IT: Where while completing scrutiny assessment Assessing Officer was aware that assessee had sold open plots also and concluded that assessee was eligible for claim of deduction under section 80-IB (10) in relation to 'eligible profits of business' of housing project, reopening of assessment on ground that housing project was not complete as per plan approved by local authority could not be sustained
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[2013] 40 taxmann.com 137 (Pune - Trib.)
IN THE ITAT PUNE BENCH 'A'
Nath Developers
v.
Assistant Commissioner of Income-tax*
G.S. PANNU, ACCOUNTANT MEMBER
R.S. PADVEKAR, JUDICIAL MEMBER
R.S. PADVEKAR, JUDICIAL MEMBER
IT APPEAL NOS. 576 TO 578 (PUNE) OF 2011
[ASSESSMENT YEARS 2003-04 TO 2005-06]
[ASSESSMENT YEARS 2003-04 TO 2005-06]
MAY 31, 2013
Section 80-IB, read with section 147, of the Income-tax Act, 1961 - Deductions - Profits and gains from industrial other than infrastructure development undertakings [Housing projects] - Assessee-firm, engaged in business of real estate, claimed deduction under section 80-IB in relation to development and construction of a housing project - Assessing Officer allowed deduction under section 80-IB in scrutiny assessment - Subsequently, Assessing Officer reopened assessment on ground that survey action revealed that assessee had completed construction of only 28 residential units out of 47 units for which sanction was obtained and that balance plots were sold without construction, which made assessee ineligible for deduction under section 80-IB(10) - Whether since Assessing Officer specifically noted in original assessment proceedings that assessee had executed only one housing project during year and that assessee had sold open plots as well as houses, survey action under section 133A could not be said to have revealed a fact situation which was not in knowledge of Assessing Officer on basis of material before him - Held, yes - Whether further, since Assessing Officer entertained belief of escapement of income in reasons recorded in absence of any tangible material and merely reviewing same set of facts, which existed to his knowledge at time of original assessment, impugned assessment made by Assessing Officer was to be quashed - Held, yes [Paras 21 & 22] [In favour of assessee]
CASE REVIEW
CIT v. Kelvinator of India Ltd. [2010] 320 ITR 561/187 Taxman 312 (SC) and CIT v. Orient Craft Ltd. [2013] 29 taxmann.com 392 (Delhi) (Para 21) followed.
CASES REFERRED TO
National Thermal Power Co. Ltd. v. CIT [1998] 229 ITR 383 (SC) (para 6), CIT v. Kelvinator of India Ltd. [2010] 320 ITR 561/187 Taxman 312 (SC) (para 8), Vijaykumar M. Hirakhanwala (HUF) v. ITO [2006] 287 ITR 443/157 Taxman 100 (Bom.) (para 8) and CIT v. Orient Craft Ltd. [2013] 29 taxmann.com 392 (Delhi) (para 8).
Sunil Pathak for the Appellant. Ms. Ann Kapthuama for the Respondent.
ORDER
G.S. Pannu, Accountant Member - The captioned group of appeals relate to two different assessees belonging to the same group and involve certain common issues, therefore they have been clubbed and heard together and a consolidated order is being passed for the sake of convenience and brevity.
2. First, we shall take up the appeals in the case of M/s Nath Developers pertaining to the asst. yrs. 2003-04 to 2005-06.
3. ITA No. 577/Pn/2011 is an appeal pertaining to M/s Nath Developers for asst. yr. 2004-05 which is taken as the lead case. The facts, in brief, are as follows. The assessee is a partnership firm engaged in the business of builder and developers and for all the years under consideration it had undertaken development and construction of a housing project named as 'Nath Regency' at Solapur. For all the captioned assessment years, assessee claimed deduction under s. 80-IB(10) of the IT Act, 1961 (in short "the Act") in relation to the profits earned from the said project. For the asst. yr. 2004-05 a return of income was filed by the assessee-firm on 1st Nov., 2004 declaring total income of Rs. 6,08,610 which inter alia contained a claim of deduction under s. 80-IB(10) of the Act in relation to the profits from the housing project 'Nath Regency' amounting to Rs. 40,84,721. The return of income was subject to scrutiny assessment under s. 143(3) of the Act dt. 13th Sept., 2006 and the income returned at Rs. 6,08,610 was accepted inter alia implying acceptance of assessee's claim of deduction under s. 80-IB(10) of the Act amounting to Rs. 40,84,721.
4. Subsequently, the AO initiated proceedings under s. 147/148 of the Act by issuance of notice on 13th Feb., 2009 intending to reopen the assessment and assess an income chargeable to tax which had escaped assessment. The escapement of income, as per the AO was on account of allowance of deduction claimed under s. 80-IB(10) of the Act amounting to Rs. 40,84,721. In the consequent reassessment proceedings finalized under s. 143(3) r/w s. 147 of the Act dt. 30th Dec., 2009 the total income has been determined at Rs. 46,93,330 after making a disallowance on account of assessee's claim for deduction under s. 80-IB(10) of the Act amounting to Rs. 40,84,721. In the proceedings before us the action of the AO in initiating proceedings under s. 147/148 of the Act and the denial of deduction under s. 80-IB(10) of the Act are subject-matters of dispute.
5. At the outset, the learned counsel for the assessee referred to grounds of appeal Nos. 1 and 1.1 which read as under :
"1. The reassessment under s. 147 is bad in law as it is based on a mere change of opinion.
1.1 The learned AO had examined the issue of allowability of deduction under s. 80-IB(10) in respect of the housing project 'Nath Regency' in details in the assessment under s. 143(3) for asst. yr. 2004-05 and allowed the deduction. Hence, in the above factual background, the reopening of the assessment under s. 147 for disallowance of the claim under s. 80-IB(10) in respect of this project is bad in law and hence, the reassessment be held null and void."
6. According to the appellant, the issue relating to the validity of the proceedings initiated under s. 147/148 of the Act goes to the root of the matter and it is further contended that the same being a point of law the assessee is entitled to raise the same for the first time before the Tribunal also having regard to the parity of reasoning laid down by the Hon'ble Supreme Court in the case of National Thermal Power Co. Ltd. v. CIT [1998] 229 ITR 383. It is also pointed out that the facts relevant to adjudicate the aforesaid controversy are on record and prayed that the aforesaid ground be admitted for adjudication. The learned Departmental Representative has not opposed the prayer of the assessee seeking adjudication of the aforesaid ground of appeal, which has been raised for the first time before the Tribunal and was not raised before the CIT(A).
7. With regard to the admission of the additional ground of appeal referred to as grounds of appeal Nos. 1 and 1.1 in the Memo of Appeal filed by the assessee, it is evident that the same involves a point of law and is emerging from record. The aforesaid ground is also relevant to determine the ultimate tax liability of the assessee and therefore following the ratio of Hon'ble Supreme Court in the case of National Thermal Powers Co. Ltd. (supra) the same is admitted for adjudication. The aforesaid decision was pronounced in Court and thereafter the rival counsel have made their submissions. The learned counsel for the assessee also filed a paper book which inter alia contains (i) copies of submissions made before the lower authorities, (ii) chart regarding the details of the housing project, (iii) copies of reasons recorded by the AO under s. 147 for reopening of assessment, (iv) copy of statement on oath recorded of assessee's partner Shri Pradip N. Pimparkar during survey action under s. 133A of the Act, (v) copies of IT returns along with the relevant annexures and (vi) copies of commencement certificate and sanctioned plans of the project, etc. The learned Departmental Representative also produced the assessment record with reference to the paper book filed by the assessee. The rival counsel have made their submissions in the above background and the relevant record and material have been perused.
8. The first and foremost point made out by the assessee is to the effect that the reassessment proceedings initiated by the AO by invoking s. 147 of the Act are invalid inasmuch as it is based on a mere change of opinion. It is contended that the AO examined the issue of allowability of deduction under s. 80-IB(10) of the Act in respect of the housing project 'Nath Regency' in the course of the scrutiny assessment made under s. 143(3) of the Act on 13th Sept., 2006. In this connection reference has been made to the return of income filed along with relevant notes thereon and also to the discussion made by the AO in the assessment order passed under s. 143(3) of the Act dt. 13th Sept., 2006 in order to support the proposition that the AO has formed the belief of escapement of income qua assessee's claim for deduction under s. 80-IB(10) of the Act, merely on the basis of a change of opinion and that no fresh tangible material or evidence came to the notice of the AO after the assessment dt. 13th Sept., 2006. As per the assessee, reassessment proceedings initiated on the basis of a mere change of opinion, without possessing any fresh tangible material, does not meet with the requirements of s. 147 of the Act. In support of the above proposition, reliance has been placed on the following judgments :
| (i) | CIT v. Kelvinator of India Ltd. [2010] 320 ITR 561/187 Taxman 312 (SC); | |
| (ii) | Vijaykumar M. Hirakhanwala (HUF) v. ITO [2006] 287 ITR 443/157 Taxman 100 (Bom.) | |
| (iii) | CIT v. Orient Craft Ltd. [2013] 29 taxmann.com 392 (Delhi). |
9. On the other hand, the learned Departmental Representative appearing for the Revenue referred to the copy of the reasons recorded by the AO, to point out that on 28th May, 2008 a survey action under s. 133A of the Act was conducted at the business premises of the assessee in order to verify the assessee's claim for deduction under s. 80-IB(10) of the Act. In course of survey, a statement of Shri Pradip N. Pimparkar, partner of the assessee, was also recorded which established that the project 'Nath Regency' undertaken by the assessee was not completed as per the plans approved by the local authority within the prescribed period and therefore the assessee was found to be ineligible for deduction under s. 80-IB(10) of the Act. For the aforesaid reason, it is sought to be made out that there was a justifiable reason with the AO in order to form a belief that an income chargeable to tax has escaped assessment for the captioned assessment years within the meaning of s. 147 of the Act inasmuch as in the assessment order dt. 13th Sept., 2006 passed under s. 143(3) of the Act, excessive claim of deduction under s. 80-IB(10) of the Act was wrongfully allowed. In this manner, initiation of proceedings under s. 147 of the Act is sought to be defended.
10. We have carefully considered the rival submissions. sec. 147 of the Act empowers the AO to assess or reassess an income chargeable to tax which has escaped assessment in terms of the prescription contained therein. Sec. 147 of the Act postulates that where the AO has reason to believe that any income chargeable to tax has escaped assessment for any assessment year, he may, subject to the provisions of ss. 148 to 153 of the Act, assess or reassess such income for the assessment year concerned. A significant expression contained in s. 147 of the Act is "reason to believe". Ostensibly, the power of the AO to reopen an assessment is based on his forming a belief that certain income chargeable for tax had escaped assessment. The aforesaid expression has been a subject-matter of consideration by various Courts and it is quite well-settled that s. 147 of the Act does not envisage sweeping powers for the AO to reopen the concluded assessment. The power to reopen a concluded assessment is based on the AO coming in possession of some fresh tangible material in order to form a belief that certain income has escaped assessment. Be that as it may, in so far as the present proceedings are concerned the challenge mounted by the assessee is that after completion of assessment on 13th Sept., 2006 allowing assessee's claim for deduction under s. 80-IB(10) of the Act, the AO did not possess any tangible material to conclude that deduction under s. 80-IB(10) of the Act was wrongfully allowed so as to constitute an escapement of income for the purpose of invoking s. 147 of the Act. According to the assessee, the belief of escapement of income has been formulated by the AO, in this case merely on a change of opinion and is not based on any tangible material. On the contrary as per the Revenue, survey under s. 133A of the Act conducted on 28th May, 2008 revealed that the assessee did not complete the construction of project as per the plans approved by the 'local authority' before the specified date and on this basis the AO formed a belief that deduction under s. 80-IB(10) of the Act was wrongly allowed in the assessment made under s. 143(3) of the Act.
11. Ostensibly, the initiation of proceedings under s. 147 of the Act are subject to fulfilment of certain conditions prescribed therein which inter alia, require the AO to record reasons to believe that certain income chargeable to tax has escaped assessment. In the context of assessee's plea that "reason to believe" cannot be based on a mere change of opinion without there being any tangible material or change in law coming to the notice of the AO after completion of the original assessment, the following pronouncement by the Hon'ble Supreme Court in the case of Kelvinator of India Ltd. (supra) is worthy of notice :
"However, one needs to give a schematic interpretation to the words 'reason to believe' failing which, we are afraid, s. 147 would give arbitrary powers to the AO to reopen assessments on the basis of 'mere change of opinion', which cannot be per se reason to reopen. We must also keep in mind the conceptual difference between power to review and power to reassess. The AO has no power to review; he has the power to reassess. But reassessment has to be based on fulfilment of certain preconditions and if the concept of 'change of opinion' is removed, as contended on behalf of the Department, then, in the garb of reopening the assessment, review would take place. One must treat the concept of 'change of opinion' as an in-built test to check abuse of power by the AO. Hence, after 1st April, 1989, the AO has power to reopen, provided there is 'tangible material' to come to the conclusion that there is escapement of income from assessment. Reasons must have a live link with the formation of the belief."
12. As per the Hon'ble Supreme Court, the AO has power to reopen an assessment provided there is tangible material to infer an escapement of income and more importantly it has been emphasized that in the guise of reopening of an assessment a 'review of assessment' is impermissible. The Hon'ble Delhi High Court in the case of Orient Craft Ltd. (supra) has elaborately explained the emphasis laid by the Hon'ble Supreme Court in the case of Kelvinator of India Ltd. (supra) on two aspects in the following words :
"that there can be no review of an assessment in the guise of reopening and that a bare review without any tangible material would amount to abuse of the power."
13. In the above background, we may examine the reasons recorded by the AO in order to initiate proceedings under s. 147 of the Act, which read as under :
"The position of returns of income filed by the assessee-firm and assessments completed is as under :
| Asst. yr. | Date of return filed | Income returned | Date of processing of return u/s. 143(1) | Date of order under s. 143(3)/income assessed | |
| 2003-04 | 28.11.2003 | 6,60,090 | 26.03.2004 | — | |
| 2004-05 | 01.11.2004 | 6,08,610 | 21.03.2005 | 143(3) completed on 13.09.2006 on income of Rs. 6,08.610 | |
| 2005-06 | 31.10.2005 | 25,240 | 27.02.2006 | 143(3) completed on 27.07.2007 on income of Rs. 25,240 |
2. In the returns of income, the assessee has claimed deduction under s. 80-IB(10) of the IT Act, 1961. The claim under s. 80-IB(10) for the above years is as under :
| Asst yr. | Deduction under s. 80-IB(10) claimed and allowed | |
| 2003-04 | Rs. 2,70,375 | |
| 2004-05 | Rs. 40,84,721 | |
| 2005-06 | Rs. 13,16,549 |
3. The cl. (a) of sub-s. (10) of s. 80-IB of the IT Act, 1961 reads as under :
'(a) such undertaking has commenced or commences development and construction of the housing project on or after the 1st day of October, 1998 and completes such construction-
| (i) | in a case where a housing project has been approved by the local authority before the 1st day of April, 2004, on or before the 31st day of March, 2008; | |
| (ii) | in a case where a housing project has been, or, is approved by the local authority on or after the 1st day of April, 2004 within four years from the end of the financial year in which the housing project is approved by the local authority. |
Explanation : For the purposes of this clause—
| (i) | in a case where the approval in respect of the housing project is obtained more than once, such housing project shall be deemed to have been approved on the date on which the building plan of such housing project is first approved by the local authority; | |
| (ii) | the date of completion of construction of the housing project shall be taken to be the date on which the completion certificate in respect of such housing project is issued by the local authority. |
4. In order to verify the claim of the assessee, survey action under s. 133A of the IT Act, 1961 was conducted on 28th May, 2008. The following issues emerged as findings of survey action.
5. The assessee firm has taken approval for construction of 47 residential units as per Solapur Municipal Corporation, Solapur's letter No. 89 dt. 24th Feb., 2001, No. 304 dt. 20th March, 2001, No. 1400 dt. 4th Dec, 2001, and No. 971 dt. 24th Dec, 2002 in respect of project carried out in the Gat No. 52/2, City Survey No. 2, Bhavani Peth, Solapur. The project name is 'Nath Regency'. During the course of survey, it was noticed that the assessee has completed construction of 28 residential units out of 47 units for which sanction was obtained. No construction have been made on balance 19 plots.
6. The assessee also obtained completion certificate for these 28 units vide letters No. 193 dt. 26th Nov., 2002, No. 21 dt. 23rd April, 2003, No. 22 dt. 23rd April, 2003, No. 173 dt. 15th Feb., 2007 and No. 179 dt. 26th March, 2007 from Solapur Municipal Corporation. A statement of Shri Pradip N. Pimparkar partner of the assessee firm was recorded on 28th May, 2008 and he was asked about details of completion of the remaining 19 units approved in the original sanctioned plan dt. 24th Feb., 2001. Shri Pradip N. Pimparkar stated on oath that the remaining 19 units have not been constructed till date. From these facts, it emerged that the project for which the assessee had claimed deduction under s. 80-IB(10) is not complete as per the plan as approved by the local authority. Hence, the assessee does not qualify for claim of deduction under s. 80-IB(10) of the IT Act, 1961.
7. I have, therefore, reason to believe that the income chargeable to tax has escaped assessment for the asst. yrs. 2003-04 to 2005-06 within the meaning of s. 147 and Explanations thereto of the IT Act, 1961.
Sd/-
(Dr. Nitin Waghmode)
Asstt. CIT, Circle-1, Solapur."
14. The AO has recorded that a survey action was conducted on 28th May, 2008 to verify assessee's claim under s. 80-IB(10) of the Act. As per the AO, assessee-firm had taken approval for construction of 47 residential units from Solapur Municipal Corporation (i.e. 'local authority') in respect of the housing project "Nath Regency". It is further noted that during the course of survey it was noticed that assessee has completed construction of 28 residential units out of 47 residential units for which sanction was obtained and no construction was made on balance 19 plots. The AO further refers to the completion certificate for such 28 constructed units obtained from the 'local authority' and based on the statement of Shri Pradip N. Pimparkar, partner of the assessee firm, he has noted that construction of the 19 units has not been done till date. For all the above reasons it is concluded that the project for which the assessee had claimed deduction under s. 80-IB(10) of the Act is not complete as per the plan as approved by the 'local authority' and hence the AO postulates that assessee does not qualify for the claim of deduction under s. 80-IB(10) of the Act. In the above manner, AO formed a belief that an income chargeable to tax has escaped assessment within the meaning of s. 147 of the Act.
15. In sum and substance, the AO formulated a belief that the deduction under s. 80-IB(10) of the Act has been wrongfully allowed in the assessment order dt. 13th Sept., 2006, on the basis of the survey action carried out on 28th May, 2008, which revealed that assessee had completed construction of only 28 residential units out of 47 units for which the sanction was obtained and that the balance plots were sold without construction, which made the assessee ineligible for deduction under s. 80-IB(10) of the Act. As per the learned Departmental Representative, the non-completion of construction of complete 47 units on account of sale of plots, came to knowledge of the AO only during the survey and thus the same constituted a tangible material to conclude that there is an escapement of income qua wrong allowance of deduction under s. 80-IB(10) of the Act.
16. At this stage, it would also be appropriate to refer to the assessment made by the AO under s. 143(3) of the Act. The return of income filed by the assessee for the asst. yr. 2004-05 and the accompanying documents have been placed in the paper book at pp. 52 to 56. In the computation of income placed at p. 51, assessee declared a gross total income with reference to the P&L a/c at Rs. 46,98,334 against which deduction under s. 80-IB(10) of the Act amounting to Rs. 40,84,721 was claimed thereby declaring a total income of Rs. 6,08,610. The following note annexed below the computation of income is significant:
"The firm is engaged in the business of construction of flats, shops and offices, etc. and acts as developers and promoters. The firm has started housing project on the land belonging to Shri Deepak Jambukumar Shah bearing C.S. No. TP-II, Final Plot No. 52/2, Bhavani Peth, Solapur. Said project is eligible for deduction under s. 80-IB(10) as it complies with all the conditions stipulated in the said section as under :
| (1) | The approval in the form of building permission has been obtained from local authority on 20th March, 2001 viz. before 31st March, 2001. | |
| (2) | Development and construction of the housing project has commenced on 20th March, 2001 viz. after 1st Oct., 1998. | |
| (3) | The project is on the size of plot of land having an area of about 2 acres, which is more than stipulated minimum area of 1 acre. | |
| (4) | The residential unit has a maximum built-up area of about 1058 sq. ft. which is less than stipulated maximum area of 1500 sq. ft. |
Profits from the said housing project are thus eligible for deducting under s. 80-IB(10). During the year assessee has sold twenty houses from the said housing project and has claimed deduction of Rs. 40,84,721 under s. 80-IB of the IT Act 1961. Certificate from chartered accountant in Form 10CCB in support of said deduction is enclosed herewith. Copies of approved plans and permission are already furnished along with return for asst. yr. 2003-04. No deduction has been claimed in respect of profits derived from the sale of open plots." (Emphasis supplied)
17. In the P&L a/c accompanying the computation of income, assessee credited the sale revenue on account of sale of houses and sale of plots separately. Therefore, in the return of income and the accompanying documents, which included a certificate in Form No. 10CCB in support of deduction under s. 80-IB(10) of the Act issued by the chartered accountant, the assessee had fully disclosed the fact of sale of plots and that profits from the project on which deduction under s. 80-IB(10) of the Act was claimed, which was excluding the profit on sale of plots.
18. Now, we may refer to the assessment order passed by the AO under s. 143(3) of the Act dt. 13.09.2006, wherein the following discussion is relevant:
"The fall in gross profit was attributed by the assessee to the fact that the profit is more in respect of sale of plots as against houses. Since the number of plots sold during the relevant assessment year was much less than the earlier year, there was a fall in the gross profit. The claim of the assessee is found true upon verification. As against 10 plots and 2 houses sold during the earlier year, the assessee has sold 20 houses and 6 plots during the relevant year. In view of the above, the book results of the assessee are accepted.
The assessee has executed only one housing project during the relevant assessment year and has claimed deduction under s. 80-IB(10) 'on the eligible profits of business'. Upon scrutiny it was found that the assessee fulfils all conditions laid down for deduction under s. 80-IB(10). Thus the same is allowed." (Emphasis supplied)
19. Notably, the AO allowed the claim of the assessee under s. 80-IB(10) of the Act "upon scrutiny". The AO noticed that the assessee sold houses as well as plots in the instant year as well as in the past year; assessee had executed only one housing project and claim of deduction under s. 80-IB(10) of the Act was with respect to the "eligible profits of business". As per the discussion made by the AO in the assessment order on the basis of the computation of income and other accompanying documents filed by the assessee, it is quite clear that the AO was aware that in the housing project being executed, assessee had not only sold houses on which the deduction under s. 80-IB(10) of the Act was claimed, but also sold open plots on which no deduction under s. 80-IB(10) of the Act was claimed. We say so for the reason that in the note accompanying the computation of income, which we have extracted in the earlier part of this order, assessee clearly brought out that it had sold 20 houses from the project in question and had claimed deduction of Rs. 40,84,721 thereof and that the profits derived from the sale of open plots was not considered for the claim of deduction under s. 80-IB(10) of the Act. The AO noted that assessee was executing only one housing project during the relevant assessment year and the deduction under s. 80-IB(10) of the Act was claimed on the eligible profits, and that such project entailed sale of houses as well as sale of plots but so far as the sale of plots was concerned, there was no claim of deduction under s. 80-IB(10) of the Act. It was under these circumstances the claim of deduction under s. 80-IB(10) of the Act was allowed by the AO by observing that "the assessee fulfils all conditions laid down for deduction under s. 80-IB(10)".
20. In this background, the assertion of the AO in the reasons recorded that the survey action on 28th May, 2008 revealed that assessee had sold certain plots out of the project which therefore led to an inference that assessee violated the condition of s. 80-IB(10) of the Act, is suspect. As noted earlier, AO was aware that assessee had sold open plots also and concluded that the assessee was eligible for the claim of deduction under s. 80-IB(10) of the Act in relation to "eligible profits of business" of "Nath Regency" project, there was no fresh tangible material which came to knowledge of the AO after the completion of assessment on 13th Sept., 2006, which establishes ineligibility of assessee's claim for deduction under s. 80-IB(10) of the Act. The survey action under s. 133A of the Act on 28th May, 2008 cannot be said to have revealed a fact situation which was not in the knowledge of the AO on the basis of the material before him. In fact, the AO specifically noted in the original assessment proceedings that the assessee has executed only one housing project during the year that assessee had sold open plots as well as houses and was also aware that the assessee had claimed deduction under s. 80-IB(10) of the Act only "on the eligible profits of business", which was explained by the assessee in the computation of income to mean profits from sale of residential units sold during the year.
21. In view of the aforesaid factual contours of the controversy, it is clear that the AO entertained the belief of escapement of income in the reasons recorded in the absence of any tangible material and merely reviewing the same set of facts, which existed to his knowledge at the time of original assessment. Factually speaking, in this case what is attempted is a bare review without any tangible material, which is impermissible keeping in mind the ratio of the judgments of the Hon'ble Supreme Court in the case of Kelvinator of India Ltd. (supra) and that of the Hon'ble Delhi High Court in the case of Orient Craft Ltd. (supra). The averments in the reasons recorded that the survey proceedings revealed sale of open plots and non-completion of project, cannot be considered to be tangible material which came to the possession of the AO subsequent the original assessment order dt. 13th Sept., 2006 inasmuch as the factual position noted by us shows that the same was very much within the knowledge of the AO while scrutinizing the claim of the assessee for deduction under s. 80-IB(10) of the Act. Thus, having regard to the facts and circumstances of the case and the material on record, the assumption of jurisdiction by the AO to reopen the original assessment by recording of impugned reasons reflects only a bare review of an earlier assessment under the guise of reopening and is based on a mere change of opinion, which is impermissible in the light of the judgment of the Hon'ble Supreme Court in the case of Kelvinator of India Ltd. (supra).
22. In view of the above discussion, we hold that in the absence of any tangible material available with the AO to form the requisite belief regarding escapement of income, the reopening of original assessment made under s. 143(3) of the Act dt. 13th Sept., 2006 is bad in law. Consequently, the impugned assessment made by the AO is unsustainable and is hereby quashed.
23. Thus, grounds of appeal Nos. 1 and 1.1 are allowed.
24. Since the assessee has succeeded on the preliminary issue of the validity of jurisdiction, the grounds of appeal raised with respect to the merits of the claim are rendered academic and are not being adjudicated for the present.
25. Accordingly, the appeal in ITA No. 577/Pn/2011 pertaining to M/s Nath Developers for asst. yr. 2004-05 is allowed, as above.
26. Similar reasons have been recorded for reopening the assessments of other assessment years i.e. asst. yrs. 2003-04 and 2005-06 and therefore even for the other two assessment years the reopening of assessment by initiation of proceedings under s. 147/148 of the Act is liable to be treated as unsustainable in law.
27. Before parting, we may refer to the asst. yr. 2003-04 wherein no assessment under s. 143(3) of the Act was made but the return of income was processed under s. 143(1) of the Act. In this year, assessee claimed a deduction under s. 80-IB(10) of the Act with respect to the same project i.e. "Nath Regency" of Rs. 2,72,375. The claim of deduction was made on identical footing as was made by the assessee for other two assessment years i.e. asst. yrs. 2004-05 and 2005-06 wherein the assessments were completed under s. 143(3) of the Act. The return of income for asst. yr. 2003-04, copy of which has been placed in the paper book at pp. 40 to 49 shows that the claim has been made in an identical manner to that made in the asst. yrs. 2004-05 and 2005-06. In fact, the note annexed to the computation of income explains the manner of claiming of deduction, which is on the same basis as in the other years. Once the claim of the assessee for deduction under s. 80-IB(10) of the Act made under similar circumstances for asst. yrs. 2004-05 and 2005-06 have been scrutinized under s. 143(3) of the Act and upheld then the reopening of assessment for asst. yr. 2003-04 also suffers from the same infirmity namely, absence of any tangible material to formulate requisite belief of escapement of income. The difference that assessment for asst. yr. 2003-04 was made under s. 143(1) and not under s. 143(3) of the Act is not material having regard to the parity of reasoning laid down in the judgment of the Hon'ble Delhi High Court in the case of Orient Crafts Ltd. (supra). In the case of Orient Craft Ltd. (supra) also the original assessment was completed by way of s. 143(1) and not under s. 143(3) of the Act, and in the absence of any tangible material available with the AO, the reopening of the assessment made under s. 143(3) [sic-143(1)] of the Act was held to be bad in law. Thus, on the basis of discussion for asst. yr. 2004-05, in this year also the initiation of proceedings under s. 147 of the Act are held to be unsustainable.
28. Consequently, assessments made under s. 143(3) r/w s. 147 of the Act for asst. yrs. 2003-04 and 2005-06 are hereby quashed accordingly. Since the assessments have been quashed, the grounds raised by the assessee on merits of the claim are rendered academic and are not adjudicated for the present.
29. Thus, the appeals of M/s Nath Developers in ITA Nos. 576 and 578/Pn/2011 for asst. yrs. 2003-04 and 2005-06 are disposed of in the same manner as ITA No. 577/Pn/2011 for asst. yr. 2004-05.
30. Resultantly, the appeals of the assessee in ITA Nos. 576 to 578/Pn/2011 pertaining to the asst. yrs. 2003-04 to 2005-06 are hereby allowed as above.
31. Now, we may take up the appeals of the assessee in the case of M/s Nath Associates in ITA Nos. 579 to 582/Pn/2011 pertaining to the asst. yrs. 2003-04 to 2005-06 and 2007-08, which are directed against a common order of the CIT(A)-III, Pune dt. 25th Oct., 2010 which, in turn, have arisen from the respective orders dt. 30th Dec., 2009 passed by the AO, under s. 143(3) r/w s. 147 of the Act.
32. Insofar as the initiation of proceedings under s. 147/148 of the Act for the captioned years is concerned, it was a common point between the parties that the facts and circumstances and the rival stands are identical to those considered by us in the case of Nath Developers in the earlier paragraphs. The AO has recorded reasons for forming a belief for escapement of income in an identical fashion as was done in the case of Nath Developers. Relevant material has been placed in the paper book filed. The assessment under s. 143(3) of the Act for assessment year 2003-04 was completed by the AO on 29th March, 2005, wherein the claim of deduction under s. 80-IB(10) of the Act was allowed after scrutinizing the relevant details. In fact, in the assessment order dt. 29th March, 2005 it is also noticed that the AO personally visited the project site of the assessee to verify the genuineness of the claim. After a detailed discussion as per paras 3 to 6 of the assessment order, the claim of the assessee for deduction under s. 80-IB(10) of the Act was allowed. Similarly, the return of income filed, the copies of computation of income and the accompanying documents filed reveal that the manner of claiming deduction made under s. 80-IB(10) of the Act is similar to that noticed by us in the case of Nath Developers in the earlier paras, and the objections of the Revenue also remain the same. For all the above reasons, the rival parties submitted that the decision of the Tribunal on the issue of validity of initiation of proceedings under s. 147 of the Act rendered in the case of Nath Associates in the earlier paras would apply mutatis mutandis in these appeals also.
33. Thus, following the parity of reasoning in the case of Nath Associates in the earlier paragraphs in the present appeals also the initiation of proceedings under s. 147/148 of the Act are held to be invalid and the consequent assessments made are hereby quashed.
34. Resultantly, the appeals of the assessee in 'Nath Associates' vide ITA Nos. 579 to 582/Pn/2011 pertaining to the asst. yrs. 2003-04 to 2005-06 and 2007-08 are hereby allowed as above. Since the assessments have been quashed, the grounds raised by the assessee on merits of the claim under s. 80-IB(10) of the Act are rendered academic and are not being adjudicated.
35. Resultantly, the captioned appeals relating to the two assessees are allowed as above.
USPRegards
Prarthana Jalan
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