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2016 (5) TMI 549 - PUNJAB AND HARYANA HIGH COURT

2016 (5) TMI 549 - PUNJAB AND HARYANA HIGH COURT - [2016] 386 ITR 46 - Reopening of assessment - ‘conversion charges’ were allowed as ‘Revenue expenditure’ in the hands of the firm that the relevant documents including the lease agreement were statedly perused, which led to have reasons to believe that taxable income in the hands of individual partners has escaped assessment - Held that:- The petitioners’ forceful contention that even if the conversion of land-use from ‘industrial’ to ‘commercia .....

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issues which deserve to be determined in accordance with the procedure contemplated under Section 143(3) of the Act. The reasons assigned by the Assessing Officer to tentatively believe that taxable income has escaped assessment cannot be brushed aside at the threshold without a fact-finding procedure, more-so when the petitioners are not remediless and have got equally efficacious recourses under the Act. - A somewhat similar dictum is discernible from CIT vs. Chhabil Dass Agarwal (2013 (8) .....

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eld so, it is not expedient for this Court to express its opinion on the rival submissions as it may unwittingly cause prejudice to either party. Suffice it to say that no case to quash the notice(s) issued under Section 148 read with Section 147 of the Act or the order(s) rejecting the objections, is made out at this premature stage. - CWP Nos. 13605, 13607, 13609, 13618, 13624, 13641, 13645, 13666, 13667, 13668, 13683 of 2015 (O&M) - Dated:- 22-3-2016 - MR. SURYA KANT AND MR.JUSTICE P.B. BAJAN .....

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chit Passi, sons of Vijay Passi, the Assessees) are owners of plot No.125, Industrial Area-I, Chandigarh. They are also partners in the firm - M/s Krishna Automobiles having 50% of the share each. (3) The petitioners were served with notices under Section 148 of the Income Tax Act, 1961 (in short, the Act ) as the Assessing Authority had reasons to believe that their income chargeable to tax for the Assessment Years 2005-06 to 2013-14 escaped assessment within the meaning of Section 147 of the A .....

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1) in respect of their industrial plot with the firm M/s Krishna Automobiles (the lessee) w.e.f. 01st April, 2005. The lessee agreed to pay a monthly rent of ₹ 1.50 lacs. The rent was payable to both the brothers in the ratio of 50:50. The agreed lease period was that of 15 years commencing from 01st April, 2005 with the stipulation of 5% annual increase in the monthly rent. (5) Some of the other salient terms and conditions agreed to between the lessee and the lessors are as follows:- 4.2 .....

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riod, the Lessee shall hand over to the Lessors the building built on the said premises in good condition without any defects/ damages/ leakages/ or any other areas requiring repairs. 5.5 The Lessee shall hand over quite and vacant possession of the land & building to the Lessors with no charges what so ever at the end of the lease period after paying all outstanding bills/taxes/fee/levies/bills/dues to the authorities and shall hand over a no due certificate on the date of the end of the le .....

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s prescribed under the Scheme. (7) The Assessees applied on 15th September, 2006 as the owners of above-stated industrial plot for the conversion of land use for commercial activities along with a sum of ₹ 96,24,996/- payable along with the application. The competent authority accorded the permission and the industrial plot was permitted to be used for commercial activities subject to payment of balance amount of ₹ 8,66,24,964/- to the Chandigarh Housing Board which the Assessees agr .....

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petitioner(s) with Section 148 notices dated 07.01.2015 with a reason to believe that the income of the petitioner(s) chargeable to tax for the Assessment Year 2005-06 (onwards) escaped assessment within the meaning of Section 147 of the Act and thus it was proposed to assess/re-assess the income for those Assessment Years and the petitioner(s) were asked to deliver return(s) in the prescribed form of their income for the said Assessment Year within a period of 30 days. (11) The petitioner(s) s .....

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value many fold. Consequently, the rent attributable to the property should have been increased. However, the owners of the property who are also the partners in the firm M/s Krishna Automobiles have made payments of change of land use to the Chandigarh Housing Board directly through the firm M/s Krishna Automobiles. Although, the payment has directly been made by M/s Krishna Automobiles to Chandigarh Housing Board instead of routing through the accounts of Sh. Sumit Passi and Sh. Sachit Passi, .....

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haracter. The change of land use has changed its character to commercial w.e.f. 09.11.2006. Therefore, the rental value of land has increased many fold. This has been received by the partners as constructive receipt towards rent as a consequence of payments made by the firm to Chandigarh Housing Board. The actual annual rent is, thus, the sum total of the rent as per agreement plus the amount of constructive receipt towards rent paid by the firm M/s Krishna Automobiles by way of payment to Chand .....

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the land and building. The Assessee(s) also relied upon Section 56 of the Act to submit that only the income actually received from leasing of land is taxable as the real income alone could be brought to tax and not any notional/unrealizable or uncertain amount. It was also claimed that there were no reasons to believe that any income chargeable to tax had escaped assessment. An elaborate reference to the case law was also made. (14) The Assessing Officer has turned down the objections vide orde .....

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regarding a notional/unrealized or uncertain income. The issue is regarding an expense (payment for change in land use) which was to be borne by the assessee (the 50% owner of land and also partner in M/s Krishna Automobiles) but was borne by someone-else (M/s Krishna Automobiles) on his behalf. The firm, M/s Krishna Automobiles, was paying rent to the assessee for the property in the nature of industrial land. The firm made payment to the Chandigarh Housing Board for the change in land use whic .....

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ndeed revenue receipts which are taxable in his/their hands as it is the landlord who is the ultimate beneficiary of the payment of conversion charges paid by the lessee of the leased out land. The order(s) rejecting the objections as also the notices are being assailed in these writ proceedings. (16) We have heard learned senior counsel for the Assessee(s) and the counsel for Revenue and have gone through the record. (17) Reiterating their objections to the re-opening of the cases, it was urged .....

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the value of capital asset of the Assessee(s) which shall get taxed at the time of transfer of the property by the Assessee(s) and thus the Revenue shall also get the due tax thereon; (iv) The land prices increase or decrease due to market forces and it can have no bearing on the taxable rental income; (v) The conversion charges paid by the lessee (firm) were neither available, directly or indirectly, to the Assessee(s) in any form nor paid on their behalf. The lessee paid the conversion charges .....

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thorities were thus aware of such expenses being borne by the Firm. (viii) There is no fresh material with the Assessing Officer and all the aspects were duly considered at the time of scrutiny assessment of M/s Krishna Automobiles under Section 143(3) of the Act. The case could not be re-opened on the mere change of opinion of the Assessing Officer; (ix) The Assessing Officer must have reasons to believe that the income has escaped assessment and thus both the essential ingredients, namely, rea .....

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diction need not travel into the realm of factual issues which are required to be gone into by the Assessing or other superior authorities; (ii) the petitioners have ample opportunity(ies) to prove their plea before the authorities under the Act and cannot seek a pre-emptory order to restrain the authorities from performing their duties under the Statute; (iii) the tentative opinion formed by the Assessing Authority is based upon correct appreciation of the law and facts as there was no binding .....

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eason to believe that it was chargeable to tax and has escaped assessment. The mandatory twin-test earlier embedded in Section 147 for reopening of assessment has been dispensed with under the amended provision so as to enable the Assessing Officer to make a back assessment subject to fulfillment of the solitary condition that he has reason(s) to believe that income has escaped assessment. (20) The Supreme Court in Assistant Commissioner of Income Tax vs. Rajesh Jhaveri Stock Brokers Private Lim .....

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sessment of that year. Both these conditions were conditions precedent to be satisfied before the Assessing Officer could have jurisdiction to issue notice under Section 148 read with Section 147(a) But under the substituted section 147 existence of only the first condition suffices. In other words if the Assessing Officer for whatever reason has reason to believe that income has escaped assessment it confers jurisdiction to reopen the assessment. It is however to be noted that both the conditio .....

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ing Officer has cause or justification to know or suppose that income had escaped assessment, it can be said to have reason to believe that an income had escaped assessment. The expression cannot be read to mean that the Assessing Officer should have finally ascertained the fact by legal evidence or conclusion. [Ref. Assistant Commissioner of Income Tax vs. Rajesh Jhaveri Stock Brokers Private Limited (2008) 14 SCC 208] (23) The first proviso to Section 147 is yet another safeguard against the a .....

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y for his assessment, for that Assessment Year. (24) M/s Phool Chand Bajrang Lal and another v. ITO and another, (1993) 4 SCC 77 has well explained that the purpose and intent of the provisions have to be looked to. One of the purposes of Section 147, appears to ensure that a party cannot get away by willfully making a false or untrue statement at the time of original assessment and when that falsity comes to notice, to turn around and say "you accepted my lie, now your hands are tied and y .....

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ull - "fully and truly". A false assertion, or statement, or material fact, thereof, attracts the jurisdiction of the Income Tax Officer under Section 34/147. (26) There is however a meaningful caveat as lodged in The Income Tax Officer, I Ward, District VI, Calcutta and others vs. Lakhmani Mewal Das (1976) 3 SCC 757, namely, that the reason for the formation of the belief must be held in good faith and should not be a mere pretence. (27) It is an undeniable fact in the case in hand th .....

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onversion charges were allowed as Revenue expenditure in the hands of the firm that the relevant documents including the lease agreement were statedly perused, which led the Assessing Officer to have reasons to believe that taxable income in the hands of individual partners has escaped assessment. (29) The petitioners forceful contention that even if the conversion of land-use from industrial to commercial has increased its value manifold, such increase, at the best, amounts to accretion in the .....

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