M/S Atma Ram Properties Private ... vs D.C.I.T.
2011 Latest Caselaw 5432 Del

*              IN THE HIGH COURT OF DELHI AT NEW DELHI
+               INCOME TAX APPEAL NOS. 52/2010 & 87/2010

                               Reserved on : 17th October, 2011.
%                             Date of Decision : 11th November, 2011.

M/S ATMA RAM PROPERTIES PRIVATE LIMITED.... Appellant
             Through  Mr. Kaanan Kapur, Advocate.

                                VERSUS
D.C.I.T.                                            .....Respondent

Through Mr. Kamal Sawhney, Sr. Standing Counsel.

CORAM:

HON'BLE MR. JUSTICE SANJIV KHANNA HON'BLE MR. JUSTICE R.V. EASWAR

1. Whether Reporters of local papers may be allowed to see the judgment?

2. To be referred to the Reporter or not ? Yes.

3. Whether the judgment should be reported in the Digest? Yes.

SANJIV KHANNA, J.:

These two appeals under Section 260A of the Income Tax

Act, 1961 (Act, for short) have been filed by Atma Ram

Properties Private Limited, the appellant and relate to

assessment years 1999-00 and 2000-01. For the said years,

the appellant had filed returns of income on 10th December,

1999 and 30th November, 2000 declaring income of

Rs.49,85,970/- and Rs.39,87,710/-, respectively. Return for the

assessment year 1999-2000 was taken up for scrutiny and the

total income was assessed at Rs.1,11,76,124/-. Return for the

assessment year 2000-2001 was not taken up for scrutiny and

was processed and the returned income as declared was not

enhanced/modified.

2. For the assessment year 2001-02, the Assessing Officer

made an addition of Rs.1,56,51,570/- as deemed dividend under

Section 2(22)(e) of the Act. This amount reflected the advance

given by a group company, i.e. Atma Ram Builders Pvt. Ltd., to

the appellant-assessee. On appeal, the Commissioner of

Income Tax (Appeals), [CIT (Appeals), for short], rejected the

argument of the appellant that the aforesaid amount of

Rs.1,56,51,530/- reflected only a current account entry and no

loan or advance was taken. However, he restricted the addition

to Rs.19,51,725/- as the said amount was advanced to the

appellant during the assessment year 2001-02. He deleted the

balance addition of Rs.1,36,99,845.14 as the said amount was

the opening balance and had not been advanced or given as a

loan/advance during the assessment year in question, i.e.,

assessment year 2001-02. The CIT (Appeals) further observed

that the Assessing Officer was free to take remedial action as

per law.

3. The Assessing Officer thereupon initiated reassessment

proceedings recording identical reasons for the two assessment

years in question. The relevant portion of the reasons read as

under:-

" Appeal order in the case of M/s Atma Ram Properties Pvt. Ltd. for A.Y. 2001-02 was passed by the Ld. CIT(A) vide order No.206/03-04 dated 28.06.2004 wherein addition of Rs.1,56,51,570/- on account deemed dividend u/s 2(22)(e) of the I.T. Act, 1961 was restricted to Rs.19,51,725/-. The Ld. CIT(A) held that addition to the extent of Rs.1,36,99,845/- was to be made in earlier years. On perusal of record it was found that the advance for M/s Atma Ram Builders Pvt. Ltd. was received by the assessee in various assessment years as per following details:-

A.Y.                   Opening         Amount           Closing
                       balance         received         balance
                                       during     the
                                       year




    1999-00              2,22,617.34   79,23,834.00     77,00,182.66

    2000-01             77,00,182.66   60,00,000.00     1,36,97,582.66

In view of the fact that the addition on the issue of deemed dividend for advance received by the assessee from M/s Atma Ram Builders Pvt. Ltd. has been confirmed by the Ld. CIT(A) in A.Y. 2001-02, I have reason to believe that income of the assessee as shown in Col. (3) has escaped assessment for A.Y., shown in col. (1).

The assessee has failed to disclose fully & truly all material facts necessary for

its assessment. The income in this case has been under assessed in terms of clause (e) of explanation 2 to sec. 147 of the I.T. Act, 1961."

4. Reassessment orders were thereafter passed making

addition, under Section 2(22)(e) of the Act of Rs.79,23,834/- and

Rs.60,00,000/- for the assessment years 1999-2000 and 2000-

01 respectively. The said additions were sustained by the CIT

(Appeals) and the Income Tax Appellate Tribunal (tribunal, for

short).

5. On 17th October, 2011, the following substantial question

of law was framed and the learned counsel for the parties were

heard:-

"1) Whether the Assessing Officer was justified and correct in law in initiating the reassessment proceedings for reasons recorded in Annexure A2."

6. Learned counsel for the appellant-assessee has submitted

that the reassessment proceedings were initiated after four

years but the tribunal has erroneously held that there was

failure/omission on the part of the assessee to make full and true

disclosure. Secondly, it is a case of change of opinion.

7. Section 147 of the Act 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 his notice subsequently in the course of the proceedings under this section, or recompute the loss or the depreciation allowance or any other allowance, as the case may be, for the assessment year concerned (hereafter in this section and in sections 148 to 153 referred to as the relevant assessment year):

Provided that where an assessment under sub- section (3) of section 143 or this section has been made for the relevant assessment year, no action shall be taken under this section after the expiry 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.

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 foregoing proviso.

Explanation 2.--For the purposes of this section, the following shall also be deemed to be cases where income chargeable to tax has escaped assessment, namely:--

(a) where no return of income has been furnished by the assessee although his total income or the total income of any other person in respect of which he is assessable under this Act during the previous year exceeded the maximum amount which is not chargeable to income-tax;

(b) where a return of income has been furnished by the assessee but no assessment has been made and it is noticed by the Assessing Officer that the assessee has understated the income or has claimed excessive loss, deduction, allowance or relief in the return;

(c) where an assessment has been made, but--

(i) income chargeable to tax has been under assessed; or

(ii) such income has been assessed at too low a rate; or

(iii) such income has been made the subject of excessive relief under this Act; or

(iv) excessive loss or depreciation allowance or any other allowance under this Act has been computed.

Explanation 3.-- For the purpose of assessment or reassessment under this section, the Assessing Officer may assess or reassess the income in respect of any issue, which has escaped assessment, and such issue comes to his notice subsequently in the course of the proceedings under this section, notwithstanding that the reasons for such issue have not been included in the reasons recorded under sub- section (2) of section 148."

Assessment year 1999-2000. (ITA No. 87/2010)

8. In the assessment year 1999-00, the undisputed position

is that the appellant had answered queries raised by the

Assessing Officer vide letter dated 8th February, 2002. The said

letter reads as under:-

"Dated 08 Feb, 2002 The assessing Officer, Circle 2(1), CR Building, IP estate New Delhi.

Sub:-Atma Ram Properties (P) Limited, Assessment Year 1999-2000 Completion of assessment

Sir, In continuation of our discussion with you, copies of sister concerns mentioned below are enclosed:

Creditors:

Indian cine cosmos Pvt. Rs.45,50,585.65 Limited Kulvinder Distributors P Rs.9,13,582.49 Ltd.

        Mrs. Poonam Sawhney                 Rs.1,39,480.21

        Ashwin & Co. Pvt Limited            Rs.7,83,350.00

        Sadoon    Builders        P         Rs.1,43,473.83
        Limited
        Smt. Sadhna Chadha                  Rs.12,17,630.99

        M/s AR Chadha & Co. (I)             Rs.47,41,429.50
        P Ltd.
        Atma Ram Builders Pvt.              Rs.77,00,182.66
        Limited
        Atma Ram Construction               Rs.87,323.77
        P limited


         Debtors:

        Mrs Archana mamgain            Rs.54,29,342.52

        ARSD Endowment trust           Rs.14,690.00

        ARC Cement Ltd.                Rs.27,98,461.76

        AR Chadha                      Rs.14,26,761.62

        AR Chadha & Co.                Rs.75,04,916.62

        Atma Ram Trust                 Rs.7,44,592.37

        Mr. CM Chadha                  Rs.24,11,088.69

        Smt. Chuniwati Chadha          Rs.16,42,963.63

        Smt. Kamlesh Sawhney           Rs.11,73,376.87



        Yours faithfully,
        For Atma Ram Properties P limited

        (C M Chadha)
        (Director)"

9. The aforesaid letter refers to the discussion with the

Assessing Officer and also mentions enclosing a copy of

accounts of sister concerns as creditors or debtors. The said

letter refers to Atma Ram Builders Private Limited to whom

Rs.77,00,182.66 was due and payable.

10. It is not disputed that after this letter was filed, the

Assessing Officer passed the assessment order under Section

143(3) dated 15th February, 2002 making some enhancements

and assessed the income of the appellant at Rs.1,11,76,124.88

instead of declared return income of Rs.49,89,970/-. However,

no addition was made under Section 2(22)(e) of the Act on the

ground of deemed dividend.

11. The Revenue has produced the original file before us.

Vide order dated 7th February, 2002 the appellant-assessee was

asked to file confirmations of sundry creditors and

loan/advances. The order sheet dated 14th February, 2002

states that an advocate had attended and filed submissions vide

letter dated 8th February, 2002. The letter dated 8th February,

2002 is on record along with a detailed annexure which sets out

names of the creditors and debtors, who it is stated were sister

concerns of the appellant-assessee. The annexure to the said

letter contains a statement mentioning the opening balance,

entries made during the year in respect of each one of the

creditors and debtors and the closing balance. Notings on the

said letter indicates that the Assessing Officer had examined

whether these were old entries or there were also deposits or

payments during the year in question.

12. In view of what we have stated above, it is apparent that

the Assessing Officer at the time of original proceedings had

gone into the question of loans and advances from sister

concerns. Figures and details were furnished and given along

with an annexure which had particulars like opening and closing

balance as well as entries/transactions during the year in

question. Account of Atma Ram Builders Pvt. Ltd. was enclosed.

13. Revenue has debated and stated that the Assessing

Officer had not examined and gone into the question whether or

not provisions of Section 2(22)(e) of the Act were attracted to the

present case and therefore re-assessment proceedings have

been validly initiated.

14. No doubt Section 2(22)(e) of the Act is not mentioned in

the order sheet or in the assessment order but this does not help

the case of the Revenue for the reason that the assessee

cannot be faulted. If the Assessing Officer had failed to apply

legal provisions/section of the Act, the fault cannot be attributed

to the appellant assessee. The requirement is that the assessee

should have failed or omitted to make full and true disclosure of

material facts. The assessee is not required to disclose, state or

explain the law. It cannot be said that the appellant-assessee

had failed to make full and true disclosure of material facts. Full

and true facts were stated by the assessee. Full and true details

were furnished but as per the case of the Revenue there was a

lapse on the part of the assessing officer in not applying and

invoking Section 2(22)(e) of the Act. This lapse or error on the

part of the Assessing Officer cannot be attributed and regarded

as a failure on the part of the assessee to make full and true

disclosure of the material facts in the original assessment

proceedings. The aforesaid error or failure of the assessing

officer in not applying Section 2(22)(e) could have been

corrected by exercise of power of revision as the original order

may have been erroneous and prejudicial to the interest of

Revenue, but limitation period for exercise of the said power

had expired. The said error in applying a provision cannot be

corrected in the present case due to the factual matrix, by

exercise of power under Section 147 of the Act. It is not that the

Revenue was remediless or the error could not be corrected or

rectified. Due to delay and limitation, the remedial action cannot

be taken under the applicable provision. Scope and ambit of

each provision/remedy available under the Act is circumscribed

and stipulated. Sometimes two or more provisions/remedies

may be applicable and recourse to any one of the remedy may

be proper but scope and ambit of a provision/remedy cannot be

expanded beyond the legislative mandate. The jurisdictional

preconditions, if stipulated in the enactment, must be satisfied

before recourse to a remedy/provision can be invoked.

15. The reasons recorded above do state that the appellant

assessee had failed to fully and truly disclose the facts but do

not indicate why and how the assessee had failed to make full

and true disclosure of the material facts. Mere repetition or

quoting the language of the proviso is not sufficient. The basis of

the averment/statement should be either stated or should be

apparent/ lucid/explained from the record.

16. In the present appeal, Explanation (1) to Section 147 also

does not help or assist the Revenue. All material facts were

available on record and no material facts had to be inferred or

discovered by the assessing officer. The assessing officer in

spite of being aware of the facts, failed to apply or, at best failed

to consider whether Section 2(22)(e) of the Act was attracted.

Failure to apply law or a section to admitted facts on record is

not covered by Explanation (1). Explanation (1) applies when the

assessing officer on the basis of account books or other

evidence fails to discover or infer material facts which with due

diligence could have been discovered. Explanation (1) deals

with failure of the assessing officer to discover or infer all

material facts on the basis of books of accounts or other

evidence produced by the assessee. Difference between facts

and law is well recognized and understood. Explanation (1)

reflects the said difference.

17. The assessing officer in the re-assessment order has not

discussed the said aspect but the CIT (Appeals) in his order has

accepted that the list of creditors and debtors was furnished by

the appellant assessee but the assessee had tried to conceal

the fact that the sister concerns' balances included balances in

respect of transactions and loans. There is no basis or ground

for recording the said finding. As noticed above, in the course of

original assessment proceedings, the assessee was required to

file compilations of sundry creditors, loans and advances as per

order sheet dated 7th February, 2002 and pursuant to the said

direction, the letter dated 8th February, 2002 was filed. The

details included details of loans and advances. The Tribunal in

the impugned decision dated 3rd July, 2009, has again recorded

as under:-

"On reading the aforesaid letter dated 08.02.2002, it is seen that the assessee has shown sum of Rs.77,00,18,266/- against M/s. Atmaram Builders Pvt. Ltd. under the head " creditors". The nature of the transaction made with M/s. Atmaram Builders Pvt. Ltd. has nowhere been disclosed. In the said letter, the assessee has nowhere stated that the sum of Rs. 77,00,182/- represents loans and

advances taken from sister concerns having specified percentage of holding of shares in the share capital of the assessee company. We, thus find that the ld. CIT(A) has rightly noted that the fact that the assessee has categorized the amount payable to M/s. M/s. Atmaram Builders Pvt. Ltd. under the head "creditors" without indicating that the assessee has taken loans and advances from the sister concern having share holding the share capital of the assessee company. From the details so filed and the assessment order originally made u/s 143(3), it is clear that the issue as to whether the amount shown under the head "creditors" in the name of M/s. Atmaram Builders Pvt. Ltd. was covered by the provisions contained in section 2(22)(e) was never a subject matter of assessment originally made u/s 143(3) of the Act nor any deliberation or discussion was made in that proceedings, and no basic and primary facts and details necessary to decide the applicability of section 2(22)(e) of the Act were furnished by the assessee. The assessee did not disclose the true and correct nature of payment received from M/s. Atmaram Builders Pvt. Ltd. nor disclosed the extent of holding of M/s. Atmaram Builders Pvt. Ltd. in the share capital of the assessee company so as to enable the A.O. to apply his mind regarding the applicability of the provisions contained in section 2(22)(e) of the Act to amount taken from M/s. Atmaram Builders Pvt. Ltd."

18. The aforesaid reasoning is incorrect and cannot be

accepted as the letter dated 8th February, 2002, was filed in

response to the noting dated 7th February, 2002, made by the

assessing officer requiring the assessee to file compilation of

sundry creditors, loans and advances. They were described and

mentioned as sister concerns. Further along with the letter dated

8th February, 2002, the assessee had filed statement of

accounts of each creditor/debtor including the opening balance,

closing balance or transaction or entries during the year. We do

not think that the law/ statute requires or imposes any further

obligation on the appellant. The disclosure in the present case

by the appellant was full and true.

19. In CIT versus Burlop Dealers Ltd., [1971] 79 ITR 609

(SC), a similar provision in Section 34(1) of the Income Tax Act,

1922 was examined and it was held that the said provision did

not impose a more onerous obligation than disclosing the

primary facts relevant to the assessment. It was observed as

under:

"We are of the view that under section 34(1)(a) if the assessee has disclosed primary facts relevant to the assessment, he is under no obligation to instruct the Income-tax Officer. about the inference which the Income tax Officer may raise from those facts. The terms of the Explanation to section 34(1) also do not impose a more onerous obligation. Mere production of the books of account or other evidence from which material facts could with due diligence have been discovered does not necessarily amount to disclosure within the meaning of section 34(1), but where on the evidence and the materials produced the Income-tax Officer could have reached a conclusion other than the one which he has reached, a proceeding under section 34(1)(a) will not lie merely on the ground that the

Income-tax Officer has raised an inference which he may later regard as erroneous.

The assessee had disclosed his books of account and evidence from which material facts could be discovered : it was under no obligation to inform the Income-tax Officer about the possible inferences which may be raised against him. It was for the Income-tax Officer to raise such an inference and if he did not do so the income which has escaped assessment cannot be brought to tax under section 34(1)(a)"

20. The aforesaid decision of the Supreme Court was

elucidated and explained in Phool Chand Bajral Lal versus

I.T.O., [1993] 203 ITR 456 (SC) and it was held that where the

Assessing Officer gets fresh information that was not available

at the time of original assessment, i.e. after the conclusion of the

original assessment proceedings, which enables him to form a

reasonable belief that income had escaped assessment

because of omission or failure of the assessee to disclose full

and true facts, reassessment proceedings could be validly

initiated. It has to be, therefore, examined whether the assessing

officer had received information from any other external source

after conclusion of the first/ original assessment proceedings to

show that the assessee had not made true and full disclosure of

the facts. It was held as under:

"Thus, it is seen that in Burlop Dealers' case [1971] 79 ITR 609 (SC), apart from the Income- tax Officer holding during the assessment proceedings of the same assessee for a subsequent year, that the alleged agreement between the assessee and Ratiram was bogus, there was no other information or material from any other external source which came to the notice of the Income-tax Officer after the assessment proceedings which could enable the Income-tax Officer to form a reasonable belief that the income of the assessee had escaped assessment in the earlier year. As a matter of fact, after the conclusion of the original assessment proceedings, there was no fresh material at all available with the Income-tax Officer in Burlop Dealers' case [1971] 79 ITR 609 (SC) which could have enabled the Income-tax Officer to entertain any reason to believe that the income of the assessee had escaped assessment for the assessment year 1949-50. An assessment order for the subsequent year could not by itself lead to any inference, much less to the formation of a reasonable belief that income chargeable to tax had escaped assessment in the previous year, on account of the failure on the part of the assessee to make a true and full disclosure of the primary facts during the proceedings of the concluded assessment. The judgment in Burlop Dealers' case [1971] 79 ITR 609 (SC) cannot be understood as laying down any such proposition that even where the Income-tax Officer gets some fresh information which was not available at the time of the original assessment, subsequent to the conclusion of the original assessment proceedings, which enables him to form a reasonable belief that the income of the assessee had escaped assessment because of the omission or failure of the assessee to disclose true and full facts during the assessment proceedings, he cannot reopen the assessment. The observations in Burlop's case [1971] 79 ITR 609 (SC), noticed above, were made in the

peculiar fact-situation of that case and cannot be construed to be of universal application irrespective of the facts and circumstances of the particular case.

In the present case, as already noticed, the Income-tax Officer, Azamgarh, subsequent to the completion of the original assessment proceedings, on making an enquiry from the jurisdictional Income-tax Officer at Calcutta, learnt that the Calcutta company from whom the assessee claimed to have borrowed the loan of Rs. 50,000 in cash had not really lent any money but only its name to cover up a bogus transaction and, after recording his satisfaction as required by the provisions of section 147 of the Act, proposed to reopen the assessment proceedings. The present is thus not a case where the Income- tax Officer sought to draw any fresh inference which could have been raised at the time of the original assessment on the basis of the material placed before him by the assessee relating to the loan from the Calcutta company and which he failed to draw at that time. Acquiring fresh information, specific in nature and reliable in character, relating to the concluded assessment which goes to expose the falsity of the statement made by the assessee at the time of the original assessment is different from drawing a fresh inference from the same facts and material which were available with the Income-tax Officer at the time of the original assessment proceedings. The two situations are distinct and different. Thus, where the transaction itself, on the basis of subsequent information, is found to be a bogus transaction, the mere disclosure of that transaction at the time of original assessment proceedings cannot be said to be a disclosure of the "true" and "full" facts in the case and the Income-tax Officer would have the jurisdiction to reopen the concluded assessment in such a case. It is correct that the assessing authority could have deferred the completion of the original

assessment proceedings for further enquiry and investigation into the genuineness of the loan transaction but, in our opinion, his failure to do so and complete the original assessment proceedings would not take away his jurisdiction to act under section 147 of the Act, on receipt of the information subsequently. The subsequent information on the basis of which the Incometax Officer acquired reasons to believe that income chargeable to tax had escaped assessment on account of the omission of the assessee to make a full and true disclosure of the primary facts was relevant, reliable and specific. It was not at all vague or non-specific."

21. In the assessment year 1999-2000, no information or

material in the form of facts was furnished from any external

source. The facts were already on record furnished by the letter

dated 8th February, 2002. In the subsequent year i.e.

assessment year 2001-02, an addition under Section 2(22)(e) of

the Act, was made but was partly deleted by the CIT (Appeals)

on the ground that loans and advances pertaining to other years

with the observation that the assessing officer was entitled to

take remedial action as per law in the relevant years. This is not

factual information or material which can be covered by the

Explanation (1). The facts were already known and on record

and were not brought to the notice of the department by virtue of

the order passed by the CIT (Appeals) in the assessment year

2001-02.

22. In view of the aforesaid discussion, the substantial

question of law, raised by the assessee in Assessment Year

1999- 2000, is decided in favour of the appellant and against the

respondent. The appeal is accordingly allowed and the

reassessment proceedings are set aside.

Assessment year 2000-2001. (ITA No. 52/2010)

23. As far as assessment year 2000-01 is concerned, the

return was not taken up for scrutiny and no order under Section

143(3) of the Act was passed. Therefore, the contention that

there was change of opinion cannot be accepted. The

contention of the appellant that the letter dated 8th February,

2002 was filed during the course of assessment proceedings for

the assessment year 1999-00 and the said letter should be read

and treated as a part of the records relating to the assessment

year 2000-01, cannot be accepted. It is well settled that each

assessment year is treated as a separate and independent.

Letter dated 8th February, 2002, which was filed in the

proceedings for the assessment year 1990-00, cannot be read

and treated as was filed in the proceedings relating to the

assessment year 2000-01. As noticed above, proceedings for

assessment year 2000-01 were never initiated and the return for

the said year was not made subject matter of the scrutiny. The

other contention of the appellant that they had made full and true

disclosure in the said year must necessarily fail for the same

reasoning. Clause (b) to the Explanation 2 is clearly applicable.

In this case, books of accounts and other material were not

produced and no letter was filed. Accordingly, order passed by

the CIT (Appeals) in the assessment year 2001-02 would

constitute information or material from any external source and

the decision of the Supreme Court in Phool Chand Bajrang

Lal's case (supra) would be applicable and supports the stand

of the Revenue.

24. Reliance placed by the appellant assessee on

Commissioner of Income Tax, Delhi - XI versus Batra

Bhatta Company, 2008 (106) DRJ 389 (DB) is not apposite. In

the said case, in the reasons for reopening recorded by the

assessing officer, it was stated that the "issue/contentions raised

in the case requires much deeper scrutiny". Thus, it was held

that the facts of the case did not satisfy the requirement of

Section 147 i.e. "if the assessing officer has reason to believe".

Reason to believe do not mean reason to suspect and the said

pre-condition was missing.

25. Thus, present appeal for the assessment year 2000-01

has to be dismissed and the question of law mentioned above

answered against the appellant and in favour of the respondent.

ITA No. 52/2010 is accordingly dismissed.

(SANJIV KHANNA) JUDGE

(R.V. EASWAR) JUDGE NOVEMBER 11th , 2011 VKR