TMI Blog2014 (5) TMI 19X X X X Extracts X X X X X X X X Extracts X X X X ..... ent - under Section 147, the assessing authority has no power to review and the proceeding cannot be taken on account of change of opinion. There is no failure on the part of the assessee to disclose fully and truly all material facts, in the assessment of the relevant assessment year, exception to proviso to Section 148 is not applicable - The limitation to take action is four years from the end of the relevant assessment year - The four years' period for the assessment year 2003-04 expired on 31st March, 2008, while notice u/s 148 has been issued on 8.7.2009, that is, after expiry of four years' period, which is barred by limitation – Relying upon Anil Radhakrishna Wani Vs. Income-tax Officer and others [2010 (3) TMI 316 - BOMBAY HIGH COURT] - when a regular order of assessment is passed u/s 143 (3) of the Act, a presumption could be raised that such an assessment order has been passed with due application of mind - the proviso to section 147 of the Act will be applicable – notice issued u/s 148 of the Act has been issued after expiry of four years from the end of the relevant assessment year – thus, the notice issued u/s 148 of the Act is barred by limitation and also invali ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the U.P. Government through the notification dated 15.11.2001. In lieu of the approval for the development of the land, the Ghaziabad Development Authority charged Rs.1,95,04,314/- and determined the saleable area of land at 46232 sq. yard. A further expenditure amounting to Rs.66,15,618/- was also incurred for levelling, sewer and water system and for the development of the plots. These activities were carried out in the financial year 2002-03, relevant to the assessment year 2003-2004. During the year under consideration, the petitioner has sold 687.568 sq. yard of land for a sum of Rs.20,60,000/- . The petitioner filed the income tax return, declaring nil income. Under the head 'Capital Gain', a sum of Rs.10,87,593/- was disclosed. The assessing authority passed the assessment order on 14th March, 2006, under Section 143(3) of the Act whereby certain additions and disallowances were made, against which the petitioner filed the appeal before the Commissioner, Income Tax (Appeal), which has been allowed in part. Further, the petitioner filed Second Appeal before the Tribunal, which was also partly allowed. It may be mentioned here that so far as the 'Long Term C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... #39;Long Term Capital Gain' on the sale proceeds of the land has been computed. The total sale consideration at Rs.20,60,000/- was shown and after making the computation, in accordance to the procedure provided, under Section 48 of the Act, 'Long Term Capital Gain' at Rs.10,87,593/- was computed. The complete details of granting permission by the State Government and the payment of development charges to the Ghaziabad Development Authority were furnished. Further, during the course of the assessment proceeding, as required by the assessing authority, vide letter dated 27.2.2006, further details regarding working of profit on the sale of land was furnished vide letter dated 27.2.2006. The assessing authority, after making deep scrutiny and making necessary enquiries, in respect of the land owned and sold by the petitioner, passed the assessment order wherein 'Long Term Capital Gain' on the sale of land at Rs.10,87,593/- has been assessed. He further submitted that the petitioner has never converted the capital asset (land) into stock in trade nor has treated the same as stock in trade. No such evidence has been brought on record in this regard. Merely on the basi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n-trade of business. In the present case, neither the petitioner has converted the capital asset into the stock-in-trade nor, at any point of time, treated the capital asset as stock-in-trade. The conversion or the permission of conversion of the land from industrial to residential land does not amount to conversion of capital asset (land) into stock-in-trade nor it amounts to treatment of such land by the assessee as stock-in-trade. It cannot be inferred as stock-in-trade. There should be a positive act on the part of the owner of the asset. Since in the present case the petitioner (owner of the capital asset) has neither converted the capital asset as stock-in-trade nor treated such capital asset as stock-in-trade, the provision of Section 45(2) of the Act is not applicable. There is nothing on record to show that the petitioner has converted or treated such capital asset as stock-in-trade. He submitted that there is no case of failure on the part of the petitioner to disclose fully and truly all material facts necessary for the assessment of the petitioner for the years under consideration. It is also submitted that the limitation to issue the notice under Section 148 woul ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 10- Vishwanath Prasad Ashok Kumar Sarraf v. CIT: 327 ITR 190 (All) 11-Vikram Kothari (HUF) v. State of U.P.: 200 Taxman 152 (All) 12-CIT v. Pradeshiya Industrial and Investment Corporation of Uttar Pradesh Ltd. 332 ITR 324 (All) 13- Dhampur Sugar Mills Ltd. v. ACIT: 339 ITR 72 (All) 14- Smt. Raj Rani Gulati v. UOI: 329 ITR 370 (All) E- Intention of trade--key element to decipher the adventure in the nature of trade 1-Bhohilal H. Patel vs. CIT: 74 ITR 692 (Bom) 2- CIT v. Anandlal Becharlal Co: 107 ITR 677 (Bom) 3- Janki Ram Bahadur Ram v. CIT: 57 ITR 21 (SC) 4- CIT v. MLM Mahalingam: [1977] 107 ITR 236 (Mad) 5- Kaur Singh v. CIT: 144 ITR 756 (P H) 6- CIT v. A. Mohammed Mohideen: 176 ITR 393 (Mad) 7-CIT v. B.K. Bhaumik: 245 ITR 614 (Del) 8-CIT v. Mohakapur Ice Cold Storage: 281 ITR 354 (All) 9-Badrilal Bholaram v. CIT 135 ITR 216 (MP) 10- CIT v. Suresh Chand Goyal: 298 ITR 277 (MP) Sri Bharat Ji Agrawal, learned Senior Advocate, submitted that the petitioner has been granted permission for change of land use from industrial land to the residential land and the development was carried out by the Ghaziabad Development Authority, du ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on 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. Explanation 1.--Production before the Assessing Officer of account books or other evidence from which material evidence could with due diligence have been discovered by the Assessing Officer will not necessarily amount to disclosure within the meaning of the foregoing proviso. Explanation 2.--For the purposes of this section, the following shall also be deemed to be cases where income chargeable to tax has escaped assessment, namely :-- (a) where no return of income has been furnished by the assessee although 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 exceed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n.] (2) The provisions of sub-section (1) as to the issue of notice shall be subject to the provisions of section 151. (3) If the person on whom a notice under section 148 is to be served is a person treated as the agent of a non-resident under section 163 and the assessment, reassessment or recomputation to be made in pursuance of the notice is to be made on him as the agent of such non-resident, the notice shall not be issued after the expiry of a period of [six years] from the end of the relevant assessment year. [Explanation.--For the removal of doubts, it is hereby clarified that the provisions of sub-sections (1) and (3), as amended by the Finance Act, 2012, shall also be applicable for any assessment year beginning on or before the 1st day of April, 2012.] It would also be appropriate to refer Section 45(1) (2), which reads as under: 45. Capital gains.--(1) Any profits or gains arising from the transfer of a capital asset effected in the previous year shall, save as otherwise provided in sections 54, 54B, 54D, 54E, 54EA, 54EB, 54F, 54G and 54H, be chargeable to income-tax under the head ''Capital gains', and shall be deemed to be the income of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n'. The calculation of long term capital gain given by the assessee is as under: Sale consideration for sale of 687.568 sq. yard land Rs. 20,60,000/- Less: Cost of acquisition : a) Cost of 687.568 sq. yard of land sold @ Rs. 190/- per sq. yard as per valuationreport as on indexed cost of land 1.4.1981 Rs. 1,30,638/- 130638x447/100 Rs. 5,83,952/- Add: Cost of improvement of 687.568 sq. yard. @ Rs. 564.97 per sq. yard Rs. 3,88,455/-Rs. 9,72,407/- Long term capital gain Rs. 10,87,593/- The above computation of long term capital gain is not as per law because the assessee has not taken FMV for determination of Long term capital gain. The Actual computation of long term capital gain comes to Rs. 17,34,019/-. As per below computation : Rate as on 1.4.1981 at Rs.20/- per sq. yard. Total cost of land as on 1.4.1981- 77638 x 20- 15,52,760/- Indexed cost of acquisition - 1552760 x 447/100 - 69,40,837 Fair Market Value as on 1.4.02 -77638 x 1500 - 11,64,57,000 Capital Gain as on 1.4.02 -11,64,57,000- 69,40,837 - 10,95,16,163 For 2002-03 It would be relevant here to refer relevant part of the order dated 16.12.2009, which reads as under: 3 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ats the conversion of capital assets into stock in trade as transfer. iv) In view of above two things are applicable in this case, one is determination of long term capital gain on total area of land i.e. 77638 sq. yards in the year of conversion into stock in trade, and fair market value is to be taken as sale price. However, capital gain tax will be charged in the year in which actual sale is made. Secondly the business profit will also be worked out on actual sale price by reducing FMV as on date of conversion adding the cost of improvement into it. v) In A.Y. 2003-04 to 2006-07, you have shown only long term capital gain and no business profit was shown. The long term capital gain shown by you was also not correctly worked out. In Y.A. 2007-08, you have shown profit under the both head i.e. capital gain as well as business profit whereas the facts were the same from F.Y. 2002-03 till 2006-07. 4. In view of above it is clear cut case of erroneous application of law. There is no second thought to it as by way of conduct the land was converted into stock in trade in F.Y. 2002-03. It does not provide you option to treat the same as and when desired. Since you have failed t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ains on sale of land in the computation of income. Along with the said return of income, the petitioner-company enclosed the following documents in support: (a) Working of profits on sale of land; (b) Copy of valuation report of government approved valuer for adopting fair market value of the land as on 1.4.1981 for the purpose of determining the indexed cost of acquisition of land for computing capital gains. In the audited financial statements for the financial year ending 31st March, 2003, filed along with return of income, gain on sale of land was shown as part of 'Extraordinary Income' in Schedule 'K'. Further, the cost of land sold was appropriately adjusted in Schedule 'E--Fixed Assets'. Following Note 7 (f) was given in Schedule 'P--Notes to accounts' in the audited financial statements for the financial year ending 31st March, 2003: (f) The Company has taken effective steps for development and sale of the surplus land of the erstwhile Ghaziabad Banaspati Unit at Ghaziabad. The expenditure on land development upto 31.3.2003 amounting to Rs.261.20 lacs has been capitalized and added to the cost of the land. During the year unde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rdinary income and other income. (a) Give complete working of profit on sale of land along with names and addresses of the parties to whom land has been sold. (b) Give a descriptive note regarding income from sale of paper brands/trade marks, substantiate earning of this income with supporting evidence. (c) Give a descriptive note on Sundry Balances Adjusted income from which has been declared at Rs.1706546/-. (d) Head wise details of miscellaneous receipts amounting to Rs.9650772/-, supporting documentary evidence regarding each receipts be produced for verification. (e) Give complete details of the following: (i) Profit on sale of assets. (ii) Profit on sale of units. (iii) Profit on Foreign Exchange Fluctuation In response to the aforesaid order sheet entry, the petitioner-company furnished elaborate details vide letter dated 1st March, 2008 along with, inter alia, the working of profit on sale of land and details of parties to whom land was sold. 28- Based on the aforesaid independent enquiries/documents called for by the assessing officer and after due application of mind on all the material/information on record, the assessing officer accepted ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on (1) of Section 142 or Section 148 or failure to disclose fully and truly all material facts necessary for the assessment of the relevant assessment year is made out, no assessment can be made after the expiry of four years. In the present case, there is no case that there was any 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. The respondent tried to make out a case that there was failure on the part of the assessee to disclose fully and truly all material facts necessary for the assessment for the relevant assessment year. Now the question for consideration is that whether on the facts and circumstances, there was any failure to disclose fully and truly all material facts necessary for the assessment. We are of the view that, on the facts and circumstances, no such case has been made out. Relating to the land in question, full and complete facts have been disclosed before the assessing authority. The land owned by the petitioner, measuring 77638 sq. yard at Amrit Nagar, G.T. Road, Ghaziabad was available on record. The approval granted by the State Government vide no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d out of which 27864.006 was available for sale as on 1st April, 2005. Rest of the land had been sold in earlier years. Out of this, 13480.727 sq.yards of land was sold in the assessment year under consideration. The cost of this land was shown at Rs.47578343/- on which further sum of Rs.21337225/- is claimed to have been incurred for improvement etc. Thus the total cost has been claimed to be Rs.68915568/- for the entire area of 27864.006 sq.yard. Area of 13480727 is claimed to have been sold for a sum of Rs.72735775/- and the profit declared is Rs.39394124/-. This profit has been worked out by taking proportionate value of land after including the cost of improvement. The value of remaining land of 14383.279 sq.yards has been shown at Rs.35573917.11/- (Rs.47578343 + Rs. 21373225 - 68915568-Rs.33341651). Details of parties to whom 13480.73 sq.yards of land was sold has been furnished with assessee-company's letter of 1st March, 2008. The assessing authority, on consideration of the aforesaid reply, has calculated and assessed the Long Term Capital Gain as follows, which is mentioned in the assessment itself: LONG TERM CAPITAL GAIN Brand Rs.6,03,52,000/- Land 31. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... servation shows that that on the existing material fact, the assessing authority intended to infer that the capital asset has been converted into the stock-in-trade. The assessing authority, on the basis of material on record assessed the 'Long Term Capital Gain' under Section 45(1) of the Act and not invoked Section 45(2). It is a settled principle of law that the proceeding under Section 147 cannot be initiated on account of change of opinion. Change of opinion and review of the assessment is not permissible. The Apex Court in the case of Shiv Nath Singh v. Appellate Commissioner of Income Tax (Supra) has held that the words reason to believe suggest that the belief must be that of an honest and reasonable person based upon reasonable grounds and that the Income-tax Officer may act on direct or circumstantial evidence but not on mere suspicion, gossip or rumour. In the case of Income Tax Officer v. v. Lakmani Mewal Das (Supra), it has been held by the Apex Court that the expression reason to believe does not mean a purely subjective satisfaction the part of the Income-tax Officer. It has been further held by the Apex Court that the reason must be held in good fa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he capital asset into stock-in-trade or has treated such capital asset as stock-in-trade of a business. There is no such material in this regard on record. The assessing authority, while initiating the proceeding, under Section 148, read with Section 147, has inferred such conversion of capital asset into the stock-in-trade and applied the provision of Section 45 (2), which is wholly erroneous. As held by us hereinabove that there is no failure on the part of the petitioner to disclose fully and truly all material facts, in the assessment of the relevant assessment year, exception to proviso to Section 148 is not applicable. The limitation to take action is four years from the end of the relevant assessment year. The four years' period for the assessment year 2003-04 expired on 31st March, 2008, while notice under Section 148 has been issued on 8.7.2009, that is, after expiry of four years' period, which is barred by limitation. In the case of Fenner (India) Ltd. v. Deputy CIT, reported in (2000) 241 ITR 672 (Mad.), the Madras High Court has held that in case where the initiation of proceeding is beyond a period of four years from the end of the assessment year, the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m) and the decision of the Gujrat High Court in the case of Arvind Mills Ltd. Vs. Deputy Commissioner of Income-Tax (Assessment), reported in (2000) 242 ITR, 173, in the case of Gujarat Fluorochemicals Ltd. Vs. Deputy Commissioner of Income-tax, reported in (2009) 319 ITR, 282 (Guj.) and in the case of Inducto Ispat Alloys Limited Vs. Assistant Commissioner of Income-Tax (OSD), reported in (2010) 320 ITR, 458 (Guj). The Full Bench of Delhi High Court, in the case of CIT v. Kelvinator India Limited, reported in (2002) 256 ITR 1, held that when a regular order of assessment is passed under Section 143 (3) of the Act, a presumption could be raised that such an assessment order has been passed with due application of mind. We are of the considered view that the same analogy is applicable in the case before us that the Assessing Officer, when passed assessment order under section 143 of the Act, had considered with due application of mind the claim of the assessee under section 36(1)(viii) of the Act. Not only this, we observe, as mentioned, hereinabove, that there is no averments by the Department in the reasons recorded that there was any failure on the part of the assessee to disc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d been issued were wholly illegal and invalid. In the case of Income Tax Officer, I Ward, Distt. VI, Calcutta and others v. Lakmani Mewal Das (Supra), the Apex Court has observed as follows: ..The duty of the assessee in any case does not extend beyond making a true and full disclosure of primary facts. Once he has done that his duty ends. It is for the Income-tax Officer to draw the correct inference from the primary facts. It is no responsibility of the assessee to advise the Income-tax Officer with regard to the inference which he should draw from the primary facts. If an Income-tax Officer draws an inference which appears subsequently to be erroneous, mere change of opinion with regard to that inference would not justify initiation of action for reopening assessment. ...The expression reason to believe does not mean a purely subjective satisfaction the part of the Income-tax Officer. The reason must be held in good faith. It cannot be merely a pretence. It is open to the court to examine whether the reasons for the formation of the belief have a rational connection with or a relevant bearing on the formation of the belief and are not extraneous or irrelevant for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... but in section 147 of the Act [with effect from 1st April, 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-1st April, 1989, power to re-open 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 re-open. 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 re-assess. But re-assessment has to be based on fulfillment 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 1st April, 1989, Asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eceived from students is being shown as donation to the trust and further that though the assessee has made addition in corpus of Rs.11,20,010/-, but no comment has been made in the assessment order. On the facts of the said case, it has been held by the Court that the assessing authority has relevant material in its possession to form the belief that income chargeable to tax has escaped the assessment. The sufficiency or the correctness of the material is not to be considered at this stage. It has been further observed that the 'reason to believe' recorded by the assessing authority as well as the order dated 3.6.2009, rejecting the objection of the assessee leave no manner of doubt that prima facie the assessing authority was having the material to form the belief in good faith that there was failure on the part of the assessee to disclose fully and truly the material facts for his assessment for the assessment years in question. The decision of the Apex Court, in the case of Indian Oil Corporation v. Income-tax Officer (Supra) also does not help the respondent, rather it helps the petitioner. On the facts and circumstances of the said case, the Apex Court held that ..... X X X X Extracts X X X X X X X X Extracts X X X X
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