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2021 (5) TMI 43 - HC - Income TaxReopening of assessment u/s 147 - Capital gain on sale of property - petitioner has given only Power of Attorney and the property is not transferred through registered sale deed - HELD THAT - Audit objections 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 u/s 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. As 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 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. This Court is of the considered opinion that 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. Any transaction, which is not within the parameters of the legality, cannot be considered as a valid transaction for the purpose of Income Tax Act. Assessee 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. 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. 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. Certain irregular transactions between the parties with some 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. 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 2002 (11) TMI 7 - SUPREME COURT 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. 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 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. 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 reassessment proceedings by availing the opportunities to be provided by the competent authorities and established his case in the manner known to law. Writ petition fails.
Issues Involved:
1. Legality of notice issued under Section 148 of the Income Tax Act, 1961. 2. Validity of reopening the assessment under Section 147 of the Income Tax Act, 1961. 3. Applicability of the Transfer of Property Act to the transaction in question. 4. Alleged change of opinion versus reason to believe for reopening the assessment. 5. Compliance with statutory requirements for reopening assessments beyond four years. Detailed Analysis: 1. Legality of Notice Issued Under Section 148: The petitioner challenged the notice issued under Section 148 of the Income Tax Act, 1961, dated 31.03.2017, for reopening the assessment for the Assessment Year 2010-11. The petitioner argued that the notice was based on a change of opinion rather than new information or material facts. 2. Validity of Reopening the Assessment Under Section 147: The petitioner contended that the reopening of the assessment was not justified as all relevant details were already disclosed during the original assessment. The petitioner had filed a return of income on 30.07.2010, which was processed under Section 143(1) and later scrutinized under Section 143(3). The petitioner argued that the reopening was merely a change of opinion and not based on any new tangible material. The respondent countered that the reopening was justified as the ownership of the property could not be transferred merely by executing a Power of Attorney or a sale agreement, which did not comply with the Transfer of Property Act. The respondent relied on the case of M/s. Suraj Lamps and Industries, where the Apex Court held that a transfer of immovable property by way of sale could only be through a registered deed of conveyance. 3. Applicability of the Transfer of Property Act: The petitioner argued that the property was transferred to M/s. Vinayaga Land Developers through a sale agreement dated 15.12.2003, and a Power of Attorney was executed in favor of Mr. B.Nagi Reddy. The petitioner received the consideration of ?1,07,18,000/- and disowned the rights to the property. The respondent, however, stated that the sale agreement was unregistered, and the property was not transferred through a registered sale deed, which is a requirement under Section 54 of the Transfer of Property Act. 4. Alleged Change of Opinion Versus Reason to Believe: The petitioner argued that the reopening of the assessment was based on a change of opinion, which is not permissible. The petitioner relied on the Supreme Court's judgment in Commissioner of Income Tax, Delhi Vs. Kelvinator of India Limited, which held that the power to reopen an assessment must be based on a "reason to believe" and not a "mere change of opinion." The respondent maintained that the reopening was not due to a change of opinion but because the Assessing Officer had reason to believe that income chargeable to tax had escaped assessment. The respondent argued that the sale agreement and Power of Attorney did not constitute a valid transfer of property under the Transfer of Property Act, and hence, the income from the sale of the property was taxable in the Assessment Year 2010-11. 5. Compliance with Statutory Requirements for Reopening Assessments Beyond Four Years: The petitioner contended that the reopening of the assessment was beyond four years and did not meet the requirements under Section 147 of the Act. The petitioner argued that there was no failure to disclose fully and truly all material facts necessary for the assessment. The petitioner relied on various judgments, including Fenner (India) Ltd. Vs. Deputy Commissioner of Income Tax and D.Kasturi Vs. Commissioner of Income Tax, which emphasized the need for full and true disclosure for reopening assessments beyond four years. The respondent argued that the reopening was justified as there was a reason to believe that income chargeable to tax had escaped assessment due to the non-compliance with the Transfer of Property Act. The respondent relied on the judgment of the Supreme Court in the case of Larsen & Toubro Ltd. Vs. State of Jharkhand, which stated that audit objections could form the basis for reopening an assessment. Conclusion: The court dismissed the writ petition, holding that the reopening of the assessment was justified. The court emphasized that the sale agreement and Power of Attorney did not constitute a valid transfer of property under the Transfer of Property Act. The court found that there was a reason to believe that income chargeable to tax had been under-assessed and that the reopening of the assessment was not merely a change of opinion. The court also held that the statutory requirements for reopening assessments beyond four years were met, as there was a failure to fully and truly disclose all material facts necessary for the assessment.
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