TMI Blog2015 (8) TMI 472X X X X Extracts X X X X X X X X Extracts X X X X ..... ting that it was not an authority for the proposition that a mere change in the opinion would also confer jurisdiction upon the Assessing Officer to initiate proceeding under section 147 of the Act. The present case would fall in the category of "change of opinion" as the "reasons to believe" proceed on the premise that the opinion formed in the original assessment orders was wrong or erroneous. A wrong or erroneous opinion is not a good ground for reopening. This would be contrary to the jurisdictional requirements and the mandatory pre-conditions which should be satisfied. - Decided in favour of assessee. Computation of capital gains - determination of cost of acquisition as on April 1, 1974 - Held that:- The valuation report relied upon by the assessee referred to two instances in the form of agreements between the builder and the third parties in October and November, 1981, for purchase of commercial space in the commercial building for which construction was yet to begin. By 1981, requisite permissions, etc., were granted. It had taken almost 7-8 years for permissions/conversion. The said valuation proceeded backwards and computed or estimated the fair market value as o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , the Tribunal was correct in law in holding that the proceedings for reassessment for the assessment year 1989-90 were validly initiated ? 2. Whether, on the facts and in the circumstances of the case, the Tribunal was legally correct in confirming the cost of acquisition as on April 1, 1974, as adopted by the Assessing Officer ? 3. We will first take up question No. 1 as we perceive that the answer to the said question is crucial and would settle the controversy. The answer to question No. 2 would be required only if we hold that the reassessment proceedings were validly initiated. 4. The basic facts as noticed by the Tribunal may be noted : (i) The two appellants-assessees, along with other co-owners of pro perty No. 19, Barakhambha Road, New Delhi, entered into an agreement dated March 7, 1973, with M/s. Kailash Nath and Associates ( the builder , for short) for construction of a multi storied building at the cost of the builder. (ii) Under the agreement, rights in land were to be transferred ulti mately to the nominees of the builder or co-operative society/limited com pany to be formed by the prospective owners upon the completion of the building. (iii) In ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... efore, proceed in these two appeals as well as the appeals relating to the assessment year 1990-91 on the premise that the fair market value as on April 1, 1974, would be the basis for computing the capital gains. 8. Income-tax returns for the assessment year 1989-90 filed by the appellants-assessees were taken up for scrutiny assessment by issue of notice under section 143(2) of the Act. In the course of the assessment proceedings, the appellants-assessees filed a valuation report of a Government approved valuer asserting that the fair market value as on April 1, 1974, was ₹ 356 per square feet. The aforesaid valuation report has been placed on record and states that the property was developed into flats and, hence, selling price method was adopted. On the aforesaid basis, the gross value of the entire property as on April 1, 1974, was computed at ₹ 4,90,68,800. The Assessing Officer passed the assessment orders dated November 27, 1990, in the case of the two appellants-assessees and on the issue in question, i.e., the fair market value of the property as on April 1, 1974, it was identically observed : Copies of the sale agreement of direct sale and sale through ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ns were stated in response to the letter of objection filed by the appellants-assessees. The appellants-assessees protested by making detailed written submissions on the merits and questioning the reopening. The Assessing Officer did not accept the objections and passed the assessment orders taking the value of the property as on April 1, 1974, at ₹ 222.96 per square feet as against ₹ 356 per square feet at the time of the original assessment. 11. Before we examine question No. 1, it would be appropriate to refer to the reasons recorded by the Assessing Officer for issue of reassessment notice as the question raised is whether the reopening is bad and illegal for want of satisfaction of the jurisdictional pre-conditions. Copy of the reasons to believe recorded by the Assessing Officer, were never communicated. These are not quoted in the assessment order or the appellate orders including the order of the Tribunal. In the grounds of appeal, the appellants-assessees have referred to the order-sheet entry dated December 7, 1992, which records the grounds for reopening under section 148 read with section 147 of the Act. These are stated to be reasons to believe an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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 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 c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rom the 'information' received by the Income-tax Officer. The information is not the realisation, the information gives birth to the realisation. Referring to the decision in Jindal Photo Films Ltd. [1998] 234 ITR 170 (Delhi), the Full Bench held (page 14 of 256 ITR) : Thus, the court held that even under the newly substituted sec tion 147, with effect from April 1, 1989, an assessment could not be reopened on a mere change of opinion. Yet again in Foramer's case [2001] 247 ITR 436 (All), a Division Bench of the Allahabad High Court has held that if a notice under section 147/148 was issued after the coming into force of the amended Act, the latter shall be attracted. However, it is observed that (page 444) : 'Although we are of the opinion that the law existing on the date of the impugned notice under section 147/148 has to be seen, yet even in the alternative even if we assume that the law prior to the insertion of the new section 147 will apply even then it will make no difference since even under the original section 147 notice for reassessment could not be given on the mere change of opinion as held in numerous cases of the Supreme Court, some of whi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he said power can be exercised when the mistake is apparent. Even a mistake cannot be rectified where it may be a mere possible view or where the issues are debatable. Even the Income-tax Appellate Tribunal has limited jurisdiction under section 254(2) of the Act. Thus when the Assessing Officer or Tribunal has considered the matter in detail and the view taken is a possible view the order cannot be changed by way of exercising the jurisdiction of rectification of mistake. It is a well settled principle of law that what cannot be done directly cannot be done indirectly. If the Income-tax Officer does not possess the power of review, he cannot be permitted to achieve the said object by taking recourse to initiating a proceeding of reassessment or by way of rectification of mistake. In a case of this nature the Revenue is not without remedy. Section 263 of the Act empowers the Commissioner to review an order which is prejudicial to the Revenue. Thus, the distinction between the power of reopening and the power of revision under section 263 of the Act, which applies to erroneous assessments, prejudicial to the interests of the Revenue, was drawn and high lighted. Referrin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oduced 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 October 31, 1989 (see [1990] 182 ITR (St.) 1, 39), 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 the 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.' (emphasis supplied) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... orders in which reliance was placed and the valuation report submitted by the appellants-assessees was accepted. We have also noted the reasons recorded by the Assessing Officer for reopening the assessment and his reply or show-cause notice dated September 26, 1994, stating that the Government approved valuer's report relied upon the commercial rates as on April 1, 1974, whereas the property in question at that time was residential. However, what is material and consequential are the reasons to believe. They have to be read and we have to determine whether it is a case of change of opinion. The reasons to believe simply but obsequiously rely upon the assessment order for the assessment year 1990- 91 to observe that the cost of acquisition as shown by the assessees was wrong. In other words, the plea and stand of the Revenue was that erroneous and incorrect computation was made, relying upon the reasoning in the assessment orders for the assessment year 1990-91. 18. In view of the dictum of the Supreme Court in the case of Kelvinator of India Ltd. (supra), the Full Bench of this court in Kelvinator of India Ltd. (supra) and Usha International (supra), the present case would ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1989, and it was observed (page 89 of 253 ITR) : Up to March 31, 1989, two conditions were required to be fulfilled to confer jurisdiction on the Assessing Officer to act under section 147(b). They are (1) he must have information which comes into his possession subsequent to the making of the original assessment order, and (2) that information must lead to his belief that income chargeable to tax has escaped assessment, or that it has been under assessed or assessed at too low a rate or has been made the subject of excessive relief. After April 1, 1989, the position is somewhat different. Section 147 with effect from April 1, 1989, provides that where the Assessing Officer has reason to believe that any income chargeable to tax has escaped assessment for any assessment year, he may apply the pro visions of sections 148 to 153. He may assess or reassess the income which has escaped assessment. It is to be noted that section 147 as it stands with effect from April 1, 1989, not only merges clauses (a) and (b) of the pre-amended section 147 but also brings about a significant change in the preliminary requirement of certain conditions mandatory in character before reassessment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has concrete existence. It requires no further authority to make it significant. Its quintessential value lies in its definitive vitality. 21. The aforesaid observations of the Division Bench of the Delhi High Court have to be read in the light of the ratio decidendi as expounded by the Supreme Court in the case of Kelvinator of India Ltd. (supra), the decisions of the Full Benches of the Delhi High Court in Kelvinator of India Ltd. (supra) and Usha International (supra), which prohibit and bar change of opinion as a ground for reopening. It is noteworthy that the Full Bench of this court in Kelvinator of India Ltd. (supra) referred to the aforementioned extract from Bawa Abhai Singh (supra) but distinguished the quote, asserting that it was not an authority for the proposition that a mere change in the opinion would also confer jurisdiction upon the Assessing Officer to initiate proceeding under section 147 of the Act. 22. The decision in the case of Asst. CIT v. Dhariya Construction Co. [2010] 328 ITR 515 (SC), is not directly applicable. However, the aforesaid decision of the Supreme Court to some extent supports our reasoning. The ratio propounded mandates that the As ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ly applied his mind while recording reasons to believe. The decision in the case of Dhariya Construction Co. (supra) was distinguished on the ground that the Supreme Court in the said case had deprecated mechanical and robot like reliance on the DVO's report to hold that the reasons to believe must be based on independent application of mind by the Assessing Officer. The facts in Mahashay Chunnilal (supra) were somewhat identical but there is one substantive distinguishing factor that the report of the DVO was per se tentative and vague. The Assessing Officer had proceeded on the said ambiguous valuation report without appreciating its contents and noticing that the DVO's report itself lacked substance and basis. 24. In view of the aforesaid position, we answer the substantial question of law No. 1 in I. T. A. No. 224 of 2002, Prabhu Dayal Rangwala v. CIT and I. T. A. No. 227 of 2002, Indulata Rangwala v. CIT relating to the assessment year 1989-90 in favour of the appellant-assessee and against the Revenue. Consequently, we need not examine substantial question of law No. 2, which relates to merits. I. T. A. No. 226 of 2002, Prabhu Dayal Rangwala v. CIT and I. T. A. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... imated the value of the property on the basis of a sale instance, i.e., sale consideration paid for the property located at 15, Curzon Road, New Delhi, sold on April 14, 1973. He adopted the land rate at ₹ 1,061 per square yard as on March 7, 1973, and at ₹ 1,116 per square yard as on April 1, 1974. The cost of acquisition, i.e., the fair market value on the said basis was computed at ₹ 222.96 per sq. feet. 28. The Commissioner of Income-tax (Appeals) upheld the estimation of the fair market value of the property adopted and applied by the Assessing Officer relying on the DVO's report. The said finding has been affirmed by the Tribunal, observing that what was sold in the assessment year 1990-91 was commercial space but what was existing as on April 1, 1974, was a residential building. The property, as existing on April 1, 1974, had undergone a change. The Tribunal held that the DVO in his report had rightly relied upon and based his valuation on the sale instance. The cost of acquisition taken at ₹ 222.96 per sq. feet was just and fair. 29. We are in agreement with the finding recorded by the Tribunal that the valuation report relied upon by the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... evant factor which would depreciate the value. Thus, we agree with the Revenue that the valuation report relied upon by the assessee did not give fair and correct market value of the property as on April 1, 1974. The computation made by the valuer, relied upon by the assessee at ₹ 356.15 per square feet cannot be accepted as correct. 30. On the other hand, the DVO's report was based upon a specific sale instance relating to sale deed dated April 19, 1973, in respect of property No. 15, Curzon Road, New Delhi. On this basis, the fair market, value on per square feet basis as on April 1, 1974, was computed at ₹ 222.96. 31. It is noticeable that the assessee himself, during the course of the assessment proceedings before the Assessing Officer, possibly realised the adversity and error in relying upon the said report and as an alternative submission had stated : (iii) Without prejudice to the above, he states that the assets transferred by him in the above year are his rights in the commercial Flat No. 19, Barakhamba Road, New Delhi. It is the market value of the said right as on 1st April, 1974, which is required to be estimated and deducted out of sale consi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... including Dwarka Das Rukmani Devi, Raj Gopal Rangwala and Mahabir Parshad. The said co-owners have accepted the said valuation report. It was stated at the Bar that the said persons had not filed any objections to the valuation made. Therefore, even if an order of remand is passed, the Valuation of the DVO, which has been adopted and applied by the Assessing Officer, it is apparent, would be again applied. We are, therefore, not inclined to pass a futile order of remand. This would be undesirable. 35. The decision in the case of Naveen Gera (supra) is inappropriate. The said decision holds that section 142A of the Act has no retrospective effect and was not applicable to assessments made on or before September 30, 2004. This is not the issue or controversy in the present case. The sale transaction in the said case was between the assessee and a company in which the son of the assessee was one of the directors. Another issue related to the scope of assessment under section 153A of the Act. The issues raised in the present case are entirely different. 36. Prakash Chand v. Deputy CIT [2004] 269 ITR 260 (MP) was a case relating to reopening under section 147/148 of the Act. Refer ..... 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