Action taken u/s 147 of the Income Tax Act, is there being no escapement of any income, conditions of section 147 were not fulfilled

IN THE INCOME TAX APPELLATE TRIBUNAL

(DELHI BENCH ‘F’ NEW DELHI)

BEFORE SHRI I.C. SUDHIR, JUDICIAL MEMBER

AND

SHRI T.S. KAPOOR, ACCOUNTANT MEMBER

I.T.A. No.1809/Del/2011

Assessment year: 2003-4

M/s Payal International Ltd.,

F-29, South Extension,

Part-II, New Delhi-110049.

(Appellant)

Vs

ACIT,

Circle-14 (1),

New Delhi.

 (Respondent)

Appellant by: Shri Prem Nath Monga, Advocate.

Respondent by: Smt. Veena Joshi, Sr. DR.

ORDER

PER TS KAPOOR, AM:

This appeal is filed by the assessee against the order of Ld CIT(A) dated 9.2.2011. The grounds raised by the assessee are as under:-

1(a) That the Ld CIT(A) has erred ion law in confirming impugned order passed by the Ld Assessing Officer and upholding his action taken u/s 147 of the Income Tax Act, 1961 . 1(b). That there being no escapement of any income, conditions of section 147 were not fulfilled, the impugned order confirming the action of the Ld Assessing Officer in issuing notice u/s 148 of the Act and re-opening of the assessment u/s 147 was legally unsustainable.

2(a). That the ld CIT(A) has further gone wrong in holding that the loss incurred by the appellant in the surrender of plot was not a revenue loss but a capital loss as rightly held by the Ld Assessing Officer.

2(b). That in confirming the disallowance made by the Ld Assessing Officer of `.3,13,950/- by an order passed u/s 147/143(3), ld CIT(A) has failed to correctly appraise the legal and factual position.

3. That the submissions made by the appellant before the Ld Assessing Officer/CIT(A) has not properly appreciated leading to erroneous conclusion.

4. That the order passed by the Ld CIT(A) is bad in law and against the facts of the case.

2. The brief facts of the case are that the assessee is a company which filed return on 22.10.2003 and the return was processed u/s 143(1) of the Act on 12.1.2004. The case of the assessee was reopened u/s 147 and notice 148 of the Act was issued to the assessee on 10.3.2010. The assessee replied to notice that its return as already filed on 22.10.2003 may be treated as return filed in response to notice u/s 148 of the Act. The Assessing Officer noted that assessee had claimed a loss of `.3,13,950/- in respect of surrender of industrial plot allotted to it by Haryana Urban Development Authority (HUDA). The assessee was asked to explain as to why the loss due to surrender of plot may not be treated as capital loss. In reply to that, the assessee submitted that plot was being purchased for business purposes. Before it could be acquired, the same was surrendered and 5% of allotment amount as deducted by HUDA was necessarily a business expenditure as no capital asset had come into existence and capital; loss occurs only when the fixed asset is sold. The Assessing Officer did not accept the contention of assessee and made an addition of `.3,13,950/- on account of disallowance being loss suffered by assessee as of capital nature. The assessee filed an appeal before ld CIT(A) and submitted as under:-

a) That Assessing Officer had originally sent notices u/s 154/155 on 22.7.2005 to which assessee had objected and thereafter no order was passed u/s 155 of the Act and therefore in view of that the Ld AR submitted that no proceedings u/s 147/148 of the Act can be made when the matter was already dealt in the proceedings u/s 154/155 of the Act.

b) That no capital asset has come into existence and hence there cannot be any capital loss.

c) That the appellant has only received back its own money given as advance after deduction of 5% without any title or any property or asset or creation of any asset.

d) That since there is no capital loss, the deduction made by HUDA is an expenditure related to the business of appellant and is therefore to be allowed as business expenditure.

3. The Ld CIT(A) did not agree with the assessee’s appeal and held the disallowance made was justified. The relevant para of Ld CIT(A)’s order is reproduced below:-

“I have carefully considered the submission of the appellant and perused the assessment order passed by the Assessing Officer. It is not in dispute that the appellant company is engaged in the business of exports. It applied for allotment of an industrial plot and same was allotted by Haryana Urban Development Authority (HUDA) and it deposited allotment money also. It is not the case of the appellant that they are dealing in the real estate business and plot was meant for trading. It is clear that the intention of the appellant was to acquire a plot which was a capital asset. The moment the appellant was allotted a plot, it has acquired a right in the immovable property. The property also includes a right in the property. The surrender of plot means the appellant has extinguished its right in the plot, the right which it had acquired by way of allotment. Section 2(47) of the IT Act, 1961, defines the transfer to include the extinguishment of any right in an asset. Thus, the loss incurred on surrender of the plot cannot be said to be a revenue loss. In view of the above discussion, I hold that the Assessing Officer was fully justified in treating the loss of `.3,13,950/- as capital loss.”

4. Aggrieved, the assessee filed appeal before this Tribunal.

5. At the outset, the Ld AR stated that it was a case of change of opinion and therefore reopening u/s 147/148 of the Act was not warranted. In this respect he took us to pages 7 & 8 of paper book where intimation u/s 143(1) dated 12.1.2004, notice u/s 154/155 dated 22.7.2005 and reply filed by the assessee against notices u/s 154/155 were placed. The Ld AR further stated that no order u/s 154/155 was communicated to the assessee and therefore assessee believed that proceedings u/s 154/155 had been dropped. He further stated that then notice u/s 147/148 dated 10.3.2010 was served upon the assessee and that too without a copy of reasons recorded. In view of the above fact the Ld Ar argued that assessee had supplied all the information/documents in reply to proceedings u/s 154/155 in the year 2005 and hence all material was available before Assessing Officer and Assessing Officer could have taken action then only. The issue of notice u/s 147/148 in the year 2010 is therefore on account of change of opinion only as no new material had come before the Assessing Officer. Reliance was placed on the following judgments:-

1. Puri Bros. v. CIT 205 Taxman 163.

2. Kelvinator of India v. CIT 32o ITR 561 (SC).

3. Kelvinator of India Ltd. v. CIT 256 (ITR 1 (Del.).

6. On the merits also, the Ld AR argued that loss suffered by the assessee on account of deduction made by HUDA is a normal business expenditure. Reliance weas placed in the case of Indo Rama Synthetics Ltd. v. CIT 228 CTR 278.

7. On the other hand, Ld DR argued that there was no change of opinion. He further stated that case was assessed u/s 143(1) in January, 2004. During 2005 audit party had raised certain objections on the basis of which the Assessing Officer wanted to rectify u/s 154/155 of the Act. On finding that mistake was not rectifiable, he dropped the proceedings and intimated the audit party accordingly. The audit party did not agree and in 2010 again sent memo to Assessing Officer. The Assessing Officer then proceeded to reopen the case of the assessee on the basis of new material in the form of memo which came into notice in 2010. In view of the above, the Ld Dr argued that there was no change of opinion. Reliance was placed on the following judgments:-

1. Teekoy Rubbers (India) Limited. v. Commissioner Of Income Tax. 181 ITR 387

2. Renusagar Power Company Limited. v. Income Tax Officer, 'A' Ward, Circle I, Varanasi, And Another. 117 ITR 719.

8. The Ld DR further argued that case laws relied upon by the Ld AR and all in respect of assessments u/s 143(3) whereas the present assessment was u/s 143(1) of the Act.

9. In his rejoinder the Ld AR argued that audit party cannot advice on legal matters. Reliance was placed in the case of 2 Taxmen 197.

10. We have heard the rival submissions of both the parties and have gone through the material available on record and have noted that assessment of the assessee was completed u/s 143(1). The memo sent by audit party was a fresh material and Assessing Officer was within his rights to initiate proceedings u/s 147/148 especially keeping in view the ratio set by Hon'ble Supreme Court in the case of ACIT v. Rajesh Jhaveri Stock Broker Pvt. Ltd. 291 ITR 500 (SC) wherein Hon'ble Supreme Court had held that in a case where no scrutiny assessment was undertaken, it cannot be said re-assessment proceedings are initiated on change of opinion. The case laws relied upon by Ld AR are of no help to the assessee as assessments in these cases was completed u/s 143(3) and not u/s 143(1). In view of the above, ground No.1 of the appeal is decided against the assessee.

11. As regards disallowance on account of capital loss, it is clear that intention of the appellant was to acquire plot which was a capital asset. The moment, the appellant was allotted a plot, it has acquired right in immovable property since the property also includes right in the property therefore surrender of plot means appellant has extinguished its right in the plot and therefore the right in immovable property in the form of allotment letter was a capital asset and transfer thereof involved capital loss or capital gain. In the present case, the assessee suffered a capital loss. The case laws relied upon by the Ld AR in Indorama Synthetic Ltd. (supra) is of little help to the assessee as in that case the assessee had incurred expenses relating to salary, wages, repair and maintenance etc. for its abundant project and these expenses were necessarily of revenue nature. Therefore, the facts and circumstances of the present case are not similar to the facts & circumstances of the case relied upon by assessee. Therefore, ground No.2 is also decided against the assessee. In view of the above, we do not find any reason to interfere in the order of Ld CIT(A).

12. In the result, the appeal filed by the assessee is dismissed,

13. Order pronounced in the open court on 7th day of September, 2012.

                                                       Sd/-                              Sd/-

                                            (I.C. SUDHIR)           (T.S. KAPOOR)

                                      JUDICIAL MEMBER ACCOUNTANT MEMBER

Dt.07.09.2012.

HMS

Copy forwarded to:-

1. The appellant

2. The respondent

3. The CIT

4. The CIT (A)-, New Delhi.

5. The DR, ITAT, Loknayak Bhawan, Khan Market, New Delhi.

True copy.

By Order

(ITAT, New Delhi).

Date of hearing 19.7.2012

Date of Dictation 3.9.2012

Date of Typing 4.9.2012

Date of order signed by both the Members & pronouncement. 7.9.2012

Date of order uploaded on net & sent to the Bench concerned 7.9.2012