TMI Blog2016 (3) TMI 734X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 - 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 - to reopen an assessment tangible material should be there. - Decided in favour of assessee - ITA NO.205 OF 2015 - - - Dated:- 16-2-2016 - MR. JAYANT PATEL AND MRS. S SUJATHA, JJ. For The Appellant : Sri.K.V.Aravind, Advocate For The Respondent : Sri.A.Shankar And Sri.M.Lava, Advocates Jayant Patel, J. The Revenue has preferred the present appeal by formulating the following substantial questions of law: 1. Whether the Tribunal was correct in holding that the reasons recorded by the assessing officer did not spell out that escapement of income was due to the assessee not fully and truly disclosing all material f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erred by him. The taxable event for application of Sec. 45(2) is conversion of capital asset into stock-in-trade of business. The point of time at which tax is levied is the year in which the stock-in-trade is sold. When the original assessment was completed u/s. 143(3) of the Act, the AO did not think it fit to invoke provisions of Sec. 45(2) of the Act either because he overlooked the applicability of those provisions or because he thought that the point of time at which tax is to be levied u/s. 45(2) of the Act, viz., sale of the stock-in-trade had not occurred during the previous year. In the reasons recorded by the AO, the AO makes a reference to the provisions of Sec. 45(2) of the Act and claims that the said provisions are applicable because the assessee had entered into agreement for development of the Whitefield property on 5.2.2005 with M/S.PEPL and further executed a power of attorney on 01/03/2005 in favour of M/s. PEPL for transfer of stock for development. According to the AO, the above act by the Assessee amounts to transfer/relinquishment/sale of stock by the Assessee to M/S.PEPL. According to the AO, the consideration so received has to be brought to tax as capital ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing assessment. 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 this section, or recompute the loss or the depreciation allowance or any other allowance, as the case may be, for the assessment year concerned (hereafter in this section and in sections 148 to 153 referred to as the relevant assessment year): Provided that where an assessment under subsection (3) of section 143 or this section 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... elf-explanatory and should not keep the assessee guessing for the reasons. Reasons provide the link between conclusion and evidence. The order passed by the Assessing Authority did not state anywhere that there was a failure on the part of the assessee to disclose fully and truly all material facts necessary for the assessment of that year. All that has been stated in the order is that the assessee has appended the note and at no point of time, the assessee has disclosed as to the nexus between the amount of ₹ 10,06,617/-and the 10A unit. The disclosure has to be full and true. Both the criteria have to be met. In the assessee's case, by failing to bring out the nexus between the 10A unit and the interest income, the assessee has not discharged its responsibility of furnishing full disclosure of facts. As set out above, the note clearly sets out the interest income earned by the STP unit and the claim of the assessee for exemption under Section 10A. It is not the requirement of law that further the assessee should show the nexus between the amount claimed and 10A unit. When he has categorically stated that the interest, which is earned from STP unit, is eligible for exemp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d by the Assessing Officer that the income has escaped by reason of the failure on the part of the assessee to disclose fully and truly all material facts necessary for its assessment for the Assessment Year under consideration, assumption of jurisdiction u/s 147 of the Act was failure and therefore, the impugned notice u/s 147 of the Act, cannot be sustained. Identical question came to be considered by the Division Bench of this Court in the case of Kanak Fabrics v. Income Tax Officer in Special Civil Application No. 335 of 2001 and in absence of any such satisfaction by the Assessing Officer, the Division Bench of this Court has quashed and set aside the notice of reassessment u/s 148. In view of the above and for the reasons stated above notice of reassessment u/s 148 quashed and set aside. (emphasis Supplied) 14.6 It was thus submitted by the ld. counsel for the assessee that reopening of the assessment should be held to be bad in law, as the AO in the present case has not recorded specifically that escapement of income was due to the failure on the part of the assessee to disclose fully and truly all material facts necessary for his assessment for the A.Y. 2005-06. It w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y mean that one has to look into the facts and circumstances of the given case to come to a conclusion, whether there was failure on the part of the assessee to fully and truly disclose all necessary facts for his assessment for that assessment year. The fact that the Assessee filed all documents and accounts and other evidence from which material evidence could with diligence have been discovered by the AO, will not be conclusive in the matter. According to him, elaborate discussion in the order of AO while completing the original assessment will clearly show that there was a complete disclosure by the assessee of all material facts. According to him, there is nothing brought on record to show that there was failure on the part of assessee as contemplated by the proviso to section 147. Primary facts have been disclosed by the Assessee and the legal inferences to be drawn from such primary facts lies in the domain of the AO. The Assessee cannot therefore be said to have failed to disclose fully and truly material facts. In this regard, it was submitted by him that reasons recorded only mention the fact that assessee has not filed any information regarding capital gains u/s. 45(2) o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat in the original order of assessment, the AO had not made any discussion with regard to applicability of section 45(2) of the Act and therefore it cannot be said that there was any expression of opinion in the order originally passed u/s. 143(3). It was his submission that there cannot be any change of opinion in the given circumstances. 20. With regard to the contention of the ld. DR regarding change of opinion, ld. counsel for the assessee brought to our notice the following observations of the Hon'ble Supreme Court in the case of Kelvinator of India Ltd.:- On going through the changes, quoted above, made to s. 147 of the Act, we find that, prior to Direct Tax Laws (Amendment) Act, 1987, reopening could be done under above two conditions and fulfilment of the said conditions alone conferred jurisdiction on the AO to make a back assessment, but in s.147 of the Act (w.e.f. 1st April, 1989), they are given a go by and only one condition has remained, viz., that where the AO has reason to believe that income has escaped assessment, confers jurisdiction to reopen the assessment. Therefore, post 1st April, 1989, power to reopen is much wider. However, one needs to give a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... those provisions or because he thought that the point of time at which tax is to be levied u/s. 45(2) of the Act, viz., sale of the stock-in-trade had not occurred during the previous year. It is clear from a perusal of the order u/s. 143(3) of the Act dated 31.12.2007 that AO was fully aware of the fact that property at Whitefield which was held as investment got converted into stock-in-trade during the previous year relevant to A.Y. 2005-06. It is also clear from the order u/s. 143(3) of the Act that AO was fully conscious of the fact that property at Whitefield having been given under joint development agreement to PEPL on 5.2.2005. In the said assessment order, the AO despite knowing the fact that property at Whitefield was stock-in-trade of the business of the assessee and that it was subject matter of joint development agreement, by which property was to be developed as a residential complex, did not consider the JDA dated 5.2.2005 as giving rise to a transfer within the meaning of section 45(2) of the Act. In the reasons recorded by the AO before issue of notice u/s. 148 of the Act, the AO has come to the conclusion that by virtue of JDA dated 5.2.2005, there was a transfer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not fully and truly disclosing all material facts necessary for completion of assessment for the relevant assessment year. In this regard, we are also of the view that allegations in para 19 of the reasons recorded do not spell out the belief that there was a failure on the part of the assessee to fully and truly disclose all material facts. In fact, the assessee had disclosed all facts in the original assessment proceedings u/s. 143(3) of the Act. 24. With regard to reliance placed by the ld. DR on Explanation to section 147, we are of the view that Explanation 1 only lays down that facts and circumstances of each case will have to be looked into to ascertain as to whether there was failure on the part of the assessee to fully and truly disclose material facts. As rightly contended by the ld. counsel for the assessee, the expression will not necessarily in Explanation 1 will only mean that facts and circumstances of each case will have to be seen as to whether production of books of account and other evidence before the AO will amount to full and true disclosure of material facts. In the present case, as we have already seen, evidence was produced before the AO in the course ..... X X X X Extracts X X X X X X X X Extracts X X X X
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