2016 (5) TMI 549 - HC - Income Tax

Reopening of assessment - conversion charges were allowed as Revenue expenditure in the hands of the firm that the relevant documents including the lease agreement were statedly perused, which led to have reasons to believe that taxable income in the hands of individual partners has escaped assessment - Held that - The petitioners forceful contention that even if the conversion of land-use from industrial to commercial has increased its value manifold, such increase, at the best, amounts to accretion in the value of their capital asset and it shall get taxed at the time of transfer of their immovable property OR the equally appealing plea of the Revenue that the conversion charges were paid by the lessee to the Chandigarh Administration, without such an obligation for and on behalf of the assessees and such payment is thus constructive receipt towards rent in their hands, are surely debatable and triable issues which deserve to be determined in accordance with the procedure contemplated under Section 143(3) of the Act. The reasons assigned by the Assessing Officer to tentatively believe that taxable income has escaped assessment cannot be brushed aside at the threshold without a fact-finding procedure, more-so when the petitioners are not remediless and have got equally efficacious recourses under the Act. A somewhat similar dictum is discernible from CIT vs. Chhabil Dass Agarwal (2013 (8) TMI 458 - SUPREME COURT) as it holds that the Act provides complete machinery for the assessment/reassessment of tax, imposition of penalty and for obtaining relief in respect of any improper orders passed by the Revenue Authorities, and the assessee could not be permitted to abandon that machinery and to invoke the jurisdiction of the High Court under Article 226 of the Constitution when he had adequate remedy open to him by an appeal to the Commissioner of Income Tax (Appeals). Having held so, it is not expedient for this Court to express its opinion on the rival submissions as it may unwittingly cause prejudice to either party. Suffice it to say that no case to quash the notice(s) issued under Section 148 read with Section 147 of the Act or the order(s) rejecting the objections, is made out at this premature stage.

Issues Involved:
1. Validity of reopening assessments under Section 147/148 of the Income Tax Act.
2. Taxability of conversion charges paid by the lessee on behalf of the lessors.
3. Whether the conversion charges constitute constructive receipt of rent.
4. Applicability of the principles of real income and notional income.
5. Jurisdiction and procedural aspects of the Assessing Officer's actions.

Issue-wise Detailed Analysis:

1. Validity of Reopening Assessments under Section 147/148 of the Income Tax Act:
The petitioners challenged the reopening of assessments for the years 2005-06 to 2013-14 under Section 147/148 of the Income Tax Act, arguing that there was no new tangible material to justify the reopening. The court noted that post-amendment, Section 147 empowers the Assessing Officer to reassess any income that he has reason to believe has escaped assessment, with the only condition being the existence of such reason to believe. The court referenced the Supreme Court's ruling in *Assistant Commissioner of Income Tax vs. Rajesh Jhaveri Stock Brokers Private Limited* which clarified that the Assessing Officer's jurisdiction to reopen assessments is valid if he has reason to believe that income has escaped assessment, even if the original assessment was processed under Section 143(1).

2. Taxability of Conversion Charges Paid by the Lessee on Behalf of the Lessors:
The petitioners contended that the conversion charges paid by the lessee (M/s Krishna Automobiles) for changing the land use from industrial to commercial should not be considered their income. They argued that these payments were made in the lessee's business interest and not on behalf of the lessors. The court observed that the Assessing Officer had reason to believe that these payments constituted constructive receipt of rent, thus taxable in the hands of the lessors. The court found this issue to be debatable and triable, warranting a detailed examination under the assessment procedure.

3. Whether the Conversion Charges Constitute Constructive Receipt of Rent:
The court examined the Assessing Officer's rationale that the conversion charges paid by the lessee increased the value of the property and should be considered as constructive receipt towards rent. The petitioners argued that such payments were not actual income received by them and hence should not be taxed. The court held that the Assessing Officer's belief that these payments were constructive receipts was not arbitrary and required a fact-finding procedure to determine the actual tax liability.

4. Applicability of the Principles of Real Income and Notional Income:
The petitioners argued that only real income, not notional or hypothetical income, should be taxed. They cited Section 56 of the Act and relevant case law to support their claim that the conversion charges did not constitute real income. The court acknowledged this argument but emphasized that the issue was complex and needed to be resolved through the proper assessment process rather than being dismissed at the preliminary stage.

5. Jurisdiction and Procedural Aspects of the Assessing Officer's Actions:
The petitioners questioned the jurisdiction of the Assessing Officer, arguing that there was no failure on their part to disclose material facts and that the reopening was based on a mere change of opinion. The court referenced *M/s Phool Chand Bajrang Lal and another v. ITO and another* and *Srikrishna Private Ltd. and others vs. ITO Calcutta and others* to highlight that the obligation to disclose material facts fully and truly is crucial. The court found that the Assessing Officer had acted within his jurisdiction and that the petitioners had adequate remedies available under the Act to contest the findings.

Conclusion:
The court concluded that the issues raised by the petitioners were debatable and required a detailed examination through the assessment process. It declined to quash the notices and orders at this premature stage, emphasizing that the petitioners had sufficient recourse under the Income Tax Act to address their grievances. The writ petitions were dismissed without costs.

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