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TMI Blog2017 (11) TMI 1475X X X X Extracts X X X X X X X X Extracts X X X X ..... ereon, appurtenant to the agricultural lands and used for conducting agricultural operations, and therefore, the compensation received on such assets is not taxable. 4. The appellant reserves his right to add, amend, delete or substitute any ground or grounds during the course of hearing". 3. Facts leading to the present appeal are that assessee is an individual and was doing small contract works for the last ten years. Assessee filed his return of income for the AY. 2012-13 on 26-07-2013 declaring an income of Rs. 2,09,110/-. Upon filing the return of income, the AO initiated proceedings u/s. 147 on the reason of mismatch of turnovers and issued notice u/s. 148 on 12-12-2013. Assessment was completed on 31-03-2015 by the ITO, Ward-1(1), Tirupati u/s. 143(3) r.w.s. 147 of the Income Tax Act [Act] determining the total income at Rs. 13,40,580/- by making the following two additions to the income returned: i. Interest on compensation treated as income from other sources : Rs. 7,45,913/- ii. Compensation related to non Agrl. Land : Rs. 3,85,555/- 4. Before the Ld.CIT(A) assessee filed detailed written submissions. It was contended that subsequent to the filing of return of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to consider the objections of the parties and pass a speaking order. 4.4. Assessee submitted that as per the Provisions of the Section 147, the AO after issuance of notice u/s. 148 must assess or reassess, (i) such income and also (ii) any other income chargeable to tax which bas escaped assessment and which comes to his notice subsequently in the course of proceedings under the section. Assessee submitted that in the leading decision of the Hon'ble Bombay High Court in the case of CIT Vs Jet Airways (I) Ltd. (331 ITR 236), while considering an identical situation, the Hon'ble High Court, interpreted the provisions of section 147 of the Act and has held that the situation would not be different by virtue of introduction of Explanation 3 to the said section. It has been held in the case that if upon issue of notice under section 148 of the Act, the AO does not assess the income, which he had reason to believe has escaped assessment and which forms the basis for the issuance of notice u/s. 148 of the Act, it is not open to AO to assess independently any other income, which does not form the subject matter of the notice. In the instant case, since no additions were made in re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee or re-assess any other income even if that issue not part of reopening the case. Having observed the grounds are dismissed. ii. On the merits of addition: 6.1. The contentions of the appellant are carefully considered. Based on facts submitted by appellant part of the compensation pertains to Katcha houses/hunts. These are residential units and by no stretch of imagination, they can be treated as agricultural lands. Residential units, even if they are located in the close vicinity of agricultural lands do not take the color of agricultural lands. The primary definition of agricultural land involves the land on which basic agricultural operations are undertaken. Residential units do not qualify and fulfil the requirements. Hence, the contentions of the appellant cannot be accepted". "7. Ground (6) relate to the claim of deduction u/s.57(iv). Since, the compensation received is taxable under the head "income from other sources" the appellant is eligible to deduction as provided u/s.57(iv). The appellant informed that AO passed order u/s. 154 granting the deduction. Accordingly this ground is of academic value. Accordingly ground allowed for statistical purpose. 8. Ground ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... u/s. 143(2)/142(1) for a period of six months i.e., upto 31-01-2014. However, AO choose to reopen the assessment on the reason of income escaping assessment on 12-12-2013, when the assessment proceedings have not even been started. On the issue whether the proceedings u/s. 147 are correct when a notice u/s. 143(2) could have been issued was considered by the Co-ordinate Bench. The Co-ordinate Bench in the case of M/s. Eenadu Relief Fund Vs. DDIT(E)-II in ITA No. 434/Hyd/2010 dt. 13-01-2011 (quoted before the Ld.CIT(A) in written submissions) by assessee, held as under: "9.3. Return filed for the assessment years 1994-95 on 28.3.1996 and the same was processed u/s 143(1). Later 148 Notice was issued on 18.6.1996 though time available for issue of notice u/s 143(2) was upto 31.3.1997. 9.4. In the case of CIT Vs. Qatalys Software Technologies Ltd. (308 ITR 249), the Madras High Court held that reopening is improper when the time limit is available to issue notice xi]» 143(2). As seen from the above, in the case of K M Pachayappan (304 ITR 264) and Qatalys Software Technologies Ltd. (308 ITR 249) Madras HC by placing reliance on the judgement of SC in the case of Rajesh Jhav ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... id to have commenced once the return is filed, and (b) the proceedings terminate when (i) the return is processed u/s. 143(1) and the time to issue notice u/s. 143(2) is over (ii) assessment is made u/s. 143(3) or, (iii) the assessment is no longer possible u/s. 143(3). Processing u/s. 147 can be initiated only after the earlier proceedings have terminated as mentioned above. Order u/s. 147 r/w.s. 143(3) was therefore liable to be quashed. 10. In view of the above discussions, we are inclined to hold that unless the return filed by the assessee is scrutinized by the assessing officer u/s. 143(3), we cannot come to the conclusion of any escapement, the assessing officer cannot initiate proceedings u/s 147 when the time for issuance of notice 143(3) has not expired. The case law relied by the assessee's counsel laid down the same proposition of law. Accordingly, we allow the first ground of the appeal of the assessee by holding that this reopening of assessment by issue of notice u/s 148 dated 17.10.2007 is bad in law". Thus, on the facts of the case and principles of law, the reopening is ab initio void. 8.2. Explanation 3 to the provisions of section 147 of the Act, empo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the income escaping assessment as per the reasons recorded for formation of belief while initiating proceeding under Section 147 of the Income Tax Act, 1961." Mr. B.Narasimha Sarma, learned Counsel for the appellant, says that upon reading of Explanation-3 to Section 147 of the Income Tax Act, the learned Tribunal should not have concluded as aforesaid, as the Explanation-3 has got retrospective effect. We are of the view that the Explanation-3 to Section 147 of the Income Tax Act on the given facts and circumstances of the case does not apply. Moreover, in which case and when Explanation-3 would be applicable has been decided by various High Courts, namely, Bombay High Court in case of CIT Vs. Jet Airways (I) Ltd., (331 ITR 236); Delhi High Court in case of Ranbaxy Laboratories Ltd. Vs. CIT (336 ITR 136); Chhattisgarh High Court in case of ACIT Vs. Major Deepak Mehta (3441TR 641) and Gujarat High Court in case of CIT Vs. Mohmed Juned Dadani. In view of the consistent decision of these High Courts, we are not in a position to take a different view and the learned Tribunal has followed the consistent view of those High Courts. Even, we find that independent of the decision o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent of income. Mere need to verify the discrepancy does not bring the matter within the scope of the cases in which reassessment proceedings can be validly initiated. There is subtle, though significant, distinction between reason to believe and reason to suspect- while the former is good enough to hold that income has escaped assessment and initiate suitable remedial measures in respect thereof, the latter can, at best, be the ground to verify and examine the matter further. Mere fact that matter needs to be verified and examined further can never be a reason good enough to believe that income has escaped assessment and to invoke the reassessment proceedings. Therefore, the very initiation of reassessment proceedings on the facts of the instant case was devoid of legally sustainable merits - Reassessment quashed." Similar view was taken by the ITAT, Hyderabad in the case of M/s. Vason Electors Private Limited Vs. Assessee (ITA No. 456/Hyd/2012). 8.5. Another contention was that the AO did not dispose off the objections. Without passing a separate order by considering the objections of assessee, the AO has simply mentioned in the assessment order that as per the Explanation 3 of ..... X X X X Extracts X X X X X X X X Extracts X X X X
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