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TMI Blog2023 (12) TMI 284X X X X Extracts X X X X X X X X Extracts X X X X ..... rding to us, was a fatal error. What has emerged is that although reassessment had been triggered, concededly, after the end of four (4) years from the date of the end of relevant AY and at the end of the cusp of the sixth (6) year, i.e., on 31.03.2018, the AO did not allege that SIPL had failed to disclose fully and truly all material facts which were necessary for carrying out the assessment. This, according to us, was a grave folly. The reason, perhaps, why the AO did not allude to this aspect was because queries were raised during the original assessment, which included questions concerning the sale of the subject land. More particularly, answers were furnished by SIPL, along with the relevant documents and material sought by the AO, thusit cannot be said that the subject transaction was not scrutinized by the AO. It is well-known that the AOs often issue questionnaires, seek answers to their queries and if satisfied, may decide to accept the explanation and consequently, the return. Therefore, in our view, it is correctly argued on behalf of SIPL by Mr Sinha that this was a case of change in opinion. Whether the PCIT applied his mind while granting approval? - The form for obt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y entity and had not advanced any loan to any person. This letter conveyed that the so-called lender company lends money to different companies to launder their unaccounted money. It is against this backdrop that the court sustained the action taken to reopen the reassessment proceedings. Given this backdrop, the Court observed that it was not a case where the AO sought to draw fresh inference, which it could have raised when he framed the original assessment order regarding the loan transaction based on the material placed before him. Therefore, the fresh information in that case, as observed by the Court, exposed the falsity of the statement made on behalf of the appellant/assessee when the original assessment order was framed. Thus, we are of the opinion that for the reasons given above, this is not a case in which the reassessment proceedings ought to have been triggered against SIPL. Assessee appeal allowed. X X X X Extracts X X X X X X X X Extracts X X X X ..... sale took place, it claimed as profit an amount calculated at the rate of Rs. 1,00,000/- per acre and remitted the balance to STPL. SIPL conveyed to the AO that the amount remitted to STPL was claimed as expenditure, and the resultant profit earned, i.e., Rs. 1,73,002/-, was offered for levy of tax. 5. This explanation, broadly, formed part of the replies submitted by SIPL on various dates, i.e., 21.10.2013, 11.11.2013, 18.11.2013, 09.12.2013, and 16.01.2014. 6. In the backdrop of the explanation furnished by the petitioner/assessee that the AO framed the assessment order dated 28.02.2014 under Section 143(3) of the Act, without making any addition concerning the sale of the subject land; which had fetched a price of Rs. 1,51,00,000/-. 6.1. Despite detailed scrutiny, the AO served a notice dated 28.03.2018 on the petitioner's Chartered Accountant (CA) concerning the AY in issue. 6.2. Once again, via this notice, the AO sought various documents, which included balance sheets for the Financial Year (FY) in issue as well as the immediately preceding FY; ROI for the AY in issue, i.e., AY 2011-12; statements of the accounts maintained with banks referred to therein, and a copy of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... land, its transactions with STPL were on capital account. In this context, it was also noticed that the funds received from STPL by SIPL were shown under the head "Sundry Creditors" and not as advances. 11.4. Fourthly, it was the AO's view that the money received by SIPL was a loan and, therefore, any payment made by SIPL to STPL should result in scaling down the loan liability. 11.5. Fifthly, the AO also noticed that SIPL had failed to substantiate its stand that it had used funds provided by STPL for purchasing the subject land. 11.6. Lastly, doubts were also raised concerning the MOU/agreement dated 02.03.2007 on the ground that it was executed on plain paper. In sum, the AO's view was that there was collusion between SIPL and STPL; therefore, the provisions of Section 50C were applicable. 12. Pivoted on the aforesaid rationale, the AO concluded that SIPL had earned income by way of capital gains amounting to Rs. 57,30,000/-. The AO arrived at this figure by adjusting the sale consideration, i.e., Rs. 1,51,00,000/-, against the value of the land arrived at based on the circle rate, i.e., Rs. 2,08,30,000/-. 13. Significantly, the AO also alluded to the fact that STPL in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... L that since reopening was triggered after four (4) years from the end of relevant AY, as per the first proviso appended to Section 147 of the Act, a case had to be made out that there was a failure on the part of SIPL to disclose fully and truly all material facts which were relevant for assessment. 20. This assertion was sought to be supported by referring to the following judgements: (i) Haryana Acrylic Manufacturing Co. v. CIT (2009) 308 ITR 38 (Delhi). (ii) Wel Intertrade (P.) Ltd. v. ITO (2009) 308 ITR 22 (Delhi). (iii) CIT v. Suren International (P.) Ltd., (2013) 357 ITR 24 CIT (Delhi). 21. Since the issue that triggered reassessment was an aspect that was inquired into by the AO while framing the assessment order dated 28.02.2014 under Section 143(3) of the Act, SIPL averred that this was a case of change of opinion, both concerning the nature of the transaction, and the applicability of provisions under Section 50 of the Act. Furthermore, because a query was raised and answered, the AO had no jurisdiction to reopen the assessment. 21.1. In this context, reliance was placed on the Full Bench decision rendered by this Court in CIT v. Usha International Ltd., (2012) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e OCM Cell. In support of this plea, Mr Agrawal placed reliance on the judgment rendered by the Supreme Court in Phool Chand Bajranglal v. ITO (1993) 4 SCC 77. (iii) Both the Additional Commissioner of Income Tax [in short, "ACIT"] and PCIT had applied their mind before approving the initiation of the reassessment proceeding against SIPL. The fact that PCIT clearly stated that the action was approved was sufficient for the purposes of Section 151 of the Act. [See PCIT v. Meenakshi Overseas Ltd. passed on 11.01.2016 in ITA No. 651/2015] (iv) The submission made on behalf of SIPL that this was a case of change of opinion was untenable for the reason that the AO had neither expressly nor by necessary implication expressed an opinion on the matter, which was the basis for triggering the reassessment proceeding qua SIPL [ITO v. Techspan India Private Ltd. (2018) 6 SCC 685]. Analysis and Reasons 28. We have heard learned counsel for the parties. The essential facts which have been set forth hereinabove are not in dispute. Thus, what requires our consideration is whether this case necessitated the initiation of a reassessment proceeding. To reiterate, what is not in dispute are the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment." 34.1. This conclusion is buttressed by the fact that the subject land was treated as stock-in-trade in the hands of SIPL as well as STPL. Thus, the AO, according to us, committed an error in taking recourse to Section 50C of the Act. 34.2. Because the AO took recourse to Section 50C of the Act, he proceeded to arrive at the escaped income by calculating the value of the land based on the then prevailing circle rate, after adjusting it against the sale consideration. 34.3. This, according to us, was a fatal error. 34.4. Apart from the above, what has emerged is that although reassessment had been triggered, concededly, after the end of four (4) years from the date of the end of relevant AY and at the end of the cusp of the sixth (6) year, i.e., on 31.03.2018, the AO did not allege that SIPL had failed to disclose fully and truly all material facts which were necessary for carrying out the assessment. This, according to us, was a grave folly. The reason, perhaps, why the AO did not allude to this aspect was because queries were raised during the original assessment, which included questions concerning the sale of the subject land. More particularly, answers were furnished ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... being enclosed. Other advances (Advances for land (agreement) are very old and a list of such advances is being enclosed" 6. Creditors for land: As .already explained, the flagship company Shourya Towers Private Limited ( then known as Nitishree Infrastructure Limited) had provided funds to its various SPVs and land was purchased in these SPVs for projects to be developed by the· flagship company. Likewise, in the assessee company too, the said flagship company is the Creditor for Land. We are enclosing a copy of account confirmation from the said company for your kind perusal and ready reference. 7. Bank accounts: The assessee company maintained three bank accounts during the previous year under consideration. We are enclosing a list of these accounts. There were no transactions in the account with Oriental Bank of Commerce. For the other two accounts , i.e. Noble Cooperative Bank and Punjab and Sind Bank, we are enclosing copies of the bank statements as well as the copies of bank's ledger accounts giving narrations of the entries appearing therein. 8. Debtors and Creditors : There are no debtors. In case of creditors, as explained, only the flagship company of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as a case of change in opinion. 40. This brings us to, perhaps, the last aspect concerning the matter at hand, which is, whether the PCIT applied his mind while granting approval. 41. Mr Sinha, in this context, has drawn our attention to the relevant entries made in the form for recording reasons for initiating the reassessment proceeding and obtaining the approval of the PCIT. In this context, our attention has been drawn to the following: "FORM FOR RECORDING THE REASONS FOR INITIATING PROCEEDINGS U/S 147 OF THE IT ACT, 1961 FOR OBTAINING THE APPROVAL OF THE PRINCIPAL COMMISSIONER OF INCOME TAX 1 Name and address of the Assessee : M/s Shourya Infrastructure Pvt. Ltd. 2 PAN : AAJCS9570M 3 Status : Company 4 Ward/Circle : Ward-23(2) 5 Assessment year in respect of which it is proposed to issue Notice u/s 148 : 2011-12 6 The quantum of income which has escaped assessment : At least Rs.57,30,000/- 7 Whether the provision of section 147 are applicable : YES 8 Whether the assessment is proposed to be made for the first time. If the reply is in the affirmative, please state :- : NO (u) Whether any voluntary return has a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the initiation of the impugned action. 44. Thus, the submission was that, had there been due application of mind, the error involving the invocation of Section 50C would not have occured, given the fact that SIPL was in the real estate business and the subject land was stock-in-trade. Furthermore, it would perhaps have been noticed by the ACIT and PCIT that the subject sale transaction had undergone scrutiny by the AO while framing the assessment order under Section 143(3) of the Act. 45. As noticed above, Mr Agrawal has relied upon the judgment rendered by a coordinate bench in Meenakshi Overseas Pvt. Ltd. to sustain the approval granted by the PCIT. 46. A careful perusal of the said judgment would show what came up for consideration before the Court was whether signatures of the ACIT appended on the document wherein reasons were recorded by him would suffice without the endorsement of the word "approval". 47. The argument advanced by Mr Sinha in this particular case, as noticed above, is somewhat different. As seen hereinabove, the relevant information which, to our minds, was required to be placed on record by the AO, had not been provided. The ACIT noted that he was satisfi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ned during the original assessment. Note on pre-page may recall the case 6. In view of position explained above, the proceeding initiated u/s 148 in this case is hereby dropped u/s 152(2) of IT Act, 1961." [Emphasis is ours] 53. Clearly, in SIPL's case, these aspects were not examined by the concerned AO or by the ACIT/PCIT. 54. Before we conclude, we must deal with Mr Agrawal's submission that the impugned transaction was a sham and, therefore, reassessment was rightly triggered. 55. According to us, a sham transaction is "something that is not what it seems", i.e., a counterfeit document. [See Black's Law Dictionary 8th Edition, page 1407] 56. It is no one's case, not even the AO's case, that SIPL had not executed the MOU/agreement with STPL. The burden of the AO's order is that the sale of the subject land was a capital account transaction and, therefore, Section 50C of the Act was applicable. Thus, Mr Agrawal's reliance on the observations made in the Phool Chand Bajranglal case has no applicability. The facts therein are entirely distinguishable. That was a case wherein the appellant/assessee had claimed that he had borrowed a certain sum from an entity. Accor ..... X X X X Extracts X X X X X X X X Extracts X X X X
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