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2016 (9) TMI 709 - ITAT PUNE

2016 (9) TMI 709 - ITAT PUNE - TMI - Reopening of assessment - transfer envisaged under section 2(47) has not taken place by virtue of such impugned development agreement - Validity of notice - notice issued in the name of HUF - Held that:- It is the case of the assessee that the notice under section 148 vesting jurisdiction with the Assessing Officer has been addressed to the HUF entity namely Shri Dnyaneshwar Govind Kalbhor (HUF) whereas the PAN Number mentioned in the notice pertains to the D .....

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to remains un-rebutted. Further, the reasons have been recorded under section 148(2) in the name of the Individual ‘Shri Dnyaneshwar Govind Kalbhor’ whereas the notice has been issued in the name of HUF i.e. ‘Shri Dnyaneshwar Govind Kalbhor (HUF)’. The fact of non existence of HUF is paramount and strikes to the very root of purported jurisdiction sought to be acquired by the AO under S. 147 of the Act. In the background of these discernible facts, it is manifest that the notice issued under sec .....

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n prima facie consideration of relevant material. The escapement in generic terms stated to be in millions without formulating any belief thereon is bizarre & inexplicable. On this ground also, the action of the Assessing Officer in issuing notice under section 147 cannot be approved. Needless to say, the assessing officer does not enjoy unbridled or sweeping powers in the matter of reopening an assessment. The provisions of section 147 are structured with inbuilt safeguards and requirements of .....

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the absence of cost of acquisition available, it is nearly impossible to visualize with some degree of certainty as to whether such transaction has resulted in any gain at the first place or not to allege escapement thereof. Thus, the action of the AO is marred on this score also. - Decided in favour of assessee - ITA No.2405/PN/2012, ITA No.123/PN/2013, ITA No.2366/PN/2012 - Dated:- 5-8-2016 - SHRI VIKAS AWASTHY, JM AND SHRI PRADIP KUMAR KEDIA, AM For The Assessee : Shri S. N. Doshi For The De .....

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assed under section 154 of the Act relating to assessment year 2007-08. 2. All the captioned three appeals were heard together and are being disposed of by this consolidated order. 3. First, we shall take up the cross appeals filed by the assessee and the Revenue for adjudication of quantum appeal. ITA No.2405/PN/2012 (By Assessee) : 4. In this appeal, the assessee has raised the following Grounds of Appeal :- 1. On the facts and in the circumstances of the case the CIT(A) ought to have held tha .....

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idual), while the appellant has not filed the return. v. The assessment order is inconclusive hence not an order as the Assessing Officer requests the appellate authority to pass the Assessment Order by adjudicating all the vital issues namely the:- a. Taxable entity, b. Year of taxability, c. Value as of 01/04/1981, d. Determination of correct Capital Gain. 2. On the facts and in the circumstances of the case and without prejudice to above grounds the CIT(A) has erred in interpreting the develo .....

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ri. Govind Keshav Kalbhor - HUF in equal ratio erroneously relying upon the notings in the Order Sheet and disregarding the factual aspects. The CIT(A) has further erred in directing the Assessing Officer to assess the Capital Gain on dividing the sale consideration equally and further erred in not allowing the deduction u/s. 54F for purchase of four flats. 4. On the facts and in the circumstance of the case the CIT(A) has erred in not appreciating the fact that Shri. Govind Keshav Kalbhor - HUF .....

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n the share in the said property on partition, have filed their returns of income for the said A.Y. 2009-10, offering the Long Term Capital Gain on claiming deduction u/s. 54F and hence no Capital Gain is assessable for A. Y. 2007-08. 6. On the facts and in the circumstances of the case and without prejudice to above grounds the CIT(A) has erred in estimating in value of the said property @ ₹ 5 per sq ft as on 01/04/1981 as against ₹ 300/- per sq mt i.e. ₹ 28.10 per sq ft estim .....

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sailed the order passed by the Assessing Officer under section 143(3) r.w.s. 147 dated 30.12.2010 as bad in law. Since the assessee has challenged legality of reopening action which being jurisdictional issue and goes to the root of the matter, it will be appropriate to adjudicate this aspect of the appeal first. 6. The relevant facts germane to the adjudication of jurisdictional issue are as follows. A return of income was filed by Shri Dnyaneshwar Govind Kalbhor in his individual capacity on 2 .....

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shav Kalbhor, (iii) Shri Dnyaneshwar Govind Kalbhor and (iv) Smt. Ujwalla Govind Kalbhor. The Assessing Officer observed that from the records of the M/s N. D. Constructions for the assessment year 2007-08, it was found that the aforesaid land worth ₹ 5,76,15,000/- was purchased by the firm. The developer firm has paid certain development charges and even received advance, in turn, for booking flats. The Assessing Officer noted that aforesaid parcel of land was purchased from Shri Dnyanesh .....

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the assessee. 6.1 The reasons recorded under section 148(2) are reproduced here under for ready reference :- DNYANESHWAR GOVINDRAO KALBHOR A.Y. 2007-08 31.3.2010 N. D. Construction has purchased a property from the assessee for ₹ 5,76,15,000/- and M/s. N. D. Construction has started construction activity on part of the property. Shri. Dnyaneshwar Kalbhor is also a partner in N. D. Construction. Enquiries were conducted to see the taxes paid on account of the land transaction. During enqui .....

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fied that capital gains assessable to tax for the year under consideration i.e. A.Y. 2007-08 has escaped assessment. Therefore, I have reasons to believe that income assessable in millions to tax has escaped assessment for the A.Y. 2007-08. Issue notice under section 148 for the A.Y. 2007-08. Sd/- 31.03.2010 6.2 In response to the aforesaid notice under section 148, the assessee denied its liability to capital gains alleged to have escaped assessment on the ground that transfer envisaged under s .....

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64,65,159/- was consequently brought to tax in the hands of the assessee (HUF). 7. Before the CIT(A) however, the assessee questioned the validity of action under section 147/148 of the Act and pleaded that the assessment order under section 143(3) r.w.s. 147 is bad in law. The CIT(A) nevertheless rejected the objection on assumption of jurisdiction under section 147 of the Act and consequent re-assessment order and upheld the action of the Assessing Officer in this regard. 8. Aggrieved by the o .....

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ed under section 148 dated 31.03.2010 addressed to Shri Dnyaneshwar Govind Kalbhor (HUF). He submitted that the PAN No. AHDPK1298E mentioned in the notice pertains to Shri Dnyaneshwar Govind Kalbhor (Individual) whereas the notice was purportedly issued to Shri Dnyaneshwar Govind Kalbhor (HUF). With reference to the aforesaid notice, he next submitted that the aforesaid HUF was not in existence at all relevant to assessment year 2007-08 and it came into existence in the later years. Thus, the no .....

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pointed out that the correct PAN Number of the assessee HUF is AAIHK2666Q which has also referred to in the first page of the assessment order. The PAN Number appearing in the Notice under section 148 pertains to individual (Karta) and not the Noticee HUF. He next contended that a bare perusal of recorded reasons under section 148(2) would show that the reasons have been recorded in the name of Individual i.e. Shri Dnyaneshwar Govind Kalbhor whereas the assessment is framed in the hands of HUF .....

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notice coincide with the return filed by the Individual (Karta). The Ld. AR contended that in the absence of return of income filed by the assessee HUF, the impugned notice issued under section 143(2) dated 13.12.2010 is non-est and bad in law and consequently, assessment framed under section 143(3) r.w.s. 147 of the Act suffers from the lack of jurisdiction and thus vitiated in law. The Ld. AR for the assessee thereafter with a view to pre-empt the argument on behalf of the Revenue submitted t .....

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For the proposition that notice under section 148 issued to a non-existent person and assessment framed in the name of non-existing entity is not merely a procedural irregularity of the nature which could be cured by invoking the provisions of section 292B of the Act, the Ld. AR relied upon the decision of the Hon ble Delhi High Court in the case of Spice Entertainment Ltd. vs. CIT and others in ITA No.475 of 2011, order dated 03.08.2011 and another decision of Hon ble Bombay High Court in the c .....

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respective assessee has been declared in the relevant assessment years. The entire income from the consideration proposed in the development agreement has not accrued or arisen to the assessee. Therefore in view of the decision of the Hon ble Bombay High Court in the case of CIT vs. Mrs. Hemal Raju Shete 239 taxman 176 (Bom) and CIT vs. M/s Chemosyn Ltd. in Income Tax Appeal No.361 of 2013, order dated 11.02.2015, capital gains not accrued in the hands of transferee are not liable for taxation. .....

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f notice, a valid notice has been issued under section 148(2) on the assessee HUF. He submitted that the Assessing Officer relied upon the replies furnished by the Chartered Accountant of the assessee in this regard. He also referred to development agreement and submitted that it is clear case of transfer of land by the joint owners to the developer M/s N. D. Construction and therefore capital gain has been rightly taxed in the hands of the assessee HUF. As regard defects pointed out on behalf o .....

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ngly pleaded that no interference with the order of the CIT(A) is called for. 12. We have examined the purported reasons for initiating action under S. 148/ 147 of the Act and have carefully considered the rival submission on this fundamental aspect of validity of the re-assessment proceedings. The jurisdiction of Assessing Officer to open an assessment under section 148 depends on issuance of valid notice. If the notice issued by the Assessing Officer is invalid for any reason, consequential pr .....

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he return of income belonging to the Individual. We observe that the contention put up on behalf of the assessee that the HUF was not in existence at all during the relevant assessment year 2007-08 and no return of income was filed by the HUF at all either before the initiation of reassessment proceedings or subsequent thereto remains un-rebutted. Further, the reasons have been recorded under section 148(2) in the name of the Individual Shri Dnyaneshwar Govind Kalbhor whereas the notice has been .....

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s a nullity. 13. We also find that the notice under section 143(2) dated 13.12.2010 consequent upon the notice under section 148 was addressed to the HUF entity on the premise that that some information are required in connection with return of income submitted by the assessee HUF on 28.01.2008 for the assessment year 2007-08. The entire reassessment proceedings have been carried out on the basis of such notice. The re-computation of assessed income under section 147 is also based on this return .....

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issued under section 143(2) is without any objective consideration of underlying records and seeks to chase a will-o-the-wisp. This also depicts non application of mind of the AO to the basic facts. Return of income is concomitant for issue of notice under S. 143(2) of the Act. The Assessing officer has not proceeded on the basis of non filing of return by assessee HUF but has founded his entire action based on return filed in individual capacity while making additions of purported escapement o .....

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hat the assessee has not filed any return of income to say that notice under S. 143(2) was not required at all. Thus, on this score also, the action of the Assessing Officer in completing the assessment under section 143(3) r.w.s. 147 is vitiated in law. 14. On a close scrutiny of the reasons recorded, we simultaneously notice that the Assessing Officer has nowhere indicated the quantum of income which has escaped or is likely to have escaped assessment. Thus, the entire process so initiated app .....

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ping powers in the matter of reopening an assessment. The provisions of section 147 are structured with inbuilt safeguards and requirements of the provision need to be strictly complied with. From the recorded reasons, we may note that while purported sale proceeds of ₹ 5,76,15,000/- is referred to by the Assessing Officer, the corresponding cost of acquisition of property which is germane to determination capital gain allegedly escaped has not been referred to at all. Apparently, the Asse .....

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to contend that procedural defects committed while issuing notice under section 148 or while completing assessment under section 143(3) are not fatal but a curable irregularity. We are not impressed by such argument. The action under S. 147 imposes certain obligations and operates to the prejudice of the assessee. Such action has adverse civil consequences implicit in it. It impinges upon the valuable right accrued to the assessee and imparts jurisdiction to the Assessing officer to reopen a co .....

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en want of basic and inherent jurisdiction and irregular exercise of jurisdiction. Defect on irregular exercise of jurisdiction alone can possibly be cured by taking shelter of section 292B. As noted, the action of the AO starting from issuance of notice to the completion of reassessment suffers from multi faceted defects of cardinal nature in serious transgression of statutory requirements. The notice was issued to HUF under a wrong PAN while the underlying reasons giving cause of action thereo .....

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t be called a mere technical defect or a procedural irregularity. Such vital infirmities, in our considered view, cannot be cured or obliterated by taking shelter of section 292B of the Act. Section 292B does not empower the Assessing Officer to act without jurisdiction. The aforesaid proposition can be deduced from the decision of the Hon ble Bombay High Court in the case of CIT vs. Salman Khan in ITA No.508 of 2010, order dated 06.06.2011 relied upon by the assessee. For such a view taken by u .....

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