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TMI Blog2017 (11) TMI 1695X X X X Extracts X X X X X X X X Extracts X X X X ..... r. Sanjay Jhanwar with Ms. Archana JUDGMENT 1. By way of these appeals, the appellants have challenged the judgment and order of the Tribunal whereby the Tribunal has partly allowed the appeal of the assessee and dismissed the appeal of the department. 2. This Court while admitting the ITA No. 193/2017 on 17.08.2017, framed following substantial questions of law:- i) Whether on the facts and circumstances of the case and in law, the ld. ITAT was correct in quashing the assessment completed u/s 147/143(3) of the IT Act, 1961, as it raised question of law as to the interpretation of explanation (1) to Section 147 of the IT Act, 1961? (ii) Whether, on the facts and in the circumstances of the case and in law, the ld. ITAT was correct in mentioning in respect of confirming disallownace of ₹ 93,73,063/- out of CER disallowances that- This ground is not survived as the AO has already assessed the income at NIL. inspite of the fact that the ITAT itself not allowed the exemption u/s 10(20) for the year under consideration and appeal of the department is pending before the Hon ble High Court on the issue of 10(20) for the A.Y. 2005- 06? 3. This Court while ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... orrect in allowing exemption u/s 11 of the IT Act, 1961 to the assessee without appreciating the fact that AO has given detailed reason in the assessment order to establish the activities of the assessee are not charitable in view of the amended provisions of Section 2(15) of the IT Act, 1961 despite it being registered u/s 12AA by the CIT and therefore, it is not entitled for benefit of exemption u/s 11? ii) Whether, on the facts and in the circumstances of the case and in law, the ld. ITAT was correct in not appreciating the fact that even if the assessee was registered u/s 12A by the CIT in pursuance of order of Hon ble ITAT dated 31.3.2009 4.5.2012, the AO could deny to allow benefit of section 11 to the assessee in view of newly inserted proviso to Section 2(15) and the AO did not allow benefit of section 11 observing that the assessee is hit by the proviso to Section 2(15)? 6. This Court while admitting the ITA No. 200/2017 on 17.08.2017, framed following substantial questions of law:- i) Whether on the facts and circumstances of the case and in law, the ld. ITAT was correct in allowing exemption u/s 11 of the IT Act, 1961 to the assessee without appreciatin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessment year, no action shall be taken under this section after the expiry of four years from the end of the relevant assessment year, unless any income chargeable to tax has escaped assessment for such assessment year by reason of the failure59 on the part of the assessee to make a return under section 139 or in response to a notice issued under subsection (1) of section 142 or section 148 or to disclose fully and truly all material facts59 necessary for his assessment, for that assessment year: [Provided further that the Assessing Officer may assess or reassess such income, other than the income involving matters which are the subject-matter of any appeal, reference or revision, which is chargeable to tax and has escaped assessment.] Explanation 1.-Production before the Assessing Officer of account books or other evidence from which material evidence could with due diligence have been discovered by the Assessing Officer will not necessarily59 amount to disclosure within the meaning of the foregoing proviso. Explanation 2.-For the purposes of this section, the following shall also be deemed to be cases where income chargeable to tax has escaped assessment, namely :- ( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... son to believe that income chargeable to tax has escaped assessment for any assessment year. Under the proviso to section 147, where an assessment has been made under section 143(3), no action shall be taken under that section after the expiry of four years from the end of the relevant assessment year, unless any income chargeable to tax has escaped assessment for such assessment year by reason of the failure on the part of the assessee to disclose fully and truly all material facts necessary for his assessment, for that assessment year. This is a jurisdictional requirement which must be fulfilled where an assessment is sought to be reopened beyond a period of four years. The existence of the jurisdictional condition must be indicated in the reasons which are furnished to the assessee. The fulfillment of the condition is a pre-requisite and if it is absent, assessment cannot be reopened beyond four years. The AO cannot improve upon the reasons for reopening the assessment or bridge the lacunae later. If the reasons disclosed do not indicate the fulfillment of the jurisdictional requirement, the reopening is invalid. In the present case the reasons as recorded by the AO for reope ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it was found that the assessee has been claiming Contingency Equalization Reserve (CER) in works account. In this year also the assessee has debited ₹ 52766150/- as CER in works account. CER Fund is created by the assessee by charging certain percentage on development/construction of works properties as per costing principles of RHB. The liability so created is utilized to compensate for various loses on account of unforeseen circumstances, on account of freezing of cost of property which may be necessitated in some cases, awards to be paid as result of litigation etc in property disposal, to compensate loses on account of sick contracts, if required. Thus this CER is not ascertained liability. It is contingent liability which I not allowable. Thus apparently income to the extent of ₹ 52766150/- has escaped assessment. This escapement was on account of failure of the assessee to disclose the accounts in proper Income from auction of plots- Besides this it is also seen that the assessee does not show profit from auction of plots. It is seen that substantial part of sale is from auction of properties. In auction, properties fetch more price than the normal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... - (Rs. 52766150/- + 3,21,15,960/-) has escaped assessment on account of failure on the part of the assessee to present its accounts in transparent manner. We find that the reasons are contrary to the records. The assessee has, during the course of original assessment furnished all its accounts, Balance Sheets and the Revenue account before the AO. Therefore, there is no material suggesting that the assessee has not disclosed the material facts fully and truly for his assessment. Therefore, respectfully following the judgment of the Hon'ble Bombay High Court rendered in the case of Dynacraft Air Controls vs. Sneha Joshi Others, 355 ITR 102 (Bom.), we hereby quash the assessment being invalid. This ground of the assessee is allowed. and contended that the Tribunal is contrary to the decision of Bombay High Court as well as the decision of Gujarat High Court. 9. Learned counsel for the appellant placed reliance in Praful Chunnilal Patel vs. M.J. Makwana or His Successor Assistant Commissioner of Income Tax, 1999 (236) ITR 832 , wherein it has been observed as under:- 11. The cases of underassessment or excessive relief which are deemed cases of escapement of inco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ly stand altered after the hearing and while reaching the final conclusion on the basis of the intervening enquiry. At the stage where he finds a cause or justification to believe that such income has escaped assessment, the AO is not required to base his belief on any final adjudication of the matter. In the present case, from the first assessment it appeared to the AO, while making an order in respect of the asst. yr. 1993-94, that the amount of taxable income in the form of capital gains in respect of the transfer of the land which was treated as stock-in-trade on 19th September, 1990, in favour of the firm and the tax payable thereon not being ascertained, there was escapement of income. Since the AO at the first assessment in the year 1991-92 never really formed an opinion on the question whether there was a transfer on 19th September, 1990, of the land in question to the firm and that the amounts credited to the accounts of the partners who had contributed the lands to the firm, were meant to be the price of the land which was to be actually paid from the collections received by the firm from membership fees as soon as received, as was envisaged admittedly in para. 11 of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reason by any honest man, his conclusion that it constitutes a sufficient reason, cannot be overridden. What is, therefore, to be ascertained is, whether the alleged reason really existed, and if it did, whether it was so irrational as to be outside the limits of his administrative discretion with which the AO is invested so as to be really in disregard of the statutory condition. If the AO honestly comes to a conclusion that a mistake has been made, it matters nothing so far as his jurisdiction to initiate the proceedings under s. 147 is concerned, that he may have come to an erroneous conclusion whether on law or on facts. His jurisdiction to initiate proceedings under s. 147 for assessment and reassessment is, even in such case correctly and rightly exercised, though he may have taken an erroneous view of the law with regard to the mistake committed at the first assessment proceedings that he has found out. Therefore, unless it is shown that the AO never enquired into the matter at all or that he never honestly believed that a mistake has been made, the result of his investigation and initiation of the proceedings under s. 147 of the Act cannot be challenged on the ground ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... red by the Bombay High Court in the context of pre-amended law whereas, after the introduction of changes with effect from April 1,1989, the scope of reassessment has been widened. After the amendment, the only restriction put in the Section is reason to believe . That reason has to be a reason of a prudent person. That reason should be fair and not necessarily due to failure of the asses-see to disclose fully or partially some material facts relevant for assessment. That, if any item has escaped from assessment which was otherwise includible within the assessment and the Assessing Officer notices it subsequently by his own investigation or by reason of some information received by him, one cannot say that it constitutes change of opinion : see Praful Chunilal Patel v. M.J. Makwana [1999]236ITR832(Guj) . However, in the present case, the period of four years has since elapsed. Therefore, the proviso to Section 147 comes into the picture. Under the said proviso, no action can be taken after four years unless any income chargeable to tax has escaped assessment by reason of the failure on the part of the assessee to disclose fully and truly all material facts necessary for assessme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... records that the issue was raised and is decided in favour of the assessee. Reassessment proceedings in the said cases will be hit by principle of change of opinion . (3) Reassessment proceedings will be invalid in case an issue or query is raised and answered by the assessee in original assessment proceedings but thereafter the Assessing Officer does not make any addition in the assessment order. In such situations it should be accepted that the issue was examined but the Assessing Officer did not find any ground or reason to make addition or reject the stand of the assessee. He forms an opinion. The reassessment will be invalid because the Assessing Officer had formed an opinion in the original assessment, though he had not recorded his reasons. 14. In the second and third situation, the Revenue is not without remedy. In case the assessment order is erroneous and prejudicial to the interest of the Revenue, they are entitled to and can invoke power under Section 263 of the Act. This aspect and position has been highlighted in CIT vs. DLF Powers Limited, ITA 973/2011 decided on 29th November, 2011 and BLB Limited vs. ACIT Writ Petition (Civil) No. 6884/2010 decided on 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n which a reasonable person could have formed a requisite belief. Whether the materials would conclusively prove the escapement is not the concern at that stage. This is so because the formation of belief by the Assessing Officer is within the realm of subjective satisfaction. Merely an audit report, in our opinion, would not authorize the Assessing Officer to reopen the assessment even within the period of 4 years from the end of the relevant assessment year, when the said material was already before him when the original assessment was made. Any such attempt on his part would be based on mere change of opinion. To reiterate when a claim was processed at length and after calling for detailed explanation from the assessee, the same was accepted, merely because a certain element or angle was not in the mind of the Assessing Officer while accepting such a claim, cannot be a ground for issuing notice for reassessment. Therefore, in our view, the Assessing Officer cannot change his opinion, which he has already accepted in his assessment order. We are of the opinion that the Tribunal has committed an error in reversing the finding of CIT (A). Accordingly, we answer the question pose ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing the concerned authorities, department and agencies in formulating and undertaking schemes for development of agriculture horticulture, forestry, dairy development, transport, communication, schooling, cultural activities, sports, medicine, tourism and similar other activities; to prepare Master Plan for traffic control and management; devise policy and programmes of action for smooth flow of traffic and matters connected therewith; undertaking housing activity in Jodhpur Region etc., are essentially the functions, which promote the welfare of the general public. Of course, (3 of 6) [ITA-568/2009] while discharging the said functions, the JDA also discharges function to acquire, hold, manage and dispose of property movable or immovable as may be deemed necessary and also enters into contract, agreements or arrangements with any person or organization may deem necessary for performing its function and in this process, it might be earning income but the primary object of the JDA certainly does not involve any profit motive whatsoever. It is pertinent to note that as per the provisions of Section 51 of the JDA Act, for the purpose of discharging the statutory functions, The Jodhpu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the provisions of the JDA Act and the Rules made thereunder, cannot be doubted. Thus, the order passed by the ITAT holding the JDA, Jodhpur entitled for registration under Section 12A read with Section 12AA of the Act of 1961, does not suffer from any infirmity or illegality. 28. Coming to the question of entitlement of UIT, Sri Ganganagar, for registration under Section 12A of the Act of 1961, as noticed above, the UIT, Sri Ganganagar, a statutory body, has been constituted and established under Section 8 of UIT Act for the purpose of carrying out improvement of urban area of Sri Ganganagar. It is to be noticed that for achieving the object as mandated by Section 29 of the UIT Act, the UIT frames schemes for improvement of the specified urban area, which inter alia may provide for the acquisition of any land or other property necessary or effected by the execution of the scheme; the re-laying out of any land comprised in the scheme; the construction and re-construction of the buildings; the formation, construction and alteration of streets; the closure or demolition of dwellings or portion of the dwellings unfit for human habitation; the draining, water supply and lighting of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d with Section 12AA of the Act of 1961, the order passed by the ITAT, holding the UIT, Sri Ganganagar entitled for registration under Section 12A read with Section 12AA of the Act of 1961, also cannot be faulted with. 5. Another decision of this Court in the case of CIT Vs. JDA, Jaipur, In D.B. Income Tax Appeal No. 46/2015, decided on 18th October, 2016, wherein in para 4 and 5, it has been held as under. 4. In our view, the view taken by Rajasthan High Court at Principal Seat Jodhpur more particularly in paragraph 25 and 26 where the view taken by the Lucknow Development Authority and Jammu Kashmir both these are taken into consideration which reads as under:- 25. In Lucknow Development Authority's case (supra), while examining the question regarding applicability of proviso to Section 2(15), Allahabad High Court observed: 29. For the applicability of proviso to Section 2(15), the activities of the trust should be carried out on commercial lines with intention to make profit. Where the trust is carrying out its activities on noncommercial lines with no motive to earn profits, for fulfillment of its aims and objectives, which are charitable in nature an ..... X X X X Extracts X X X X X X X X Extracts X X X X
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