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The Commissioner of Income-tax, Bangalore and The Deputy Commissioner of Income-Tax, Bangalore Versus M/s. Chaitanya Properties Pvt. Ltd.

Reopening of assessment - escapement of income proved or not? - Held that:- Whether it was a case of change of opinion or the non-disclosure of true and correct facts, if considered in light of the report, one may say that such may fall in the arena of question of fact which may include the consideration of the earlier proceedings of the assessment. The Tribunal having found that the relevant material including that of transfer by the assessee to PEPL was on record and therefore it was not a cas .....

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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 - 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, t .....

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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 facts necessary for completion of assessment for the relevant assessment year without considering the fact that the assessing officer recorded that the assessee did not file any information regarding incidence of capital gains? 2. Whether the Tribunal was correct in holding that the initiation of reassessment ha .....

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ragraph 26 as under: 12. It could be seen from the facts narrated as above that the proceeding u/s. 147 of the Act were sought to be initiated after a period of four years from the end of the relevant assessment year. It is also clear from the facts narrated as above that in the case of assessee for the A.Y. 2005-06, an order of assessment u/s. 143(3) of the Act had already been made. Therefore, proviso to section 147 of the Act will apply. 13. It can also be seen from the reasons recorded by th .....

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As we have already seen the Assessee held the Whitefield property as investment and converted the same as stock-in-trade of business. This fact has also been recorded by the AO in the order of assessment passed u/s. 143(3) of the Act. Sec. 45(2) of the Act provides that the profits or gains arising from the transfer by way of conversion by the owner of a capital asset into, or its treatment by him as stock-in-trade of a business carried on by him shall be chargeable to income-tax as his income .....

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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 .....

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pronouncements wherein a view has been expressed that whenever property is given on Joint Development, the date of transfer would be the date of the Joint Development Agreement for the purpose of levy of capital gains tax. In the remaining paragraphs, the AO has computed capital gain that has to be brought to tax which in his opinion has escaped assessment. 14. On the facts as narrated above and on the basis of provisions of section 147 as well as proviso to section 147 of the Act, the ld. couns .....

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the learned counsel for the Assessee submitted that the fact that assessee owned 100.02 acres of land in Whitefield and the fact that the aforesaid property was treated as investment as on 31.3.2004 and shown as stock-in-trade as on 31.3.2005 are all facts within the knowledge of the AO, while completing the original assessment u/s. 143(3) of the Act. The fact that the property was subject matter of the joint development agreement ("JDA") between the assessee and PEPL under an agreemen .....

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s. 143(3) dated 31.12.2007. 14.2 Our attention was drawn to the provisions of section 147 of the Act and proviso to section 147 which reads as under:- "147: Income escaping 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 .....

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ry 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:" 14.3 As per the proviso to section 147 of the Act, where an assessme .....

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ed by the AO u/s. 147 of the Act before issue of notice u/s. 148 of the Act and submitted that in the reasons so recorded by the AO, there has been no allegation that there was escapement of income due to failure on the part of the assessee to disclose fully and truly all material facts necessary for assessment of income of the assessee for A.Y. 2002-03. 14.4 Our attention was also drawn to the decision of the Hon'ble Karnataka High Court in the case of CIT and ACIT v. Hewelett Packard Digit .....

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l facts necessary for the assessment of that assessment year. It is for the Assessing Officer to disclose and open his mind through reasons. He has to speak through his reasons. It is for the Assessing Officer to reach the conclusion as to whether there was failure on the part of the assessee to disclose fully and truly all material facts necessary for his assessment for the-concerned assessment year. It is for the Assessing Officer to form his opinion. It is for him to put his opinion on record .....

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rt 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, t .....

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nexus is manifest. The Assessing Authority has not properly applied his mind towards the statutory provisions and has not taken into consideration that the original assessment passed under Section 143(3) which was also reopened once and adjustment was made. It is for the second time, he was raising all these objections. When admittedly the second reopening of the assessment is beyond four years, under law, it is barred by time and the findings recorded by the Tribunal is legal and valid and does .....

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/2011 in relation to the Assessment Year 2005-06. Hence, admittedly the same had been issued after expiry of a period of four years from the end of the relevant assessment year. Under the circumstances, in light of the proviso to section 147 of the Act, in case, where assessment has been framed under section 143(3) of the Act, no action can be taken under section 147, unless income chargeable to tax has escaped assessment by reason of the failure on the part of the assessee to disclose fully and .....

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f any such failure on the part of the assessee. The AO was not in a position to satisfy the Court with respect to compliance/satisfaction of the requirement of the proviso to section 147 of the Act. Under the circumstances, it was apparent that the requirement of the proviso to section 147 was not satisfied. Secondly, in absence of any satisfaction having been recorded by the Assessing Officer that the income has escaped by reason of the failure on the part of the assessee to disclose fully and .....

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ourt 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 m .....

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zed that no new material whatsoever has been referred to in the reasons recorded. 15. The ld. DR, on the other hand submitted that there was a failure on the part of the Assessee to fully and truly disclose material facts and in this regard drew our attention to para-19 of the reasons recorded wherein the AO has recorded the fact that the Assessee has not filed any information to the effect that there was incidence of capital gain u/s. 45(2) of the Act, as per the return of income. Further refer .....

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ein the CIT (A) has upheld the action of the AO in initiating proceedings u/s. 147 of the Act. 16. The ld. counsel for the assessee, in rejoinder, pointed out to Explanation 1 to section 147 of the Act, which reads as under:- "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 foregoin .....

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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 co .....

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uly 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) of the Act in the return of income filed. According to him, this allegation cannot tantamount to an allegation by the AO that assessee has failed to fully and truly disclose all material facts. 18. On the reopening of assessment being merely on a change of opinion, the learned counsel for the Assessee submitted that .....

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erty as resulting to a transfer giving raise to charge of capital gain u/s. 45(2) of the Act. It was pointed out by him that in the reasons recorded the AO has not referred to any material which had come into his possession subsequent to the passing of the order u/s. 143(3) of the Act based on which he entertained belief that Development Agreement resulted in a Transfer and thereby provisions of Sec. 45(2) of the Act became applicable. There being no material which has come to the possession of .....

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that the law is well settled that to assume jurisdiction u/s. 147 of the Act, there should be reason to believe that income chargeable to tax has escaped assessment. Such reason to believe cannot be on a mere change of opinion. This position is well settled by the decision of the Hon'ble Supreme Court in the case of CIT Vs. Kelvinator of India Ltd. 320 ITR 561 (SC). Attention was also drawn to a decision of the Hon'ble Karnataka High Court in the case of CIT Vs. Hardware Trading Co. 248 .....

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. 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 .....

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cannot be per se reason to reopen. We must also keep in mind the conceptual difference between power to review and power to reassess. The AO has no power to review; he has the power to reassess. But reassessment has to be based on fulfilment 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 reopening the assessment, review would take place. One must treat the concept of "change of opinion&q .....

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the present action of the AO is clearly a case of resort to reassessment proceedings merely on change of opinion. 21. We have given a very careful consideration to the rival submissions. As we have already seen the Assessee held the Whitefield property as investment and converted the same as stock-in-trade of business during the previous year relevant to AY 05-06. This fact has also been recorded by the AO in the order of assessment passed u/s. 143(3) of the Act. Sec. 45(2) of the Act provides t .....

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n 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. It is clear from a perusal of the order u/s. 143(3) of the Act dated 31.12.2007 tha .....

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he 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 of the capital asset giving rise to capital gains u/s. 45(2) of the Act. .....

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the decision of the Hon'ble Bombay High Court in the case of Chaturbhuj Dwarkadas Kapadia Vs. CIT 260 ITR 491 (Bom.) rendered on 13.2.2007, which was much before when the AO concluded the original assessment proceedings u/s. 143(3) of the Act on 31.12.2007. The other decision referred to by the AO in the reasons recorded is CIT Vs. T.K. Dayalu 202 Taxman 531. This decision was rendered on 20.6.2011, after the conclusion of the original assessment proceedings. The decision rendered subsequen .....

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ly show that all facts were available before the AO when he completed the original assessment proceedings u/s. 143(3) of the Act. There is no tangible material which has come to the possession of the AO justifying initiation of reassessment proceedings. On the facts and circumstances of the present case, we are of the view that initiation of reassessment proceedings has been merely on the basis of change of opinion and in view of the law laid down by the Hon'ble Supreme Court in the case of .....

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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 whet .....

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before the AO in the course of the original assessment proceedings u/s. 143(3) of the Act and the same was perused by the AO and he had not chosen to draw any conclusion that there was a transfer by the assessee to PEPL. The fact that assessee was following completion method of accounting for income from the JDA, has also been acknowledged by the AO. In the given circumstances, we are of the view that Explanation 1 cannot be resorted to by the revenue. Explanation-1 to Sec. 147 cannot be read in .....

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