Reassessment Proceedings Quashed: No New Material Justifies Reopening

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Case Name:

Commissioner of Income Tax vs. Chaitanya Properties (P) Ltd. (High Court of Karnataka)

ITA No. 205 of 2015

Date: 16th February 2016

Key Takeaways:

- The court emphasized that reassessment proceedings cannot be initiated merely on a change of opinion.

- The absence of new tangible material to justify the reassessment was a critical factor in the court's decision.

- The decision reinforces the principle that full and true disclosure by the assessee in the original assessment is crucial to prevent reassessment.

Issue

Was the initiation of reassessment proceedings under Section 147 (of Income Tax Act, 1961) valid, given the absence of new tangible material and the full disclosure by the assessee during the original assessment?

Facts

Chaitanya Properties held a property as an investment, which was later converted into stock-in-trade. The property was subject to a Joint Development Agreement (JDA) with Prestige Estates and Properties Ltd. The original assessment was completed under Section 143(3) (of Income Tax Act, 1961). The AO later initiated reassessment proceedings, claiming that the JDA resulted in a transfer of capital assets, giving rise to capital gains under Section 45(2) (of Income Tax Act, 1961).

Arguments

- Chaitanya Properties (Assessee): Argued that all material facts were disclosed during the original assessment, and the reassessment was based on a change of opinion without new material.

- Commissioner of Income Tax (Revenue): Contended that the assessee failed to disclose the incidence of capital gains, justifying the reassessment.

Key Legal Precedents

- CIT v. Kelvinator of India Ltd., 320 ITR 561 (SC): The Supreme Court held that reassessment cannot be based on a mere change of opinion.

- Chaturbhuj Dwarkadas Kapadia v. CIT, 260 ITR 491 (Bom): Cited by the AO, but the court noted it was decided before the original assessment.

Judgement

The court ruled in favor of Chaitanya Properties, stating that the reassessment proceedings were invalid as they were based on a change of opinion without any new tangible material. The court emphasized that the original assessment had considered all disclosed facts, and the AO's reasons for reassessment did not indicate any failure by the assessee to disclose material facts.

FAQs

Q1: Why was the reassessment considered invalid?

A1: The reassessment was invalid because it was based on a change of opinion without new tangible material, and the assessee had fully disclosed all material facts during the original assessment.

Q2: What is the significance of the court's decision?

A2: The decision reinforces the principle that reassessment cannot be initiated merely on a change of opinion and highlights the importance of full disclosure by the assessee.

Q3: How does this case impact future reassessment proceedings?

A3: It sets a precedent that reassessment requires new tangible material and cannot be based solely on a change of opinion, ensuring fairness in tax assessments.

The Revenue has preferred the present appeal by formulating the following substantial questions of law:

1. Whether the Tribunal was correct in holding that the reasons recorded by the assessing officer did not spell out that escapement of income was due to the assessee not fully and truly disclosing all material facts necessary for completion of assessment for the relevant assessment year without considering the fact that the assessing officer recorded that the assessee did not file any information regarding incidence of capital gains?

2. Whether the Tribunal was correct in holding that the initiation of reassessment has been merely on the basis of change of opinion and is not without appreciating that no opinion was formed in the original assessment on the issue and hence change of opinion does not arise?”

2. We have heard Mr. K.V. Aravind, learned Counsel for the appellants-Revenue and Mr. A. Shankar, learned Counsel for the respondent-assessee.

3. We may record that the Tribunal in its order dated 21.11.2014 (Annexure ‘C’) while dealing with the said aspects has observed from paragraph 12 to paragraph 26 as under:

“12. It could be seen from the facts narrated

as above that the proceeding u/s. 147 (of Income Tax Act, 1961) of the

Act were sought to be initiated after a period of

four years from the end of the relevant

assessment year. It is also clear from the facts

narrated as above that in the case of assessee

for the A.Y. 2005-06, an order of assessment

u/s. 143(3) (of Income Tax Act, 1961) had already been made.

Therefore, proviso to section 147 (of Income Tax Act, 1961) will

apply.

13. It can also be seen from the reasons

recorded by the AO for initiating proceedings

u/s.147 (of Income Tax Act, 1961), that the narration in para 1

to 9 of the reasons recorded are facts which

were well within the knowledge of the AO while

completing the original assessment proceedings

u/s.143(3) (of Income Tax Act, 1961). The joint development

agreement between the Assessee and PEPL was

taken note by the AO in the order passed

u/s.143(3) (of Income Tax Act, 1961). The narration in para-10

in the reasons recorded by the AO relate to

application of the provisions of Sec.45(2) (of Income Tax Act, 1961) of the

Act. As we have already seen the Assessee held

the Whitefield property as investment and

converted the same as stock-in-trade of

business. This fact has also been recorded by

the AO in the order of assessment passed

u/s.143(3) (of Income Tax Act, 1961). Sec.45(2) (of Income Tax Act, 1961)

provides that the profits or gains arising from

the transfer by way of conversion by the owner

of a capital asset into, or its treatment by him

as stock-in-trade of a business carried on by

him shall be chargeable to income-tax as his

income of the previous year in which such

stock-in-trade is sold or otherwise transferred

by him. The taxable event for application of

Sec.45(2) (of Income Tax Act, 1961) is conversion of capital asset into

stock-in-trade of business. The point of time at

which tax is levied is the year in which the

stock-in-trade is sold. When the original

assessment was completed u/s.143(3) (of Income Tax Act, 1961) of the

Act, the AO did not think it fit to invoke

provisions of Sec.45(2) (of Income Tax Act, 1961) either because

he overlooked the applicability of those

provisions or because he thought that the point

of time at which tax is to be levied u/s.45(2) (of Income Tax Act, 1961) of

the Act, viz., sale of the stock-in-trade had not

occurred during the previous year. In the

reasons recorded by the AO, the AO makes a

reference to the provisions of Sec.45(2) (of Income Tax Act, 1961) of the

Act and claims that the said provisions are

applicable because the assessee had entered

into agreement for development of the

Whitefield property on 5.2.2005 with M/S.PEPL

and further executed a power of attorney on

01/03/2005 in favour of M/s. PEPL for transfer

of stock for development. According to the AO,

the above act by the Assessee amounts to

transfer/relinquishment /sale of stock by the

Assessee to M/S.PEPL. According to the AO,

the consideration so received has to be brought

to tax as capital gains as per the provisions of

the income tax Act. In para 12 to 15 of the

reasons recorded the AO has narrated as to

how capital gain had to be computed. In para-

16 of the reasons recorded the AO has referred

to judicial pronouncements wherein a view has

been expressed that whenever property is given

on Joint Development, the date of transfer

would be the date of the Joint Development

Agreement for the purpose of levy of capital

gains tax. In the remaining paragraphs, the AO

has computed capital gain that has to be

brought to tax which in his opinion has

escaped assessment.

14. On the facts as narrated above and on the

basis of provisions of section 147 (of Income Tax Act, 1961) as well as

proviso to section 147 (of Income Tax Act, 1961), the ld.

counsel for the assessee contended as follows:-

a) Initiation of reassessment proceedings

is bad in law because proviso to

Sec.147 (of Income Tax Act, 1961) will apply in the present case

and therefore the initiation of

reassessment proceedings can be only

if there was failure on the part of the

assessee to fully and truly disclose

material facts necessary for

assessment of income for AY 05-06.

b) Initiation of reassessment proceedings

are merely on a change of opinion and

therefore bad in law.

14.1 On point (a) as above, the learned counsel

for the Assessee submitted that the fact that

assessee owned 100.02 acres of land in

Whitefield and the fact that the aforesaid

property was treated as investment as on

31.3.2004 and shown as stock-in-trade as on

31.3.2005 are all facts within the knowledge of

the AO, while completing the original

assessment u/s. 143(3) (of Income Tax Act, 1961). The fact that

the property was subject matter of the joint

development agreement (“JDA”) between the

assessee and PEPL under an agreement dated

5.2.2005 to develop the same as a residential

complex by name ‘Shantiniketan’ is also within

the knowledge of the AO. All the relevant books

of account as well as agreements had been filed

before the AO. The fact that the land which was

held as investment in A.Y. 2004-05 was

converted into stock-in-trade during the

previous year relevant to A.Y. 2005-06 was also

well within the knowledge of the AO. These

facts have been duly recorded by the AO in the

order of assessment passed u/s. 143(3) (of Income Tax Act, 1961) dated

31.12.2007.

14.2 Our attention was drawn to the provisions

of section 147 (of Income Tax Act, 1961) and proviso to section

147 which reads as under:-

“147: Income escaping assessment.

If the Assessing Officer, has reason to believe

that any income chargeable to tax has escaped

assessment for any assessment year, he may,

subject to the provisions of sections 148 to 153,

assess or reassess such income and also any

other income chargeable to tax which has

escaped assessment and which comes to his

notice subsequently in the course of the

proceedings under this section, or recompute

the loss or the depreciation allowance or any

other allowance, as the case may be, for the

assessment year concerned (hereafter in this

section and in sections 148 to 153 referred to

as the relevant assessment year):

Provided that where an assessment under sub-

section (3) of section 143 (of Income Tax Act, 1961) or this section has

been made for the relevant assessment 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 failure

on the part of the assessee to make a return

under section 139 (of Income Tax Act, 1961) or in response to a notice

issued under sub-section

(1) of section 142 (of Income Tax Act, 1961) or section 148 (of Income Tax Act, 1961) or to disclose

fully and truly all material facts necessary for

his assessment for that assessment year:”

14.3 As per the proviso to section 147 (of Income Tax Act, 1961) of the

Act, where an assessment u/s. 143(3) (of Income Tax Act, 1961)

has been made in any assessment year and if

after expiry of four years from the end of the

relevant assessment year, action is sought to be

taken u/s. 147 (of Income Tax Act, 1961), such action can be

only in cases where income chargeable to tax

has escaped assessment for such assessment

year, by reason of failure on the part of the

assessee to disclose truly and fully all material

facts necessary for his assessment for that

assessment year. He drew our attention to the

reasons recorded by the AO u/s. 147 (of Income Tax Act, 1961)

before issue of notice u/s. 148 (of Income Tax Act, 1961) and

submitted that in the reasons so recorded by

the AO, there has been no allegation that there

was escapement of income due to failure on the

part of the assessee to disclose fully and truly

all material facts necessary for assessment of

income of the assessee for A.Y. 2002-03.

14.4 Our attention was also drawn to the

decision of the Hon’ble Karnataka High Court

in the case of CIT and ACIT v. Hewelett

Packard Digital Global Solutions Ltd., ITA No.406

of 2007, judgment dated 19.09.2011, wherein

the Hon’ble Karnataka High Court after making

a reference to the decision of the Hon’ble

Bombay High Court in the case of Hindustan

Lever Ltd. v. R.B. Wadkar (2004) 137 Taxmann

479 (Bom) observed as follows:-

“7. It is observed in the said judgment

that the reason recorded by the

Assessing Officer no where state that

there was failure on the part of the

assessee to disclose fully and truly all

material facts necessary for the

assessment of that assessment year. It

is for the Assessing Officer to disclose

and open his mind through reasons. He

has to speak through his reasons. It is

for the Assessing Officer to reach the

conclusion as to whether there was

failure on the part of the assessee to

disclose fully and truly all material facts

necessary for his assessment for the-

concerned assessment year. It is for the

Assessing Officer to form his opinion. It

is for him to put his opinion on record in

black and white. The reasons recorded

should be clear and unambiguous and

should not suffer from any vagueness.

The reasons recorded must disclose, his

mind. The reasons are the manifestation

of the mind of the Assessing Officer. The

reasons recorded should be self-

explanatory and should not keep the

assessee guessing for the reasons.

Reasons provide the link between

conclusion and evidence. The order

passed by the Assessing Authority did

not state anywhere that there was a

failure on the part of the assessee to

disclose fully and truly all material facts

necessary for the assessment of that

year. All that has been stated in the

order is that the assessee has appended

the note and at no point of time, the

assessee has disclosed as to the nexus

between the amount of Rs. 10,06,617/-

and the 10A unit. The disclosure has to

be full and true. Both the criteria have

to be met. In the assessee’s case, by

failing to bring out the nexus between

the 10A unit and the interest income,

the assessee has not discharged its

responsibility of furnishing full

disclosure of facts. As set out above, the

note clearly sets out the interest income

earned by the STP unit and the claim of

the assessee for exemption under

Section 10A (of Income Tax Act, 1961). It is not the requirement of

law that further the assessee should

show the nexus between the amount

claimed and 10A unit. When he has

categorically stated that the interest,

which is earned from STP unit, is eligible

for exemption under Section 10A (of Income Tax Act, 1961), even

that nexus is manifest. The Assessing

Authority has not properly applied his

mind towards the statutory provisions

and has not taken into consideration

that the original assessment passed

under Section 143(3) (of Income Tax Act, 1961) which was also

reopened once and adjustment was

made. It is for the second time, he was

raising all these objections. When

admittedly the second reopening of the

assessment is beyond four years, under

law, it is barred by time and the findings

recorded by the Tribunal is legal and

valid and does not suffer from any legal

infirmity. In that view of the matter, no

substantial question of law arises for

consideration in these appeals.

Accordingly, the appeals are dismissed.”

14.5 Our attention was drawn to the decision of

the Hon’ble Gujarat High Court in the case of

General Motors India Pvt. Ltd. Vs. DCIT, 360

ITR 527 (Guj) wherein the Hon’ble Gujarat High

Court held:

“ It is required to be noted that in the present

case notice u/s 148 (of Income Tax Act, 1961) had been issued

on 27/4/2011 in relation to the Assessment

Year 2005-06. Hence, admittedly the same had

been issued after expiry of a period of four

years from the end of the relevant assessment

year. Under the circumstances, in light of the

proviso to section 147 (of Income Tax Act, 1961), in case, where

assessment has been framed under section

143(3) of the Act, no action can be taken under

section 147 (of Income Tax Act, 1961), unless 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

his assessment, for the assessment year. There

was not even a whisper to the effect that

income has escaped assessment on account of

any failure on the part of the assessee to

disclose fully and truly all material facts

necessary for its assessment. Even while

considering the objections raised by the

assessee and replying to the assessee, there

was no such case pleaded on behalf of the

revenue even in the Affidavit-in-reply filed,

there was no allegation of any such failure on

the part of the assessee. The AO was not in a

position to satisfy the Court with respect to

compliance / satisfaction of the requirement of

the proviso to section 147 (of Income Tax Act, 1961). Under the

circumstances, it was apparent that the

requirement of the proviso to section 147 (of Income Tax Act, 1961) was

not satisfied. Secondly, in absence of any

satisfaction having been recorded by the

Assessing Officer that the income has

escaped by reason of the failure on the part

of the assessee to disclose fully and truly all

mater ial facts necessary for its assessment

for the Assessment Year under

consideration, assumption of jurisdiction

u/s 147 (of Income Tax Act, 1961) was failure and therefore,

the impugned notice u/s 147 (of Income Tax Act, 1961),

cannot be sustained. Identical question came

to be considered by the Division Bench of this

Court in the case of Kanak Fabrics Vs. Income

Tax Officer in Special Civil Application No. 335

of 2001 and in absence of any such satisfaction

by the Assessing Officer, the Division Bench of

this Court has quashed and set aside the notice

of reassessment u/s 148 (of Income Tax Act, 1961). In view of the above

and for the reasons stated above notice of

reassessment u/s 148 (of Income Tax Act, 1961) quashed and set aside.”

(emphasis supplied)

14.6 It was thus submitted by the ld. counsel

for the assessee that reopening of the

assessment should be held to be bad in law, as

the AO in the present case has not recorded

specifically that escapement of income was due

to the failure on the part of the assessee to

disclose fully and truly all material facts

necessary for his assessment for the A.Y. 2005-

06. It was also submitted that factually there

was no failure on the part of the Assessee to

disclose fully and truly all material facts

necessary of his assessment for AY 05-06. In

this regard our attention was drawn to the fact

that all facts relating to the Joint Development

Agreement between the Assessee and PEPL had

be duly disclosed and even considered by the

AO while concluding the original assessment

proceedings. It was emphasized that no new

material whatsoever has been referred to in the

reasons recorded.

15. The ld. DR, on the other hand submitted

that there was a failure on the part of the

Assessee to fully and truly disclose material

facts and in this regard drew our attention to

para-19 of the reasons recorded wherein the AO

has recorded the fact that the Assessee has not

filed any information to the effect that there

was incidence of capital gain u/s. 45(2) (of Income Tax Act, 1961) of the

Act, as per the return of income. Further

reference was also made to Expln.1 to Sec.147 (of Income Tax Act, 1961)

of the Act which lays down that merely filing of

documents before AO from which facts

regarding escapement of income could be

gathered, will not necessarily amount to

disclosure of all facts by an Assessee.

Further reference was made to the fact that

while completing the original assessment

u/s.143(3) (of Income Tax Act, 1961) there was no discussion

regarding applicability of Sec.45(2) (of Income Tax Act, 1961).

Reliance was placed on page-10 and 11 of the

CIT(A)’s order wherein the CIT(A) has upheld

the action of the AO in initiating proceedings

u/s.147 (of Income Tax Act, 1961).

16. The ld. counsel for the assessee, in

rejoinder, pointed out to Explanation 1 to

section 147 (of Income Tax Act, 1961), which reads as under:-

“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 necessarily

amount to disclosure within the

meaning of the foregoing proviso.”

17. According to him, Explanation 1 to section

147 will not be applicable in the present case

because Explanation only lays down that

production before the AO of account books or

other evidence from which material evidence

could with due diligence have been discovered

by the AO “will not necessarily” amount to

disclosure within the meaning of the foregoing

proviso. The expression “will not necessarily

mean” found in Expln.-1 as above, will only

mean that one has to look into the facts and

circumstances of the given case to come to a

conclusion, whether there was failure on the

part of the assessee to fully and truly disclose

all necessary facts for his assessment for that

assessment year. The fact that the Assessee

filed all documents and accounts and other

evidence from which material evidence could

with diligence have been discovered by the AO,

will not be conclusive in the matter. According

to him, elaborate discussion in the order of AO

while completing the original assessment will

clearly show that there was a complete

disclosure by the assessee of all material facts.

According to him, there is nothing brought on

record to show that there was failure on the

part of assessee as contemplated by the proviso

to section 147 (of Income Tax Act, 1961). Primary facts have been

disclosed by the Assessee and the legal

inferences to be drawn from such primary facts

lies in the domain of the AO. The Assessee

cannot therefore be said to have failed to

disclose fully and truly material facts. In this

regard, it was submitted by him that reasons

recorded only mention the fact that assessee

has not filed any information regarding capital

gains u/s. 45(2) (of Income Tax Act, 1961) in the return of

income filed. According to him, this allegation

cannot tantamount to an allegation by the AO

that assessee has failed to fully and truly

disclose all material facts.

18. On the reopening of assessment being

merely on a change of opinion, the learned

counsel for the Assessee submitted that while

completing the original assessment the AO was

fully aware of the fact that the land at

Whitefield was converted into stock in trade

during the previous year relevant to AY 05-05

and the fact that the said property was subject

matter of a Joint Development Agreement with

Prestige Estates and Properties Ltd. It was his

contention that the AO while completing the

assessment did not deem it proper to consider

the act of the Assessee entering into a

Development agreement in respect of the

property as resulting to a transfer giving raise

to charge of capital gain u/s.45(2) (of Income Tax Act, 1961). It

was pointed out by him that in the reasons

recorded the AO has not referred to any

material which had come into his possession

subsequent to the passing of the order

u/s.143(3) (of Income Tax Act, 1961) based on which he

entertained belief that Development Agreement

resulted in a Transfer and thereby provisions of

Sec.45(2) (of Income Tax Act, 1961) became applicable. There

being no material which has come to the

possession of the AO since the conclusion of

the original assessment proceedings, it was not

possible for the AO to change or form a different

opinion on the same set of facts and resort to

reopening of a completed assessment.

According to him, doing so will result in the AO

reviewing his own order which is not legally

permissible. According to him even assuming

that there was a failure on the part of the AO in

this regard, the appropriate action can only be

under section 263 (of Income Tax Act, 1961). It was his

submission that the law is well settled that to

assume jurisdiction u/s. 147 (of Income Tax Act, 1961), there

should be reason to believe that income

chargeable to tax has escaped assessment.

Such reason to believe cannot be on a mere

change of opinion. This position is well settled

by the decision of the Hon’ble Supreme Court

in the case of CIT v. Kelvinator of India Ltd., 320

ITR 561 (SC). Attention was also drawn to a

decision of the Hon’ble Karnataka High Court

in the case of CIT Vs. Hardware Trading Co.,

248 ITR 673 (Karn) laying down identical

proposition.

19. The ld. DR submitted that in the original

order of assessment, the AO had not made any

discussion with regard to applicability of

section 45(2) (of Income Tax Act, 1961) and therefore it cannot

be said that there was any expression of

opinion in the order originally passed u/s.

143(3). It was his submission that there cannot

be any change of opinion in the given

circumstances.

20. With regard to the contention of the ld. DR

regarding change of opinion, ld. counsel for the

assessee brought to our notice the following

observations of the Hon’ble Supreme Court in

the case of Kelvinator of India Ltd.:-

“On going through the changes, quoted

above, made to s. 147 of the Act, we find

that, prior to Direct Tax Laws

(Amendment) Act, 1987, reopening could

be done under above two conditions and

fulfillment of the said conditions alone

conferred jurisdiction on the AO to make

a back assessment, but in s.147 of the

Act (w.e.f. 1st April, 1989), they are given

a go by and only one condition has

remained, viz., that where the AO has

reason to believe that income has escaped

assessment, confers jurisdiction to reopen

the assessment. Therefore, post 1st April,

1989, power to reopen is much wider.

However, one needs to give a schematic

interpretation to the words "reason to

believe" failing which, we are afraid, s.

147 would give arbitrary powers to the AO

to reopen assessments on the basis of

"mere change of opinion", which cannot

be per se reason to reopen. We must also

keep in mind the conceptual difference

between power to review and power to

reassess. The AO has no power to review;

he has the power to reassess. But

reassessment has to be based on

fulfillment of certain pre-condition and if

the concept of "change of opinion" is

removed, as contended on behalf of the

Department, then, in the garb of

reopening the assessment, review would

take place. One must treat the concept of

"change of opinion" as an in-built test to

check abuse of power by the AO. Hence,

after 1st April, 1989, AO has power to

reopen, provided there is "tangible

material" to come to the conclusion that

there is escapement of income from

assessment. Reasons must have a live

link with the formation of the belief.”

He laid emphasis on the fact that there was

absence of tangible material in possession of

the AO to come to conclusion that there was

escapement of income from assessment.

According to him, the present action of the AO

is clearly a case of resort to reassessment

proceedings merely on change of opinion.

21. We have given a very careful consideration

to the rival submissions. As we have already

seen the Assessee held the Whitefield property

as investment and converted the same as

stock-in-trade of business during the previous

year relevant to AY 05-06. This fact has also

been recorded by the AO in the order of

assessment passed u/s.143(3) (of Income Tax Act, 1961).

Sec.45(2) (of Income Tax Act, 1961) provides that the profits or

gains arising from the transfer by way of

conversion by the owner of a capital asset into,

or its treatment by him as stock-in-trade of a

business carried on by him shall be chargeable

to income-tax as his income of the previous

year in which such stock-in-trade is sold or

otherwise transferred by him. The taxable event

for application of Sec.45(2) (of Income Tax Act, 1961) is

conversion of capital asset into stock-in-trade

of business. The point of time at which tax is

levied is the year in which the stock-in-trade is

sold. When the original assessment was

completed u/s.143(3) (of Income Tax Act, 1961), the AO did not

think it fit to invoke provisions of Sec.45(2) (of Income Tax Act, 1961) of

the Act either because he overlooked the

applicability of those provisions or because he

thought that the point of time at which tax is to

be levied u/s.45(2) (of Income Tax Act, 1961), viz., sale of the

stock-in-trade had not occurred during the

previous year. It is clear from a perusal of the

order u/s. 143(3) (of Income Tax Act, 1961) dated 31.12.2007

that AO was fully aware of the fact that

property at Whitefield which was held as

investment got converted into stock-in-trade

during the previous year relevant to A.Y. 2005-

06. It is also clear from the order u/s. 143(3) (of Income Tax Act, 1961) of

the Act that AO was fully conscious of the fact

that property at Whitefield having been given

under joint development agreement to PEPL on

5.2.2005. In the said assessment order, the AO

despite knowing the fact that property at

Whitefield was stock-in-trade of the business of

the assessee and that it was subject matter of

joint development agreement, by which

property was to be developed as a residential

complex, did not consider the JDA dated

5.2.2005 as giving rise to a transfer within the

meaning of section 45(2) (of Income Tax Act, 1961). In the

reasons recorded by the AO before issue of

notice u/s. 148 (of Income Tax Act, 1961), the AO has come to

the conclusion that by virtue of JDA dated

5.2.2005, there was a transfer of the capital

asset giving rise to capital gains u/s. 45(2) (of Income Tax Act, 1961) of

the Act. In this regard, the AO has relied on two

important factors viz., (i) assessee has executed

POA in favour of developer and the fact that

assessee received refundable and

nonrefundable deposits under the JDA, and (ii)

the fact that several courts have held that

capital gains is liable to tax on account of JDA

entered into by the land owners with the

builder on handing over of the possession of the

property for joint development. In coming to the

aforesaid conclusion, the AO has placed

reliance on the decision of the Hon’ble Bombay

High Court in the case of Chaturbhuj

Dwarkadas Kapadia v. CIT, 260 ITR 491 (Bom)

rendered on 13.2.2007, which was much before

when the AO concluded the original assessment

proceedings u/s. 143(3) (of Income Tax Act, 1961) on

31.12.2007. The other decision referred to by

the AO in the reasons recorded is CIT v. T.K.

Dayalu, 202 Taxman 531. This decision was

rendered on 20.6.2011, after the conclusion of

the original assessment proceedings. The

decision rendered subsequent to the original

assessment proceedings will not mean that

assessee did not fully and truly disclose

material facts. If reassessment proceedings are

initiated on the basis of a subsequent judicial

decision, then that would also be a case of

change of opinion, as was held by the Hon’ble

Bombay High Court in the case of Sesa Goa

Ltd. v. JCIT, 294 ITR 101 (Bom) on which

reliance was placed by ld. counsel for the

assessee.

22. In the present case, the facts on record and

reasons recorded clearly show that all facts

were available before the AO when he

completed the original assessment proceedings

u/s. 143(3) (of Income Tax Act, 1961). There is no tangible

material which has come to the possession of

the AO justifying initiation of reassessment

proceedings. On the facts and circumstances of

the present case, we are of the view that

initiation of reassessment proceedings has

been merely on the basis of change of opinion

and in view of the law laid down by the Hon’ble

Supreme Court in the case of Kelvinator of India

Ltd. (supra), initiation of reassessment

proceedings has to be held as not proper.

23. We are also of the view that initiation of

reassessment proceedings will have to be held

as invalid for the reason that reasons recorded

by the AO do not spell out that escapement of

income was due to the assessee not fully and

truly disclosing all material facts necessary for

completion of assessment for the relevant

assessment year. In this regard, we are also of

the view that allegations in para 19 of the

reasons recorded do not spell out the belief that

there was a failure on the part of the assessee

to fully and truly disclose all material facts. In

fact, the assessee had disclosed all facts in the

original assessment proceedings u/s. 143(3) (of Income Tax Act, 1961) of

the Act.

24. With regard to reliance placed by the ld. DR

on Explanation to section 147 (of Income Tax Act, 1961), we are of the

view that Explanation 1 only lays down that

facts and circumstances of each case will have

to be looked into to ascertain as to whether

there was failure on the part of the assessee to

fully and truly disclose material facts. As rightly

contended by the ld. counsel for the assessee,

the expression “will not necessarily” in

Explanation 1 will only mean that facts and

circumstances of each case will have to be seen

as to whether production of books of account

and other evidence before the AO will amount

to full and true disclosure of material facts. In

the present case, as we have already seen,

evidence was produced before the AO in the

course of the original assessment proceedings

u/s.143(3) (of Income Tax Act, 1961) and the same was

perused by the AO and he had not chosen to

draw any conclusion that there was a transfer

by the assessee to PEPL. The fact that assessee

was following completion method of accounting

for income from the JDA, has also been

acknowledged by the AO. In the given

circumstances, we are of the view that

Explanation 1 cannot be resorted to by the

revenue. Explanation-1 to Sec.147 (of Income Tax Act, 1961) cannot be

read in a manner so as to override Proviso to

Sec.147 (of Income Tax Act, 1961).

25. Before us, the ld. DR had placed reliance on

the order of the CIT(Appeals) on the issue of

validity of initiation of reassessment

proceedings. In our view, the ld. CIT(Appeals)

has merely proceeded on the basis that income

arises on executing joint development

agreement to the assessee. He has not

addressed the issue with regard to applicability

of proviso to section 147 (of Income Tax Act, 1961) or the

question whether reassessment proceedings

were initiated merely on change of opinion.

26. We are, therefore, of the view that in the

given facts and circumstances of the case,

initiation of reassessment proceedings u/s 147 (of Income Tax Act, 1961)

of the Act is held to be illegal and consequently,

order passed u/s. 147 (of Income Tax Act, 1961) is cancelled on

this ground.”

4. As such, whether it was a case of change of

opinion or the non-disclosure of true and correct facts,

if considered in light of the report, one may say that

such may fall in the arena of question of fact which may

include the consideration of the earlier proceedings of

the assessment. The Tribunal having found that the

relevant material including that of transfer by the

assessee to PEPL was on record and therefore it was not

a case where there was non-disclosure of true and

correct facts. The aforesaid finding, in our view, could

be said to be rather pertaining to the questions of fact to

be examined on the basis of the material on record

which would fall outside the judicial scrutiny in the

present appeal.

5. On the questions of law, the Tribunal has gone

by the decision of the Apex Court in case of

Commissioner of Income Tax Vs. Kelvinator of

India Ltd., reported at (2010) 320 ITR 561 in addition

to other decisions of Karnataka High Court. In our

view, if the Tribunal has taken the view based on the

decision of the Apex Court and also of the jurisdictional

High Court i.e., High Court of Karnataka, we do not find

that any substantial questions of law would arise for

consideration, as sought to be canvassed.

6. Under the circumstances, the appeal is

dismissed.

Sd/-

JUDGE

Sd/-

JUDGE