Madras High Court
S.Ganesan vs The Assistant Commissioner Of ... on 23 April, 2021
W.P.No.34075 of 2017
IN THE HIGH COURT OF JUDICATURE AT MADRAS
DATED : 23.04.2021
CORAM
THE HONOURABLE MR. JUSTICE S.M.SUBRAMANIAM
W.P.No.34075 of 2017
and
W.M.P.Nos.37817 & 37818 of 2017
S.Ganesan ..Petitioner
Vs.
The Assistant Commissioner of Income Tax,
Non-Corporate Circle, 15(1),
121, Nungambakkam High Road,
Chennai – 600 034. ..Respondent
Prayer: Writ Petition filed under Article 226 of the Constitution of India, to
issue a Writ of Certiorari, quash the impugned notice issued u/s.148 of the
Act in Pan No.AAZPG3716G/ACIT/NCC-15/A.Y.2010-11 dated 31.3.2017
and consequentially quash the proceedings in Pan : AAZPG3716G/Reply to
objections/NCC 15(1)/2017-18 dated 22.12.2017 as illegal and without
jurisdiction.
For Petitioner : Mr.R.Sivaraman
For Respondent : Mr.A.P.Srinivas
Senior Standing counsel
[For Income Tax]
1/40
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W.P.No.34075 of 2017
ORDER
The Notice issued under Section 148 of the Income Tax Act, 1961
in proceedings dated 31.03.2017 and the reply to the objections given by the
respondents for re-opening of assessment in the case of the petitioner in
proceedings dated 22.12.2017 for the Assessment Year 2010-11 are under
challenge in the present writ petition.
2. The petitioner was engaged in the business of investment
advice to the clients in Mutual Funds, post office saving scheme, insurance
companies and other deposits. He was assessed to tax under PAN
No.AAZPG3716G on the file of the respondent. For the Assessment Year
2010-11, the petitioner had filed return of income on 30.07.2010, declaring
a total income of Rs.4,46,870/-. The return was processed under Section
143(1) on 08.04.2011. Subsequently, the assessment was taken up for
scrutiny and notice under Section 143(2) of the Act was also issued together
with calling for certain details. The petitioner states that the details called
for by the petitioner under Section 143(2) were fully furnished to the
satisfaction.
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3. During the course of original assessment proceedings, the
petitioner was asked to explain as to why in connection with the property
sold during the Financial year 2009-10 for a consideration of
Rs.5,67,30,000/-, the capital gains was not offered to tax in the return filed
by him for Assessment Year 2010-11. The petitioner had submitted that the
said property was transferred and possession was given to M/s.Vinayaga
Land Developers, a partnership firm, for a consideration of Rs.1,07,18,000/-
through a Sale agreement dated 15.12.2003 and a registered Power of
Attorney was executed in favour of one Mr.B.Nagi Reddy, a partner in the
firm, to sell the property.
4. The petitioner had furnished the copy of the sale agreement and
Power of Attorney entered into. The Assessing Officer in order dated
12.03.2013 has drawn reference to Paragraph 7 of the Sale agreement,
which is dealing with the capital gains.
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5. During the Original assessment proceedings under Section
143(3) in response to the summons issued to Mr.B.Nagi Reddy, appeared
before the Assessing Officer as per the sale agreement entered into between
the petitioner and Sri Vinayaga Land Developers. The petitioner had
disowned the rights in the said property after receiving the consideration of
Rs.1,07,18,000/- and the Power of Attorney was given in his favor to own,
develop and sell the property. It was demonstrated before the Assessing
officer that upon ultimate sale of the property for a consideration of
Rs.5,67,30,000/-, the whole income was offered as business income in the
books of accounts of M/s.Vinayaga Land Developers. In this regard,
Mr.B.Nagi Reddy submitted the Books of Accounts of the Firm for the
Financial Year 2009-10 and the copy of the return of income in which the
said income is included as business income and offered to tax under the
head “Profits and gains from business or profession”.
6. It is contended that all the above facts have been clearly
brought out in the assessment order dated 12.03.2013 under Section 143(3)
of the Act. The respondent having considered the above facts and upon
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being satisfied by order dated 12.03.2013 under Section 143(3) held as
follows:
“Since it is verified that the said consideration has
suffered tax in the hands of Mr.Nagi reddy and it is also verified
that the assessee has not received any amount other than the
consideration he received during financial year 2003-04
amounting to Rs.1,07,18,000/- which was offered to tax during
the Assessment Year 2004-05, the assessee's submission that the
consideration will not amount to be taxed in the hands of the
assessee is accepted.”
7. Pursuant to the scrutiny assessment made under Section 143(3),
the respondent on 31.03.2017, issued a notice under Section 148 for
reopening the assessment for the Assessment Year 2010-11. The assessment,
which has become final under Section 143(3), was reopened under Section
147 by issuance of the Impugned notice dated 31.03.2017.
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8. The petitioner filed a letter dated 21.04.2017, requesting the
respondent to treat original return filed by them vide Acknowledgment
No.002245 dated 30.07.2010, as the return filed in response to the notice
under Section 148 of the Act. The petitioner had requested the respondents
to furnish reasons to believe that income liable to tax had escaped
assessment within the meaning of Section 147 of the Act. The respondent by
their letter dated 06.10.2017, furnished reasons for re-opening the
assessment for the Assessment Year 2010-11.
9. In response to the reasons for re-opening of the completed
assessment, the petitioner by letter dated 21.10.2017, furnished detailed
reply along with annexure, requesting the respondent to drop the
proceedings, since there was no reason to believe that the income liable to
tax is escaped assessment. The petitioner has raised an objection regarding
the jurisdiction of the authority for reopening of the assessment for 2010-11
and further, considered the other grounds and supportive judgments cited by
the petitioner. In view of the fact that the respondent has not considered the
objections, the petitioner is constrained to move the present writ petition.
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10. The counter filed by the respondent reveals that objection
raised against the reasons recorded under Section 148(2) for issue of notice
under Section 148 of the Act, were carefully perused and considered by the
Department. It is stated that the ownership of the property could not be
transferred between persons by way of executing the Power of Attorney or a
sale agreement, as they do not come within the purview of Transfer of
Property Act. The decision taken in consequence of part performance of the
Act under Section 53-A of the Transfer of Property Act is subject to the
conveyance of the ownership through registered document under Section 54
of Transfer of Property Act. It is stated that the petitioner has given only
Power of Attorney and the property is not transferred through registered sale
deed. These conditions does not provide or vest any discretion or power
with Assessing Officer to accept the claim of the appellant that the
transferor has relinquished the rights in the property during the A.Y.2004-
2005 itself, without fulfilling the conditions. Therefore, by no stretch of
reasoning, it can be said that Assessing Officer had accepted the claim of the
assessee in his discretion and now, the change of opinion has entailed into
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re-opening of assessment, because Assessing Officer was not vested with
such discretion.
11. The respondents have stated that it is difficult to accept the
claim of the appellant that the Assessing Officer was statutorily incorrect
and no income had escaped of income, since he had received the entire sale
proceeds arising out of this transaction and admitted LTCG in A.Y.2004-05
itself. This escapement thereby called for invoking of provisions of Section
147 not due to the change of opinion, but for not correctly applying the
prescribed conditions.
12. Further, the respondent has relied on the case of M/s.Suraj
Lamps and Industries, wherein the Apex Court held that “a transfer of
immovable property by way of sale can only be by a deed of conveyance
and in the absence of a deed of conveyance (duly stamped and registered as
required by law), no right title or interest in an immovable property can be
transferred.”
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13. In the backdrop of the above facts, the plea that change in the
opinion is the cause of invoking provisions of Section 147 was devoid of
any merit and hence, objections raised by the appellant was not accepted
against the re-opening the assessment.
14. The objections raised by the petitioner against the reopening
proceedings were disposed of by written communication issued by the
respondent on 22.12.2017 and it was a speaking order. Reliance on the
ruling of the Apex Court were also categorically mentioned in support of the
reopening proceedings.
15. The petitioner had failed to justify as to how the provisions of
Transfer of Property Act did not apply to him, so as to establish that no sale
of property was made in the Assessment Year 2010-11.
16. It is a settled law that a transfer of immovable property could
be only by way of sale through a register deed of conveyance. In other
words, no rights, title or interest in an immovable property could be
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transferred in absence of a duly registered deed of conveyance. Reliance in
this regard is placed on the decision of the Apex Court delivered in the case
of M/s.Suraj Lamps and Industries. In the instant case, the sale deed was
executed in Assessment Year 2010-11. Accordingly, the transfer has taken
place in the said year only. Hence, the LTCG is to be determined in
Assessment Year 2010-11.
17. The learned counsel appearing on behalf of the writ petitioner
relied upon the sale agreement between the petitioner and Sri Vinayaga
Land Developers dated 15.12.2003, solicited the attention of this Court
regarding the consideration paid for the Sale agreement. Admittedly, the
Sale agreement was an unregistered document. Perusal of the consideration
column, the same reveals that the consideration fixed as under this
agreement is Rs.1,07,18,000/- for conveying the Schedule 'B' mentioned
property. The details of the Banker's Cheq.No., Bank, Date and amounts are
also furnished in the sale agreement itself. Further, the petitioner relied on
the possession column in the said agreement, held that the possession itself
was granted to said Sri Vinayaga Land Developers, a registered Partnership
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Firm and full satisfaction memo was also incorporated in the agreement.
Relying on these clauses in the unregistered agreement, the learned counsel
for the petitioner reiterated that for all purposes, the property belonged to
the petitioner was sold in favour of Sri Vinayaga Land Developers and a
general irrevocable Power of Attorney was also given in favour of
Mr.B.Nagi Reddy, who is a Partner of the Firm M/sSri Vinayaga Land
Developers. Therefore, the petitioner, for all purposes, received the total
consideration for the sale of his property i.e., Rs.1,07,18,000/- and based on
the consideration received through the said sale agreement, the petitioner
filed returns in the Assessment Year 2004-05 and all the particulars were
also furnished to the Assessing Officer at the time of original assessment.
The general Power of Attorney was given in favour of the Partner
Mr.B.Nagi Reddy, who in turn, executed a Registered Sale Deed in the year
2010.
18. It is further contended that M/s.Vinayaga Land Developers
also furnished all these particulars and shown the sale consideration of
Rs.5,67,30,000/- as business income in the Books of Accounts. In this
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regard, Mr.B.Nagi Reddy, submitted the Books of Accounts of the Firm for
the Financial Year 2009-10 and the copy of the return of income, in which,
the said income is included as business income and offered to tax under the
head “Profits and gains from business or profession”.
19. Thus, there is no irregularity or illegality regarding the
transaction between the petitioner and M/s.Vinayaga Land Developers and
therefore, there is no reason to believe for reopening of assessment under
Section 147 of the Act.
20. The learned counsel for the petitioner relied on the
Assessment Order issued under Section 143(3) dated 12.03.2013 and relied
on the scrutiny proceedings, wherein the details regarding the agreement of
sale and the Power of Attorney given by the petitioner in favour of
Mr.B.Nagi Reddy and the execution of sale by Mr.B.Nagi Reddy as well as
the sale consideration received were recorded. By narrating the entire facts
and circumstances, the petitioner pleaded innocence of the transfer of the
property during the Financial Year 2009-10. In fact, the petitioner
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Mr.Swaminathan Ganeshan disowned the rights of the property after
receiving the consideration of Rs.1,07,18,000/- and the Power of Attorney
was given in favour of Mr.Nagi Reddy as the authorized agent to own and
sell the property and subsequently, the property was sold for a consideration
of Rs.5,67,30,000/- and the whole income was offered as business income in
the Books of Accounts of M/s.Vinayaga Land Developers. Relying on the
said findings, the learned counsel for the petitioner has stated that when
there is no dispute regarding the factual matrix presented by the petitioner
before the Assessing Officer with supporting documents, then any further
notice for reopening of assessment is nothing but “change of opinion” and
cannot be construed as “reason to believe”. The facts adjudicated with
reference to the documents and the tax paid already with reference to the
sale consideration received by the petitioner pursuant to the agreement for
sale dated 15.12.2003, there is no reason to believe for reopening of
assessment and thus, the entire opinion formed by the respondents are
nothing but change of opinion and not reason to believe.
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21. The learned counsel for the petitioner is of an opinion that the
Audit objections were taken into consideration. The Audit objection is
found in proceedings dated 06.10.2017, wherefrom the reasons for
reopening of the case of the petitioner for the Assessment Year 2010-11 was
issued. The Audit objections raised regarding the execution of Power of
Attorney and sale agreement for the purpose of transfer of property is relied
on by the respondents for the purpose of reopening of assessment. The
Audit objections raised with reference to Section 53-A of the Transfer of
Property Act by holding that ownership of the property cannot be
transferred between persons by way of executing the Power of Attorney or a
sale agreement, as they do not come within the purview of Transfer of
Property Act. As per Section 54 of Transfer of Property Act, any tangible
asset can be transferred only by way of properly registered deed. However,
Power of Attorney is given by the petitioner and the property is not
transferred through registered sale deed is an admitted fact.
22. The learned counsel for the petitioner has stated that under the
Tax Law, such technicalities are not permissible, in view of the fact that the
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authorities are bound to ensure, whether the tax is paid for the consideration
received by the owner of the property or not. It is contended that even in the
sale agreement, the petitioner had transferred the property in favour of M/s.
Vinayaga Land Developers and the terms and conditions in the sale
agreement would reveal that the petitioner received the total sale
consideration fixed in the agreement and further, the possession was also
handed over. Thus the assessee produced all the documents and offered tax
already. Tax offered was assessed and now, based on the sale deed executed
by the Power holder Mr.B.Nagi Reddy, the assessment of the petitioner
cannot be reopened under Section 147 of the Act.
23. The learned counsel appearing on behalf of the petitioner
further contended that the requirements under Section 147 of the Act has not
been fulfilled. The petitioner contended that in the present case, the
reopening of assessment is made after four years, but before lapse of 6
years. In such cases, Section 147 proviso contemplates that only on the
failure of the assessee to disclose full and true income and the material facts
necessary for assessment reopening of assessment is permissible and not
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otherwise. In the present case, the element of non-disclosure of full and true
income is absent and therefore, the impugned notice itself is liable to be set
aside.
24. The learned counsel for the petitioner strenuously contended
that Section 147 is a self-containing provision, wherein the requirements for
reopening of assessments are elaborately provided. Within four years, the
authorities competent is to reopen on any circumstances, if any income
escaped from assessment is identified or noticed. However, beyond four
years, only if the authorities found that the assessee has not furnished true
and full disclosure of his income, then alone, the reopening of assessment is
permitted and not otherwise. Therefore, the impugned order does not meet
out the requirement of Section 147 of the Act and therefore, the entire
reopening is to be scrapped.
25. In support of his contention, the learned counsel for the
petitioner relied on the judgments of the Hon'ble Supreme Court of India in
the case of Commissioner of Income Tax, Delhi Vs. Kelvinator of India
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Limited, reported in (2010) 2 SCC 723, wherein the Apex Court observed
as follows:
“5. On going through the changes, quoted above,
made to Section 147 of the Act, we find that, prior to the Direct
Tax Laws (Amendment) Act, 1987, reopening could be done
under the above two conditions and fulfilment of the said
conditions alone conferred jurisdiction on the assessing officer
to make a back assessment, but in Section 147 of the Act (with
effect from 1-4-1989), they are given a go-by and only one
condition has remained viz. that where the assessing officer has
reason to believe that income has escaped assessment, confers
jurisdiction to reopen the assessment. Therefore, post-1-4-1989,
power to reopen is much wider. However, one needs to give a
schematic interpretation to the words “reason to believe”
failing which, we are afraid, Section 147 would give arbitrary
powers to the assessing officer to reopen assessments on the
basis of “mere change of opinion”, which cannot be per
se reason to reopen.
6. We must also keep in mind the conceptual
difference between power to review and power to reassess. The
assessing officer has no power to review; he has the power to
reassess. But reassessment has to be based on fulfilment of
certain precondition and if the concept of “change of opinion”
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is removed, as contended on behalf of the Department, then, in
the garb of reopening the assessment, review would take
place.”
26. In the case of Fenner (India) Ltd., Vs. Deputy Commissioner
of Income Tax, reported in (1999) 107 Taxman 53(Mad), the High Court
of Madras held as follows:
“On writ, the petitioner averred, inter alia, that it
had fully and completely disclosed, at the time of assessment,
all the material facts necessary for the assessment and had also
filed the returns required and that it had nowhere been
recorded that the petitioner had failed to set out all the
material facts necessary for its assessment and, therefore, the
power under the proviso to section 147(1) was being invoked. It
was, therefore, submitted that the pre-conditions required for
the issuance of notice under the proviso to Section 147 were not
fulfilled and the respondent should be prohibited from taking
any further proceedings.
The pre-condition for the exercise of the power under
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section 147 within a period of four years from the end of the
relevant assessment year is the belief reasonably entertained by
the Assessing Officer that any income chargeable to tax has
escaped assessment for that assessment year. In cases where
the initiation of the proceedings is beyond the period of four
years from the end of the assessment year, the Assessing Officer
must necessarily record not only his reasonable belief that
income has escaped assessment but also the default or failure
committed by the assessee. Failure to do so would vitiate the
notice and the entire proceedings. Mere escape of income is
insufficient to justify the initiation of action after the expiry of
four years. Such escapement must be by reason of the failure on
the part of the assessee either to file a return referred to in the
proviso or to truly and fully disclose the material facts
necessary for the assessment. Thus, the duty of an assessee is
limited to fully and truly disclosing all the material facts. The
assessee is not required thereafter to prepare a draft
assessment order. If the details furnished by the assessee were
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in conformity with the requirements of all applicable laws and
known accounting principles, it is for the Assessing Officer to
reach such conclusions as he considered was warranted from
such data and any failure on his part to do so cannot be
regarded as the assessee's failure to furnish the material facts
truly and fully. Any lack of comprehension on the part of the
Assessing Officer in understanding the details placed before
him cannot confer a justification for reopening the assessment,
long after the period of four years had expired. Further, If the
Assessing Officer chooses to entertain the belief that the
assessment has been made in the background of the assessee's
failure to disclose truly and fully all material facts, it is
necessary for him to record that fact and in the absence of a
record to that effect, it cannot be held that the notice is capable
of being regarded as a valid notice.”
27. In the case of D.Kasturi Vs. Commissioner of Income Tax,
reported in (2012) 121 Taxmann 2 (Madras), the Court held as follows:
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“Pursuant to a sale agreement in respect of her
property, the assessee received its sale consideration and
handed over the possession of the property to firm 'C', in
August 1993, 'C' on the basis of power of attorney obtained
from the assessee, sold the said property in parts to others
on or after March, 1995, describing themselves as the
assessee's agents. For the assessment year 1994-95, the
assessee filed her return, admitting capital gains, by treating
the transfer of possession in August, 1993, as having
resulted in a transfer for the purpose of Section 2(47). Later,
she claimed that there was no transfer during the assessment
year 1994-95, and that the actual transfers were made in the
assessment year 1995-96 when power of attorney holders
executed registered sale deeds in favour of others. The
assesses's claim was rejected by the Assessing Officer. A
revision to the Commissioner under Section 264 also proved
unsuccessful.
Every one of the ingredients of section 53A of the
Transfer of Property Act was therefore satisfied when the
firm was put in possession in August, 1993, at which time
the assessee had also received the full consideration, of Rs.
25 lakhs. The subsequent act of the firm in selling portions
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of the property to other third parties, in the subsequent years
and executing the sale deeds in favour of such vendees by
utilising the powers of attorney granted to the partners by
the assessee, does not in any manner militate against the
operation of section 53A of the Transfer of Property Act. The
petitioner herself recognised this fact, when she made her
return and reported the capital gain on the basis that she
had effected transfer of property in August, 1993.
After the assessee parted with possession of the
property, such possession having been given only after
payment of the agreed consideration for the sale, she could
no longer assert possessory rights against the firm to which
possession was given. The fact that the firm chose to sell the
property in portions to others does not in any manner affect
the fact that the petitioner had transferred the property to
the firm and the firm had become entitled to invoke section
53A as against the assessee. The Commissioner was
therefore right in rejecting the revision petition that was
filed by the assessee.”
28. The Hon'ble Supreme Court of India in the case of Larsen &
Toubro Ltd., Vs. State of Jharkhand in Civil Appeal No.5390 of 2007
(SC), made the following observations:
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“On being pointed out in audit, it was stated that
since the goods had not been transferred to contractee co-
under the provisions of works contract, but it had been
consumed and so it does not come under the purview of
taxation. The reply is not tanable in view of the above
judgements and hence the case needed to be reviewed.”
29. In the case of Cholamandalam Investment & Finance Co.,
Ltd., Vs. ACIT, reported in (2018) 89 taxmann.com 337 (Madras), the
High Court of Madras held as follows in Paragraphs 5 and 6, which are
extracted hereunder:
“5.What is interesting to note is that the reasons for
reopening is verbatim repetition of the audit objections filed by
the audit party. This position was clearly demonstrated by the
learned counsel for the petitioner by comparing the audit
objection and the reasons for re-opening. Thus, it is clear that
the assessing officer did not have any independent material to
re-open the assessment, but merely proceeded to re-open the
assessment on the ground that there was an audit objection.
Thus, two issues arise for consideration. Firstly, whether the re-
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opening proceedings have been made solely based upon the
audit objection. Secondly, when CBDT had taken a stand that
they do not accept the audit objection whether the respondent
could proceed to initiate re-opening proceedings.
6.On the first issue, Courts have held that the
assessing officer cannot blindly follow the opinion of an audit
authority. In this regard, it is beneficial to refer to the decision
of the Hon'ble Supreme Court in the matter of Indian & Eastern
Newspaper Society v. CIT reported in [1979] 119 ITR 996. This
decision was followed in the decision of the High Court of
Bombay in the case of ICICI Home Finance Co. Ltd., vs.
Assistant Commissioner of Income-tax reported in [2012] 25
taxmann.com 241 (Bom.). The operative portion of the order
reads as follows:
“6.The power to reopen a completed
assessment under Section 147 of the Act has been
bestowed on the Assessing Officer, if he has reason to
believe that any income chargeable to tax has escaped
assessment for any assessment year. However, this
belief that income has escaped assessment has to be
the reasonable belief of the Assessing Officer himself
and cannot be an opinion and/or belief of some other
authority. In fact, the Supreme Court in the matter of
Indian & Eastern Newspaper Society vs. CIT [1979]
119 ITR 996/2 Taxman 197 has held that whether an
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assessment has escaped assessment or not must be
determined by the Assessing Officer himself. The
Assessing Officer cannot blindly follow the opinion of
an audit authority for the purpose of arriving at a
belief that income has escaped assessment. In the
present facts, it would be noticed that the reasons for
which the assessment for the assessment year 2006-
2007 is sought to be reopened by communication
dated 12.10.2011 are identical to the objection of the
audit authority dated 29.12.2009. The reasons do not
rely upon any tangible material in the audit report but
merely upon an opinion and the existing material
already on record. This itself indicates that there was
no independent application of mind by the Assessing
Officer before he issued the impugned notice. On this
ground alone, the assumption of jurisdiction by the
Assessing Officer can be faulted.”
30. It is contended that in the case of Asianet Star
Communications P.Ltd., Vs. Assistant Commissioner of Income Tax, Non-
Corporate Circle, reported in [2019] 106 taxmann.com 293 (Madras), this
Court passed the following observations:
“36. Mr.Narayanaswamy next relies on Explanation
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(1) to section 147, which states that production 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.
37. However, I do not believe that the explanation is
at all applicable in the present case. The Explanation targets
those situations where relevant details are camouflaged in
some part of the voluminous documents filed so as to lead to
the inference that the Assessing Authority would be justified
having in missing the same. This is, however, a case where the
assessee has staked its claims and has produced all
documentation in support thereof transparently and
conclusively, right from the start.
40. Finally, and in addition to my reasoning as
aforesaid for assessment year 2011-12, the placement of the
Explanation, after the Proviso to Section 147 is also, in my
view, relevant. This indicates the scheme of the section and the
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interplay of the components thereof. To my mind, the
application of the Explanation would be subject to, and post
the application of the Proviso itself. Thus, in cases, where the
benefit of the Proviso is claimed by the revenue, it would first
have to satisfy the condition under the proviso and validate the
assumption of jurisdiction beyond four years. Only thereafter
can the Revenue seek application of the Explanation to Section
147. In order of sequence, the Proviso comes first and only
thereafter, does the Explanation. In the present case, where the
Revenue has not satisfied the statutory condition imposed by
the Proviso, the door to re-assessment remains conclusively
shut. There is no occasion left for the Revenue to look any
further, either at the Explanation or otherwise, to justify the
proceedings for re-assessment, and the assumption of
jurisdiction falls, at the very threshold.”
31. In the case of Calcutta Discount Company Ltd., Vs. ACIT,
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reported in MANU/SC/0113/1960, the Hon'ble Supreme Court of India held
as follows:
“10. There can be no doubt that the duty of
disclosing all the primary facts relevant to the decision of the
question before the assessing authority lies on the assessee. To
meet a possible contention that when some account books or
other evidence has been produced, there is no duty on the
assessee to disclose further facts, which on due diligence, the
Income Tax Officer might have discovered, the legislature has
put in the Explanation, which has been set out above. In view
of the Explanation, it will not be open to the assessee to say, for
example — “I have produced the account books and the
documents: You, the assessing officer examine them, and find
out the facts necessary for your purpose: My duty is done with
disclosing these account-books and the documents”. His
omission to bring to the assessing authority's attention these
particular items in the account books, or the particular
portions of the documents, which are relevant, amount to
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W.P.No.34075 of 2017
“omission to disclose fully and truly all material facts
necessary for his assessment”. Nor will he be able to contend
successfully that by disclosing certain evidence, he should be
deemed to have disclosed other evidence, which might have
been discovered by the assessing authority if he had pursued
investigation on the basis of what has been disclosed. The
Explanation to the section, gives a quietus to all such
contentions; and the position remains that so far as primary
facts are concerned, it is the assessee's duty to disclose all of
them — including particular entries in account books,
particular portions of documents and documents, and other
evidence, which could have been discovered by the assessing
authority, from the documents and other evidence disclosed.
11. Does the duty however extend beyond the full and
truthful disclosure of all primary facts? In our opinion, the
answer to this question must be in the negative. Once all the
primary facts are before the assessing authority, he requires no
further assistance by way of disclosure. It is for him to decide
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W.P.No.34075 of 2017
what inferences of facts can be reasonably drawn and what
legal inferences have ultimately to be drawn. It is not for
somebody else — far less the assessee — to tell the assessing
authority what inferences whether of facts or — law should be
drawn. Indeed, when it is remembered that people often differ
as regards what inferences should be drawn from given facts, it
will be meaningless to demand that the assessee must disclose
what inferences — whether of facts or law he would draw from
the primary facts.
12. If from primary facts more inferences than one
could be drawn, it would not be possible to say that the
assessee should have drawn any particular inference and
communicated it to the assessing authority. How could an
assessee be charged with failure to communicate an inference,
which he might or might not have drawn?”
32. The learned Senior Standing counsel appearing on behalf of
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the respondent disputed the contentions raised on behalf of the petitioner by
stating that in the present case, there is a “reason to believe” as rightly
provided in the reply to objections for reopening of assessment for the
Assessment Year 2010-11. Change of opinion and the reason to believe are
now settled by the Courts. In the event of any informations or materials
made available or if the authority found that the income chargeable to tax
has been under assessed, then the same can be construed as escaped
assessment and the assessment can be reopened by invoking Section 147 of
the Act. The learned Senior Standing counsel for the respondents relied on
Section 147, Explanation to Sub Clause (c) (i), where an assessment has
been made to income chargeable to tax has been under assessed, then the
same is to be treated as escaped assessment for the purpose of Section 147
of the Act. In the present case, admittedly, the Sale deed was not registered.
Unless the sale deed was registered, the Assessing Officer would not form
an opinion that the transaction had concluded.
33. Through an unregistered sale agreement, the title of the
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W.P.No.34075 of 2017
property cannot be transferred nor such an agreement can be treated as a
valid document under Section 54 of the Transfer of Property Act. Thus, the
very contention raised on behalf of the petitioner that the reopening of
assessment initiated under Section 147 is without jurisdiction, is incorrect
and the authorities competent invoked jurisdiction under Explanation to Sub
Clause (c) (i) of the Act, wherein income chargeable to tax had been under
assessed, is also contemplated as a ground to invoke Section 147 of the Act
for reopening of the assessment. Thus, the jurisdiction point raised is
untenable.
34. Regarding the facts, it is admitted by the petitioner that he
transferred the property by way of an unregistered Sale agreement dated
15.12.2003 in favour of M/s.Vinayaga Land Developers. Further, it is
admitted that General Power of Attorney was executed in favour of one
Mr.B.Nagi Reddy dated 19.12.2003, who in turn, executed a registered Sale
Deed in favour of another person in the year 2010. Based on these admitted
facts, the authorities competent found that during the Assessment Year
2004-05, the Sale deed was not registered and there was an Audit objections
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W.P.No.34075 of 2017
that an unregistered Sale agreement cannot be a valid sale nor be considered
as a document under Section 54 of the Transfer of Property Act, and
initiated action for reopening of assessment. The Audit objections also
raised that the ownership of the Property, cannot be transferred between
persons by way of executing a Power of Attorney or a Sale agreement as
they do not come under the purview of the Transfer of Property Act. The
decision taken in consequence of part performance of the Act under Section
53-A of the Transfer of Property Act is subject to the conveyance of the
ownership through registered document under Section 54 of Transfer of
Property Act. Thus, it is an admitted fact in the present case, neither of the
provisions of the Transfer of Property Act has been complied with. Thus, it
cannot be considered as valid sale for the purpose of considering the case of
the petitioner.
35. Further, it is admitted that only Power of Attorney was given
by the assessee to Mr.B.Nagi Reddy and no property was conveyed during
the relevant point of time in the year 2004-05. Therefore, the assessee is
ultimate owner of the property and he has executed the sale deed of the said
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property to M/s.Malabar Diamond Gallery Private Limited in the P.Y.2009-
10 relevant to A.Y.2010-11 only. Based on these facts, the respondent
formed an opinion that there is a reason to believe that the income
chargeable to tax has been under assessed by the assessee.
36. This Court is of the considered opinion that the learned
counsel for the petitioner in reply, articulated his case by saying that the
petitioner had transacted the sale of his property in a genuine manner and
therefore, he handed over the possession soon after the Sale agreement
dated 15.12.2003. The petitioner had received the entire sale consideration
and the said income was already assessed and the particulars regarding the
sale agreement, the Power of Attorney were also furnished to the Assessing
Officer during the Assessment Year 2004-05. Thus, the petitioner has
genuinely transacted and therefore, the ground reason to believe is non-est
and initiation of reopening of assessment is untenable.
37. This Court is of the considered opinion that any transaction,
which is not within the parameters of the legality, cannot be considered as a
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valid transaction for the purpose of Income Tax Act. Assessees are doing
many transactions in a calculated manner and at the advice of legal and
account any brains. Therefore, the complex nature of transactions, which all
are made, not within the parameters of the provisions of any law of the land,
then the Income Tax department cannot consider such transactions as a valid
transactions for the purpose of accepting the informations provided or the
transactions made. In other words, any illegal or irregular transactions made
by an assessee cannot be considered as a valid transaction for the purpose of
assessment, though the said transaction appears to be genuine, as far as the
assessee is concerned. Make it more clear, in the context of the case on
hand, Sale agreement can never be considered as completion of sale nor
Sale agreement does not provide title to the purchaser. Power of Attorney is
given by the assessee in the present case is in favour of Mr.B.Nagi Reddy
and power is given on behalf of the owner of the property. Thus, for all
purposes, the sale transactions were not completed and the mere Sale
agreement or the Power of Attorney would not confer any title to the
purchaser nor can be construed as completion of sale transaction. Therefore,
the reasons stated by the Assessing Officer for reopening of assessment is to
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be considered. This apart, the Audit party also raised an objection, which is
legally correct and in consonance with Sections 53-A and 54 of the Transfer
of Property Act. Sale deed admittedly was not executed and the sale deed
was executed by the Power holder on behalf of the petitioner / assessee in
favour of M/s.Malabar Diamond Gallery Private Limited in the P.Y.2009-10
relevant to A.Y.2010-11 only. Thus, the Department formed an opinion that
the entire capital gains of Rs.5,67,30,000/- has to be taxed in the case of the
assessee in the Assessment Year 2010-11. This apart, the Department has
considered that the party to the Sale agreement of M/s.Vinayaga Land
Developers, submitted the Books of Accounts of the firm for the Financial
Year 2009-10 and the copy of the return of income in which the said income
is included as business income and offered to tax under the head “Profits
and gains from business or profession”. Thus, the said M/s.Vinayaga Firm
in their Books of Accounts as stated that it is a business income. Thus, the
Department has got every reason to believe that the income chargeable to
tax has been under assessed.
38. Certain irregular transactions between the parties with some
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W.P.No.34075 of 2017
idea or motive, can never be construed as legal transactions for the purpose
of recognizing the same under the provisions of the Income Tax Act. Law
expects that all transactions are to be made in accordance with the
provisions of the Statutes and the rules in force. Any such illegal or irregular
transactions, which all are not in consonance with the Statutes cannot be
construed as valid transaction for the purpose of making an assessment and
even, if the petitioner pleads that his transactions are genuine, there is every
reason to believe that there is a possibility of under assessment, in view of
the fact that sale transaction completed by registering a sale deed only
during the Assessment Year 2010-11. All such intricacies are to be
scrutinized only by re-opening the assessment, and through adjudication.
39. This Court is of the considered opinion that Section 147 is an
initiation for reopening of assessment. As per the ratio laid down by the
Hon'ble Supreme Court of India in the case of DKN Driveshafts (India)
Limited Vs. ITO and others, [2003] 259 ITR 19(SC), the procedures were
followed in the case of the petitioner. The reasons for reopening of
assessment in the case of the petitioner was furnished by the Department.
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The objections raised by the petitioners were also dealt with and reply to the
objections for reopening of the Assessment Year 2010-11 is also furnished
in proceedings dated 22.12.2017. In the said proceedings itself, the
Assistant Commissioner of Income Tax relied on the judgment of the Apex
Court in the case of M/s.Suraj Lamps and Industries, wherein it was held
that “a transfer of immovable property by way of sale can only be by a deed
of conveyance and in the absence of a deed of conveyance (duly stamped
and registered as required by law), no right title or interest in an immovable
property can be transferred.”
40. Thus, the petitioner has to avail the opportunity to be provided
for the purpose of reassessment. Section 147 is an initiation of proceedings
and if the Department could able to establish that there is reason to believe,
then the Courts are expected to be slow in interfering with such notices as
the assessee would be provided with an opportunity to contest their case by
producing documents and establishing the genuinity of the transactions.
Courts cannot venture into the adjudication of disputed facts, which all are
to be verified and adjudicated with reference to the documents and
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evidences to be produced by the respective parties. Further, under Article
226 of the Constitution of India, High Court is empowered to scrutinize the
process, through which, a decision is taken by the competent authority in
consonance with the Statute and certainly, not the decision itself. The only
consideration would be to form an opinion, whether the pre-conditions as
contemplated under the provisions of the Act are complied with or not.
41. In the present case, the admitted facts as well as the
reasonings given by the respondent are unambiguous that there is “reason to
believe” the income chargeable to tax has been under assessed, in view of
certain sale transactions, which all are not recognizable under the provisions
of the relevant Statutes. Thus, the petitioner is bound to participate in the re-
assessment proceedings by availing the opportunities to be provided by the
competent authorities and established his case in the manner known to law.
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W.P.No.34075 of 2017
S.M.SUBRAMANIAM, J.
Kak
42. Thus, the writ petition fails and stands dismissed. No costs.
Consequently, connected miscellaneous petitions are closed.
23.04.2021
Kak
Index : Yes/No
Speaking /Non-speaking order
To
The Assistant Commissioner of Income Tax,
Non-Corporate Circle, 15(1),
121, Nungambakkam High Road,
Chennai – 600 034.
W.P.No.34075 of 2017
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