the Wealth-tax Act as well as section 55 of the Income-tax Act shows that they are not the same and the values arrived at under the Wealth-tax Act are as per certain rules framed under the Wealth-tax Act and in most cases they are different from 'fair market value'. Therefore, the adoption by the Assessing Officer of the values arrived at under the Wealth-tax Act for the purpose of computing capital gains under the Income-tax Act is wrong in law. The decision of the Bangalore Bench of the Tribunal in the case of D.N. Prasanna Kumar is not applicable to the facts of the case as in that case there was no other value than the value declared under the Wealth-tax Act, availab ..... X X X X Extracts X X X X X X X X Extracts X X X X
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