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TMI Blog2012 (11) TMI 133X X X X Extracts X X X X X X X X Extracts X X X X ..... the fact that the loading of TDR has been possible by virtue of ownership of land and building. 3. The Ld. CIT(A) has erred in stating that sec 50C is not applicable in the case of transfer of development rights as there is no transfer of land or building. In the instant case, the assessee has received flats in exchange of a building and building falls in the purview of assets as defined u/s 50C. 4. Furthermore, the Ld. CIT(A) has erred in stating that in case of applicability of sec. 50C is made, the AO will have to reach a satisfaction that the value of new property and the compensation put together is lower than the value of property given to the developers. 5. The appellant prays that the order of the CIT(A) on the above grounds be set aside and that of the A.O. be restored. 6. The appellant craves leave to amend or alter any ground or add a new ground, which may be necessary" 3. The assessee has filed cross-objection against the order of the CIT(A). The grounds raised by the assessee in the cross-objection are as follows: Following grounds of cross-objection are without prejudice to each other and assessee's arguments in Department's appeal: 1.&n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ation of the co-owners and Building B which was in occupation of tenants. The unused construction potential by way of development rights of the entire plot was agreed to be used by demolishing building A without disturbing building B. As per terms of Development Agreement each co-owner will be retaining one floor each in new building and balance extra floors that will be constructed will be retained by the developer for his benefit. Developer agreed to pay over and above the built up area monetary consideration of Rs. 1.25 crores to the co-owners, to be divided equally among the three co-owners. Thus each co owner's share was Rs. 41,66,667/= (i.e. Rupees fourty one lacs sixty six thousand six hundred sixty seven only ). 6. The Capital Gain on the above transaction had to be declared by the Assessee. The Assessee invested Rs. 42,00,000 in NABARD Bonds which qualify for exemption under section 54EC of the Act. As in place of old house new house is built and given by the developer benefit of free new construction by the developer of one floor retained by the assessee was estimated at construction cost of @ Rs. 700/-per Sq. Ft. which was Rs. 17,50,000/-. The benefit in the form of con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n NABARD capital gains bond, which is being exempt. On further verification of NABARD Capital Gain Bond, it is seen that the investment in the said bond was made on 30/06/2005 i.e., it pertains to the A.Y. 2006-07 for which the assessee is not showing any capital gains. However, on the said bond certificate, the assessee is claiming exemption u/s. 54 EC for A.Y. 2005-06 which is not allowable and requires to be re-assessing by re-opening the assessment u/s. 147 of the I.T. Act by issue of notice u/s. 148 of the I.T. Act. Further, it is also not out of place to mention that the copies of documents submitted by the assessee, indicate that the basic FSI available on the plot of land have been retained by the assessee in the newly developed building. In effect the whole arrangement by way of this development is to enable the developer to bring in marketable TDR on the plot and construct/develop the same and sell the constructed area of TDR that the outside people of his choice, being people with no right title and interest as regard to the plot of land position, thus arrangement is so done to only facilitate the developer to load TDR on the plot of land and is hence not a transfer fa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n such issue comes in respect of any issue which has escaped assessment, when such issue comes to his notice subsequently in the course of the proceedings. Parliament having used the words "assess or reassess such income and also any other income chargeable to tax which has escaped assessment", the words 'and also' cannot be read as being in the alternative. On the contrary, the correct interpretation would be to regard those words as being conjunctive and cumulative. It is of some significance that Parliament has not used the word "or". The Legislature did not rest content by merely using the word 'and'. The words 'and' as well as 'also' have been used together and in conjunction. Evidently, what Parliament intends by use of the words 'and also' is that the Assessing Officer, upon the formation of a reason to believe under section 147 and the issuance of a notice u/s. 148(2) must assess or reassess: (i) such income; and also (ii) any other income chargeable to tax which has escaped assessment and which comes to his notice subsequently in the course of the proceedings under the section. Explanation 3 does not and cannot override the necessity of fulfilling the conditions set out ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... which is contrary to the belief entertained in the first part of the reasons recorded. It was submitted by him that the words 'reason to believe' found in Sec. 147 of the Act is stronger than the words 'reason to suspect' or 'reason to doubt'. It requires more than merely 'satisfaction' of the Assessing Officer. The belief entertained by the Assessing Officer must not be arbitrary or irrational. The expression 'reason to believe' does not mean purely subjective satisfaction of the Assessing Officer. The belief must be held in good faith. It cannot be merely presence. Again, the belief must be of an honest and reasonable person based upon reasonable grounds. It was further pointed out by him that the belief regarding escapement of income does not emanate from the reasons recorded. 12. It was also submitted by him that the first part of the reasons recorded is also arbitrary, not bona fide and a belief which cannot be said to have been entertained in good faith, because the investments were made within the time contemplated u/s. 54EC of the Act and those provisions do not make any reference to the Assessment year in which the investment is to be made but only lay down a condition o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... completed." The purpose behind the relevant provisions imposing condition precedent for initiating reassessment proceedings is to ensure finality of proceedings. The Act also provides that such reason must be recorded in writing before issue of notice of reassessment so as to judge the existence of such belief before initiating reassessment proceedings by issue of notice u/s. 148 of the Act. The above requirements are meant to ensure that powers to initiate reassessment proceedings are not exercised in an arbitrary manner. 15. The Courts have analyzed and explained in several cases as to what could be the valid reason to believe escapement of income, which would enable the Assessing Officer to successfully reopen the assessment. It has been held that the words 'reason to believe' are stronger than the words 'reason to suspect' or 'reason to doubt'. It requires more than merely 'satisfaction' of the Assessing Officer. The belief entertained by the Assessing Officer must not be arbitrary or irrational. The expression 'reason to believe' does not mean purely subjective satisfaction of the Assessing Officer. The belief must be held in good faith. It cannot be merely pretence. Again, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct. As rightly contended on behalf of the Assessee, the provisions of Sec.54EC do not make any reference to the Assessment year in which the investment is to be made but only lay down a condition of 6 months period of time after the date of transfer of the capital asset. The belief entertained by the AO regarding escapement of income cannot therefore be said to be a bona fide belief. Therefore initiation of reassessment proceedings on the basis of the aforesaid reason cannot be sustained. 18. As far as the second part of the reason recorded is concerned, as contended on behalf of the Assessee, the same is contrary to the first part of the reasons recorded inasmuch as in the first part of the reasons recorded the belief entertained by the AO is that the income in question is capital gain whereas in the second part of the reason recorded the belief entertained is that the income in question is "Income from other sources". The question that would arise for consideration is whether the AO can record two reasons which are mutually contradictory to each other, for initiating reassessment proceeding. The reasons recorded also do not claim that it is an alternate case sought to be made o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o construct building on the said plot of land by consuming FSI and the right as a receiving plot owner to load TDR over and above the normal FSI, (the TDR to be obtained/sanctioned by payment of premium as per applicable laws) are rights which accrue to the Assessee by virtue of the Development Control Regulations for Greater Bombay. These are rights over property, which are capital assets within the meaning of the definition of Capital Assets u/s. 2(14) of the Act. The consideration received by the Assessee is for transfer of rights over such capital asset. The fact that a third party purchaser has no interest over the land is not relevant. The permission to load TDR on the FSI permissible allowed by the owner of the land is by itself a transfer of right in or over immovable property and would therefore clearly fall within the provisions of Sec. 45 of the Act. But for such permission by the owner neither would the Developer construct nor would a third party buyer purchase such constructed area. Therefore the belief entertained by the AO in the reasons recorded that the third party does not own any interest in land and therefore there is no transfer of capital asset cannot be said ..... X X X X Extracts X X X X X X X X Extracts X X X X
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