Prakash Shankarrao Mate, Pune vs Assessee

Shri Prakash Shankarrao Mate, .......... अपीलाथ / 121, Mate House, Appellant Sindh Housing Society Baner Road, Pune - 411 007 PAN No. ADEPM9380L

बनाम v/s

ACIT, Circle-4, Pune .......... यथ / Respondent

अपीलाथ क ओर से / Appellant by : Shri M.K.Kulkarni यथ क ओर से / Department by : Shri Rajesh Damor P. Singh

सन ु वाई क तार ख / घोषणा क तार ख / Date of Hearing : 24.06.2015 Date of Pronouncement: 22.07.2015

आदे श / ORDER

PER R.K. PANDA, AM :

This appeal filed by the assessee is directed against the order

dated 23-11-2012 of the CIT(A)-II, Pune relating to Assessment Year

2004-05.

2. Facts of the case, in brief, are that the assessee is an individual

and filed his return of income on 30-10-2004 declaring total income

of Rs.65,04,740/- and agricultural income of Rs.18,84,875/-. The

assessment u/s.143(3) of the Act was completed on 07-08-2006 2 ITA No.742/PN/2013

determining the total income at Rs.87,04,740/- and agricultural

income of Rs.18,84,875/-. Subsequently, the AO issued notice

u/s.148 of the I.T. Act on 30-03-2011 after recording the following

reasons :

"The assessee has filed its return of income for A. Y. 2004-05 declaring total income at Rs. 65,04,740/- on 30-10-2004. Assessment u/s 143(3) was completed on 07-08-2006 computing total income at Rs. 87,04,740/-

2. From the scrutiny of the books of accounts it is evident that the assessee sold NA Plot at survey No. 410, IB, 410/1C to Malpani Jain Builders. The assessee declared sale price of Rs.21,00,000/- for computation of LTCG, where as the market value for stamp duty was adopted at Rs. 53,44,500/- by the Government Authority. In view of the provisions of S. 5OC of the Income-tax Act, 1961 Rs.53,44,500/- had to be taken as consideration of Rs. 21,00,000/- Omission to so has resulted in under assessment of income to the tune of Rs. 32,44,500/- with consequent short levy of tax of Rs. 8,90,610/-.

3. I have therefore, reason to believe that the income to the tune of Rs.32,44,500/- has escaped assessment within the meaning of section 147 (a) of the I. T. Act, 1961. Therefore, notice u/s 148 of the I.T. Act is required to be issued and fresh assessment is to made u/s 143(3) r. w.s. 147 of the I. T. Act."

3. In response to the notice u/s.148 of the Act the assessee filed

the return of income on 23-09-2011. During the course of

assessment proceedings the AO asked the assessee to explain as to

why the plot transferred to Malpani Jain Builders should not be

adopted at Rs.53,44,500/- being the stamp duty value as against

Rs.21 lakhs declared by the assessee in view of the provisions of

section 50C of the I.T. Act.

4. The assessee vide his submission dated 23-09-2011 submitted

that an amount of Rs.21 lakhs was received during the F.Y. 1999-

2000 and the consideration in the form of construction was received

in the F.Y. 2003-04. The capital gain arising on account of the

development agreement executed on 25-11-1999 and the cash

consideration received of Rs.21 lakhs in performing of the contract 3 ITA No.742/PN/2013

give rise to the capital gain as per section 2(47). Referring to the

decision of Hon'ble Bombay High Court in the case of Chaturbuj

Dwarkadas Kapadia Vs. CIT reported in 260 ITR 491 it was argued

that the date of contract is the date of transfer in view of provisions of

section 2(47)(v). It was accordingly argued that capital gain should

have been taxed in the A.Y. 2000-01 and therefore the question of

reassessment u/s.147 does not arise. It was further argued that

rectification proceedings u/s.154 is still pending. When the

rectification order is pending and there is no new material on record,

then the AO cannot reopen the assessment by issuing notice u/s.148

for the same assessment year. The decision of the Bombay Bench of

the Tribunal in the case of Mahinder Freight Carrier Vs. DCIT

reported in 139 TTJ 422 was brought to the notice of the AO wherein

it has been held that where the issue in controversy is the subject

matter of proceedings u/s.154 the same cannot be subject matter or

proceeding u/s.147. It was accordingly submitted that the notice

issued u/s.148 and proceedings u/s.147 are void ab-initio.

5. However, the AO was not satisfied with the explanation given

by the assessee. So far as the decision of Hon'ble Bombay High

Court in the case of Chaturburj Dwarkadas Kapadia (Supra) is

concerned, he observed that the same is distinguishable and not

applicable to the facts of the present case. In the instant case the

assessee entered into a development agreement with Malpani Jain

Builders during F.Y. 1999-2000. As per the said agreement the

assessee is due to receive consideration in cash and in kind by way of

built up area. The assessee has not relinquished his rights over the

property as the development agreement is not a conclusive

transaction which envisages transfer of property. The assessee 4 ITA No.742/PN/2013

himself has declared the capital gain during A.Y. 2004-05 and he

cannot go back on the terms of returned income by an argument

during the reassessment proceedings. Further the assessee has

received part consideration in kind from the development agreement

executed with Malpani Jain Builders during F.Y. 2003-04, therefore,

for all practical purposes transfer has happened during F.Y. relevant

to A.Y. 2004-05 because the assessee has extinguished his rights

over the land totally upon receiving the consideration as per the

terms of agreement, therefore, the capital gain upon transfer of land

is to be taxed in the A.Y. 2004-05.

6. The AO also rejected the alternate argument of the assessee

that when the rectification petition is pending and when there is no

new material on record then the AO cannot reopen the assessment by

issuing the notice u/s.148 of the Act. According to the AO the last

effective order in the instant case was passed on 07-08-2006. As per

the provisions of the I.T. Act u/s.154(7), no rectification order can be

made after the expiry of 4 years from the end of the Financial Year in

which the order sought to be amended was passed. Therefore, the

order u/s.154 of the Act could be passed in the instant case on or

before 31-03-2011. In the present situation the order u/s.154 of the

Act cannot be implemented and therefore the proceedings u/s.154 of

the Act do not have any validity. Since the case was reopened after

recording the reasons for escapement of income and the proceedings

were validly initiated the AO rejected the alternate argument of the

assessee challenging the validity of the reassessment proceedings.

7. Since in the instant case the assessee was to receive

consideration both in cash and in kind as per the development 5 ITA No.742/PN/2013

agreement and since the assessee has declared sale consideration of

Rs.21 lakhs received in cash for the transfer of the land bearing

Sy.No.410/1B, 410/1C whereas the value determined by the stamp

valuation authority is Rs.53,44,500/-, therefore, the AO applying the

provisions of section 50C of the Act brought to tax the difference of

Rs.32,44,500/-.

8. Before CIT(A) the assessee challenged the validity of the

reassessment proceedings on the ground that the same is barred by

limitation. It was submitted that since the original assessment order

was passed u/s.143(3) and assessment year involved is A.Y. 2004-05,

therefore, the period of 4 years ended in A.Y. 2008-09. Therefore, in

view of the proviso to section 147 action u/s.147 taken by the AO by

issuing notice u/s.148 dated 24-11-2011 is void ab-initio. Further,

the assessee also argued that the notice u/s.148 for reassessment is

nothing but change of opinion.

9. The assessee also submitted that since the rectification

proceedings u/s.154 was pending the AO should have passed the

order u/s.154 considering the reply of the assessee even after expiry

of 4 years in view of the CBDT Circular. It was submitted that the AO

had committed a mistake by finalizing the assessment u/s.143(3)

r.w.s. 147 when the rectification application for the year under

consideration was still pending. Finally, referring to provisions of

section 2(47), it was argued that the long term capital gain, if any,

arose in the A.Y. 2000-01 since the development agreement was

executed on 25-11-1999 receiving the entire cash consideration on

the same date and only a part consideration in the form of

constructed area was received in A.Y. 2004-05. The decision of 6 ITA No.742/PN/2013

Hon'ble Bombay High Court in the case of Chaturbuj Dwarkadas

Kapadia (Supra) was again relied upon.

10. However, the CIT(A) was also not satisfied with the arguments

advanced by the assessee. He observed that in the original

assessment order passed u/s.143(3) the application of the mind of

the AO was with respect to sale of land at Sy.No.315 and the AO has

not applied his mind with respect to the other asset, i.e. Plot at

Sy.No.410/1B and 410/1C. Therefore, the argument of the assessee

that there is change of opinion is incorrect since there was no opinion

formed by the AO while passing the assessment order.

11. As regards the argument of the assessee that AO should have

passed the order u/s.154 before issue of notice u/s.147 he held that

the AO has rightly not taken action u/s.154 and took recourse to

section 147 after its expiry. According to him, it is open to the AO

either to rectify the assessment if there is a mistake falling u/s.154 or

to make reassessment u/s.147. Both these provisions are self

contained provisions. Further, when notice was issued u/s.148 the

AO obviously made it clear that proceedings u/s.154 have been

dropped and the reassessment u/s.147 was accordingly held valid by

the Ld.CIT(A).

12. As regards the argument of the assessee that action u/s.147 is

barred by limitation in view of the proviso to section 147, the

Ld.CIT(A) held that the AO has reopened the completed assessment

u/s.143(3) after duly recording the satisfaction that income has

escaped assessment. According to him, the stipulated time frame of

4 years ends on 31-03-2011 since the assessment for A.Y. 2004-05

was completed u/s.143(3) on 07-08-2006, i.e. F.Y. 2006-07 and the 7 ITA No.742/PN/2013

period of 4 years falls upto 31-03-2011, therefore, this argument of

the assessee was also rejected by the Ld.CIT(A).

13. So far as the argument of the assessee that in view of the

development agreement dated 25-11-1999 the capital gain was

taxable in A.Y. 2000-01, he held that same is not tenable on fact and

in law. According to him the assessee had entered into the

development agreement which was executed on 25-11-1999 and the

consideration fixed was Rs.21 lakhs as cash and a part of

constructed area as total consideration. The assessee himself had

disclosed the part capital gain during A.Y. 2004-05 and not during

A.Y. 2000-01. Further, during the course of original assessment

proceedings for A.Y. 2004-05 the assessee had not raised these

issues which is being raised during reassessment proceedings.

Following the decision of Hon'ble Supreme Court in the case of CIT

Vs. Sun Engineering Works Pvt. Ltd. reported in 198 ITR 297 and in

Chettinad Corporation Pvt. Ltd. Vs. CIT reported in 200 ITR 320 (SC)

he observed that the Hon'ble Supreme Court in the said decisions

has held that matters which attained finality in the original

assessment cannot be reagitated to make a fresh claim unrelated to

the escaped income. The ITO can bring to tax any income which has

escaped assessment and matters attaining finality in original

assessment cannot be disputed by the assessee. The Ld.CIT(A)

accordingly dismissed the appeal filed by the assessee.

14. Aggrieved with such order of the CIT(A) the assessee is in

appeal before us with the following grounds :

"1) On the facts and circumstances of the case and in law the Ld. CIT(A) was not justified in holding that the notice u/s 148 was issued by the A.0. well within the limitation of Four years from the date of completion of the assessment u/s 143(3) of 7-8-2006, i.e. F. Y. 2006-07 8 ITA No.742/PN/2013

and therefore, action under S. 147 initiated on 24-11-2011 and being prior to 31-3-2011 was legal and justified ignoring the statutory provision that period is to be counted of four years from the end of the assessment year. The notice issued on 24-11-2011 contravening the statutory provisions of S. 147 and upheld by Ld. CIT(A), is bad in law and without jurisdiction.

2) On the facts and circumstances of the case and in law the Ld. CIT(A) was not justified in holding that since notice issued under s. 147 dt. 24-3-3011 was well within four years the proviso to S. 147 was not applicable. The proviso to S. 147 has been misinterpreted by Ld. CIT(A) as the limitation has be counted of four years from the end of the assessment year. The four years period will end on 31-3-2009.

Therefore, action taken u/s. 147, where proviso to S. 147 was applied without recording satisfaction that the escapement of income was because of the failure of the assessee to disclose fully and truly all material facts necessary for assessment, was bad in law and without jurisdiction. The assessment be cancelled.

3. On the facts and circumstances of the case and in law the Ld.CIT(A) was not justified in upholding the action of the A.O. to adopt sales consideration of Rs. 53,44,500/- as against Rs.21,00,000/- by applying provisions of S. 50C of the Act. The Ld. CIT(A) erred in fact and law affirming the action of the A. 0. in the matter of taxation of long term capital gain to adopt the sale consideration of Rs. 21,00,000/- by applying S. 50C of the Act especially when the consideration it was as per development agreement executed prior to 01-04-2003 when provisions of S. 50C were not on the statute. It be held accordingly.

4) On the facts and circumstances of the case and in law the Ld. CIT (A) ought to have accepted the computation of capital gain as per development agreement made by the assessee.

5) On the facts and circumstances of the case and in law the levy of interest u/s 234A, 234B and 234C is not justified and in the circumstances it be deleted.

6) The appellant craves/leave to add, amend or alter any of the above grounds of appeal."

15. The Ld. Counsel for the assessee drew the attention of the

Bench to the original assessment order passed on 07-08-2006, a copy

of which is placed at paper book pages 34 to 37. Referring to the

same he submitted that the AO has brought to tax the amount of

Rs.19,36,688/- after considering the sale of NA plot at Sy.No.410/1B

and Sy.No.410/1C at Rs.32,74,250/- to M/s. Malpani Jain Builders

and the indexed cost price at Rs.13,34,452/-. He submitted that

since the assessment order was passed u/s.143(3) for A.Y. 2004-05, 9 ITA No.742/PN/2013

therefore, in view of the proviso to section 147 the 4 year period ends

on 31-03-2009. Therefore, the notice issued u/s.148 by the AO on

30-03-2011 is clearly barred by limitation. Referring to the decision

of the Hon'ble Allahabad High Court in the case of Fateh Chand

Charitable Trust Vs. CIT reported in 36 taxmann.com 67 he

submitted that the Hon'ble High Court in the said decision has

categorically held that the period of 4 years comes to an end at the

end of the 4 year period from the relevant assessment year.

Therefore, the argument of the Ld.CIT(A) that the period of 4 years

comes to an end from the end of the year in which the order is passed

is misconceived and not in accordance with law. He accordingly

submitted that the action of the AO in taking recourse to provisions

of section 147 is void ab-initio.

16. Coming to the merit of the case he submitted that the

development agreement was executed on 25-11-1999 between

Malpani Jain Builders and the assessee. As per the said development

agreement the assessee was supposed to get an amount of Rs.21

lakhs in cash and a part of the constructed area. The amount of

Rs.21 lakhs was received by cheque during F.Y. 1999-2000 relevant

to A.Y. 2000-01. Referring to the decision of the Bangalore Bench of

the Tribunal in the case of ITO Vs. N.S. Nagaraj reported in 52

taxmann.com 511 he submitted that once the development

agreement is entered the assessee relinquishes his rights in the land.

The moment the owners have handed over the possession to the

developer a right to receive the developed area would accrue to the

owners. It is a consideration in kind which has a value which can be

worked out. Therefore, in the facts of the case, capital gain, if any,

has to be taxed in the assessment year 2000-01 and it cannot be 10 ITA No.742/PN/2013

taxed in the impugned assessment year. He further submitted that

the provisions of section 50C were not in the statute book during that

period as the same were inserted by the Finance Act, 2002 w.e.f., 01-

04-2003 and therefore, applying the provisions of section 50C for A.Y.

2000-01 are also not permissible. He accordingly submitted that

both legally and factually the AO is not justified in bringing to tax the

capital gain of Rs.32,44,500/- to tax.

17. The Ld. Departmental Representative on the other hand heavily

relied on the order of CIT(A).

18. We have considered the rival arguments made by both the

sides, perused the orders of the Assessing Officer and the CIT(A) and

the Paper Book filed on behalf of the assessee. We have also

considered the various decisions cited before us. We find the original

assessment in the instant case was completed on 07-08-2006 and

the Assessment Year involved is 2004-05. We find the AO issued

notice u/s.148 on the ground that the assessee has declared sale

price of Rs.21 lakhs for computing the long term capital gain on

account of sale of NA plot at Sy.No.410/1B and 410/1C to Malpani

Jain Builders whereas the market value for stamp duty was adopted

at Rs.53,44,500/-. We find the AO in the assessment order for A.Y.

2004-05 on 07-08-2006 has determined the total income at

Rs.75,08,074/-, the details of which are as under :

"Considering the above facts and after discussion the total income of the assessee is computed as under :

1) Income from business as per return of income Rs.11,45,518/-

2) Long term capital gain :

A i. Sale of agricultural land S.No.315, Pathardi on 30-06-2003 11 ITA No.742/PN/2013

Market value adopted for stamp duty purpose as per section 50C(1) of the I.T. Act, 1961 to Sarkar Buildcon-Rs.81,00,000/-

ii. M/s. Vanjari & Ghoge Rs.9,88,000/- -------------------- Rs.90,88,000/- Less : Cost price with index Rs.32,90,720/- --------------------- Rs.57,97,280/- B Sale of NA Plot S.No.410/1B, 410/1C to Malpani Jain Builders Rs.32,74,720/- Less : Cost price with index Rs.13,34,452/- -------------------- Rs.19,39,688/- Total long term capital gain Rs.77,36,968/- -------------------- Less carried forward long term Capital loss for A.Y. 2003-04 Rs.2,28,894/- --------------------

Balance long term capital gain Rs.75,08,074/- 3) Income from other sources Rs. 63,151/- --------------------- Gross total income Rs.87,16,743/- Less : Deduction u/s.80L Rs. 12,000/- --------------------- Total income Rs.87,04,743/- i.e., Rs.87,04,740/- Agricultural income Rs.18,84,875/-

19. From the above, it is seen that the sale of NA plot at

Sy.No.410/1B and 410/1C to Malpani Jain Builders was very much

in the knowledge of the AO and there is no allegation in the notice

issued u/s.148 that there was any failure on the part of the assessee

to disclose material facts necessary for completion of the assessment.

The original assessment order was passed u/s.143(3) and the

relevant land on which AO alleges that there is escapement of income

was very much before the AO. Therefore, in view of the proviso to

section 147 the 4 year period ends on 31-03-2009. The Ld.CIT(A) in

our opinion proceeded on a wrong footing that the 4 year period ends

from the financial year in which the assessment order is passed. 12 ITA No.742/PN/2013

20. We find the Hon'ble Allahabad High Court in the case of Fateh

Chand Charitable Trust (Supra) while explaining the phrase in

proviso "after the expiry of 4 years from the end of the relevant

assessment year" has held that the starting up of 4 years period will

be from the end of the assessment year. The relevant observation of

the Hon'ble High Court at para 19 of the order reads as under :

"19. It was then contended that the case on hand was within the proviso to section 147 of the Act and as the proceedings were initiated according to the petitioner after a period of four years from the end of the Assessment Year 2006-2007, the proceeding is bad as the assessee had disclosed all the material facts during the course of the assessment proceedings. The said argument is misconceived and proceeds on the wrong footing that four years period from the end of the Assessment Year 2006-2007 will come to an end on 31st of March, 2010. The phrase used in the proviso is - after the expiry of four years from the end of the relevant Assessment Year". Clearly, it postulates the starting up of four years period will be from the end of the Assessment Year i.e. for the Assessment Year 2006-2007, the Assessment Year will expire on 31st of March, 2007 and four years period from that date expires on 31st of March, 2011. Admittedly, the impugned notice is dated 19th of April, 2010 and it is within the period of four years from the end of the Assessment Year 2006-2007 and is clearly within time. Therefore, we are not burdening this judgment by referring the judgments relied upon the learned counsel for the petitioner delivered with reference to the proviso to section 147. The said proviso on the facts of the present case is not at all attracted."

21. Although the above decision was decided against the assessee,

however, the ratio is applicable to the facts of the present case. Since

in the instant case, the AO has issued the notice u/s.148 after the

end of 4 years from the relevant assessment year, therefore, in view of

proviso to section 147 such notice issued u/s.148 is bad in law and

void ab-initio. We accordingly allow Grounds of appeal No.1 & 2 by

the assessee.

22. Since the assessee succeeds on this preliminary legal issue the

other grounds become academic in nature and therefore are not

being adjudicated.

13 ITA No.742/PN/2013

23. In the result, the appeal filed by the assessee is allowed.

Order pronounced in the open court on 22-07-2015.

Sd/- Sd/- (VIKAS AWASTHY) (R.K. PANDA) या!यक सद य / JUDICIAL MEMBER लेखा सद य / ACCOUNTANT MEMBER

iq.ks Pune; दनांक Dated : 22nd July, 2015. lrh'k

आदे श क' (!त*ल प अ+े षत/Copy of the Order forwarded to :

1. अपीलाथ / The Appellant

2. यथ / The Respondent

3. आयकर आय$ ु त(अपील)-II, iq.ks / The CIT(A)-II, Pune

4. आयकर आय$ ु त-II, iq.ks / The CIT-II, Pune

5. 'वभागीय *त*न+ध, आयकर अपील य अ+धकरण, "ए" iq.ks / DR, ITAT, "A" Pune;

6. गाड/ फाईल / Guard file.

आदे शानस ु ार/ BY ORDER,

स या'पत *त //True Copy// व1र2ठ *नजी स+चव / Sr. Private Secretary आयकर अपील य अ+धकरण, iq.ks / ITAT, Pune