TMI Blog2012 (11) TMI 133X X X X Extracts X X X X X X X X Extracts X X X X ..... developing TDR by new structure and therefore the proceeds received by the Assessee are in the nature of income from other sources - what was transferred by the Assessee was Development Rights in respect of the property. On the plot of land owned by the Assessee which was subject-matter of development right, a certain area of construction was permissible, which was the normal FSI permissible as per the Development Control Rules - consideration received by the Assessee is for transfer of rights over such capital asset. The fact that a third party purchaser has no interest over the land is not relevant. The permission to load TDR on the FSI permissible allowed by the owner of the land is by itself a transfer of right in or over immovable property and would therefore clearly fall within the provisions of Sec. 45 of the Act - belief entertained by the AO in the reasons recorded that the third party does not own any interest in land and therefore there is no transfer of capital asset cannot be said to be a honest belief based on reasonable grounds - initiation of reassessment proceedings on the basis of the reasons recorded by the AO cannot be sustained – in favor of assessee - I T APP ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al and bad in law. 2. The learned CIT (A) has erred in law and on facts in upholding the order passed by the Assessing Officer u/s. 143(3) r.w.s. 147(b) of the Act which is illegal and bad in law. 3. The learned CIT (A) has erred in law and on facts in upholding the order of the Assessing Officer which was not passed in accordance with law. 4. The learned CIT(A) has erred in law and on facts in not vacating the order of the Assessing Officer as it was passed without complying with the principles of natural justice. 5. The cross-objector craves leave to add to, amend, alter or delete all or any of the foregoing grounds of cross-objection. 4. Since the validity of initiation of reassessment proceedings is challenged in the cross-objection, we deem it appropriate to take up the said issue for consideration as it involves the jurisdiction of the AO to frame order of reassessment. 5. The assessee is an individual. The assessee is 1/3rd co-owner of a residential property at 34/35, Hatkesh Cooperative Housing Society Limited, North South Road No. 5, Juhu Vile Parle Development Scheme, Vile Parle (W), Mumbai 400 056, hereinafter referred to as "the property". The other ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r property. The Assessee therefore declared chargeable capital gain as NIL . 7. The computation of capital gain as given by the assessee was as follows: LONG TERM CAPITAL GAINS: S.No. Particulars Cost date Cost value Index Sale Date Sale Value Indexed gain/ loss Boo gain/loss 1. Received on sale of TDR 1/4/1981 00 480/100 29/12/2004 4166,667 4166,667 4166,667 2. Benefit of free construction @ 700 p.sq.ft. 1/4/1981 0 480/100 29/12/2004 1750,000 1750,000 1750,000 Total 5916,667 5916,667 5916,667 1. Received on sale of TDR 41,66,667 Less : Amount Exempt under the section: 54EC CG - Investment in certain Bonds Actual Investment 4200,000 Fully Exempted upto 4166,667 TOTAL EXEMPTIONS 41,66,667 2. Benefit of the Free Construction @ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... terest as regard to the plot of land position, thus arrangement is so done to only facilitate the developer to load TDR on the plot of land and is hence not a transfer falling within the provisions of section 45 of the I.T. Act. It is, therefore, clear-cut case of getting a compensation for loading and developing TDR by new structure and without doubt the proceeds are in the nature of income from other sources. Hence the provisions of section 45 of the I.T. Act 1961 does not apply in the assessee's case. In view of the above, the entire amount of Rs. 41,66,667/- is to be treated as income from other sources without allowing any claim of expenses relating to construction of the new structure or constntcfio of land as there is no transfer of right of title and interest in the plot of land. 9. On the above facts, the validity of initiation of reassessment proceeding has to be adjudicated. The learned counsel for the Assessee submitted before us that the first part of the reasons recorded refers to the investment of the capital gain to claim exemption u/s. 54EC of the Act. On this part of the reasons recorded it was brought to our notice that the date of transfer is 29.12.2004 wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h comes to his notice subsequently in the course of the proceedings under the section. Explanation 3 does not and cannot override the necessity of fulfilling the conditions set out in the substantive part of section 147. An Explanation to a statutory provision is intended to explain its contents and cannot be construed to override it or render the substance and core nugatory. Section 147 has this effect that the Assessing Officer has to assess or reassess the income ("such income") which escaped assessment and which was the basis of the formation of belief and if he does so, he can also assess or reassess any other income which has escaped assessment and which comes to his notice during the course of the proceedings. However, if after issuing a notice u/s. 148, he accepts the contention of the assessee and holds that the income which he has initially formed a reason to believe had escaped assessment, has as a matter of fact not escaped assessment, it is not open to him independently to assess some other income. If he intends to do so, a notice u/s. 148 would be necessary in any event of challenge by the assessee". 10. Based on the aforesaid decision it was argued that the AO co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... de within the time contemplated u/s. 54EC of the Act and those provisions do not make any reference to the Assessment year in which the investment is to be made but only lay down a condition of 6 months period of time after the date of transfer of the capital asset. 13. The learned D.R. relied on the order of the CIT(A) on the issue. 14. Sec. 147 of the Act provides that 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 Sec. 147 or recomputed the loss or the depreciation allowance or any other allowance, as the case may be, for assessment year concerned. Even if an intimation is issued u/s 143(1) or an assessment is completed after scrutiny u/s 143(3) or even where no assessment has been made, the same can be reopened by the A.O. only if he has reason to believe that income has escaped assessment. The Hon'ble Supreme Court in ITO v. LakhmaniMewal Das [1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arbitrary or irrational. The expression 'reason to believe' does not mean purely subjective satisfaction of the Assessing Officer. The belief must be held in good faith. It cannot be merely pretence. Again, the belief must be of an honest and reasonable person based upon reasonable grounds. The Assessing Officer may act upon direct or circumstantial evidence, but his belief must not be based on mere suspicion, gossip or rumour. The Assessing Officer would be acting without jurisdiction, if the reasons for his belief are not material or relevant. At the same time, the Courts have consistently held that what can be examined by it is existence of proper reason to believe and not sufficiency of the belief. At the time of issuance of notice, it is not necessary for the Assessing Officer to come to a conclusive finding that income has escaped assessment. At the stage of reopening the assessment, it would be sufficient for him to come to a tentative belief based on the material that income has escaped assessment. 16. In the light of the above legal requirements for valid initiation of proceedings u/s.147 for assessment of income which has escaped assessment, we will consider the fact ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ation is whether the AO can record two reasons which are mutually contradictory to each other, for initiating reassessment proceeding. The reasons recorded also do not claim that it is an alternate case sought to be made out by the AO for initiating reassessment proceedings. We are of the view that permitting initiation of reassessment proceedings in such circumstances would not be proper. As already explained in the earlier part of this order, the belief entertained by the Assessing Officer regarding escapement of income chargeable to tax must not be arbitrary or irrational. The expression 'reason to believe' does not mean purely subjective satisfaction of the Assessing Officer. The belief must be held in good faith. It cannot be merely pretence. It cannot be said that from the second part of the reason recorded by the AO one can form a bona fide belief, a belief held in good faith, regarding escapement of income. 19. Again, the belief must be of an honest and reasonable person based upon reasonable grounds. The second part of the reasons recorded refers to the development agreement under which the property was given for development. The three co-owners who were occupying on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... buyer purchase such constructed area. Therefore the belief entertained by the AO in the reasons recorded that the third party does not own any interest in land and therefore there is no transfer of capital asset cannot be said to be a honest belief based on reasonable grounds. Even on this ground it can be said that the AO could not have entertained reasonable belief that income chargeable to tax has escaped assessment. 20. Looked at from any angle, the initiation of reassessment proceedings on the basis of the reasons recorded by the AO cannot be sustained. We therefore allow the grounds raised in the cross-objection regarding validity of initiation of reassessment proceedings and hold that the initiation of reassessment proceeding is not legal. The order of reassessment is therefore annulled. 21. Before us arguments were advanced on other grounds raised by the Revenue in its appeal. As we have agreed with the grounds of cross-objection that the initiation of reassessment proceedings is itself not legal, we do not wish to deal with the other arguments advanced before us on the grounds raised by the revenue in its appeal. 22. In the cross-objection is allowed and the ap ..... X X X X Extracts X X X X X X X X Extracts X X X X
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