TaxTMI 
TaxTMI 
2016 (5) TMI 549
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....1 (in short, 'the Act') as the Assessing Authority had reasons to believe that their income chargeable to tax for the Assessment Years 2005-06 to 2013-14 escaped assessment within the meaning of Section 147 of the Act. Their objections to the re-opening of assessment have also been turned down. The notices as well as the orders disposing of their objections in respect of each Assessment Year are under challenge in this bunch of writ petitions. The facts are being extracted from CWP No.13605 of 2015. The Revenue has filed its reply in CWP Nos.13609 & 13667 of 2015 which have been adopted in the connected cases as well. (4) The facts may be briefly noticed. The Assessees entered into a lease agreement (P1) in respect of their industrial plot with the firm M/s Krishna Automobiles (the lessee) w.e.f. 01st April, 2005. The lessee agreed to pay a monthly rent of Rs. 1.50 lacs. The rent was payable to both the brothers in the ratio of 50:50. The agreed lease period was that of 15 years commencing from 01st April, 2005 with the stipulation of 5% annual increase in the monthly rent. (5) Some of the other salient terms and conditions agreed to between the lessee and the lessors are as ....
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....charges as revenue in nature in its books and has claimed these as expenses under Section 37 of the Act. (10) The Assessing Authority served the petitioner(s) with Section 148 notices dated 07.01.2015 with a reason to believe that the income of the petitioner(s) chargeable to tax for the Assessment Year 2005-06 (onwards) escaped assessment within the meaning of Section 147 of the Act and thus it was proposed to assess/re-assess the income for those Assessment Years and the petitioner(s) were asked to deliver return(s) in the prescribed form of their income for the said Assessment Year within a period of 30 days. (11) The petitioner(s) sought a copy of the reasons recorded for the assessment/re-assessment of his/their income which was duly supplied (P5). These reasons are to the following effect:- "1.3 At the time of leasing out of the above said property, the nature of land was industrial and as per agreement, the rent was agreed at Rs. 1,50,000/- per month with an increase of 5% every year. However, with the grant of change of land use, the property has acquired commercial nature, therefore, the property has increased its value many fold. Consequently, the rent attr....
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....made. (14) The Assessing Officer has turned down the objections vide order dated 5th June, 2015 (P7) observing that the application for change in land use could be made only by the owner of the land who gets the ultimate benefit through an increase in the value of the land for all times to come. The application for change in land use was actually made by the petitioner-owners. The conversion charges paid by the lessee (M/s Krishna Automobiles) were therefore on behalf of the owners of the land. It further concluded that:- "The issue in the case of the assessee is not regarding a notional/unrealized or uncertain income. The issue is regarding an expense (payment for change in land use) which was to be borne by the assessee (the 50% owner of land and also partner in M/s Krishna Automobiles) but was borne by someone-else (M/s Krishna Automobiles) on his behalf. The firm, M/s Krishna Automobiles, was paying rent to the assessee for the property in the nature of industrial land. The firm made payment to the Chandigarh Housing Board for the change in land use which resulted in change in the nature of land from industrial to commercial which increased its value manifold. This ....
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.... has been allowed for various assessment years. The respondent-authorities were thus aware of such expenses being borne by the Firm. (viii) There is no fresh material with the Assessing Officer and all the aspects were duly considered at the time of 'scrutiny assessment' of M/s Krishna Automobiles under Section 143(3) of the Act. The case could not be re-opened on the mere change of opinion of the Assessing Officer; (ix) The Assessing Officer must have reasons to believe that the income has escaped assessment and thus both the essential ingredients, namely, 'reason to believe' and 'escapement of income' must co-exist to invoke the powers under Section 147/148 of the Act; (x) There is no tangible material to conclude that there was escapement of income from assessment hence 'reasons to believe' cannot be based upon mere suspicion, gossip or rumour; (xi) The Revenue could not have allowed an expenditure made on behalf of someone else as a revenue expenditure; (18) Learned counsel for the Revenue contrarily urged that:- (i) this Court in exercise of writ jurisdiction need not travel into the realm of factual issues which are required to ....
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....is however to be noted that both the conditions must be fulfilled if the case falls within the ambit of the proviso to Section 147. The case at hand is covered by the main provision and not the proviso. (21) The expression "reason to believe" is an inbuilt safeguard against exercise of arbitrary powers by the Assessing Officer, for the 'change of opinion' cannot be the 'reason to believe' that any income chargeable to tax has escaped assessment. (22) The word 'reason' in the phrase 'reason to believe' would mean cause or justification. If the Assessing Officer has cause or justification to know or suppose that income had escaped assessment, it can be said to have reason to believe that an income had escaped assessment. The expression cannot be read to mean that the Assessing Officer should have finally ascertained the fact by legal evidence or conclusion. [Ref. Assistant Commissioner of Income Tax vs. Rajesh Jhaveri Stock Brokers Private Limited (2008) 14 SCC 208] (23) The first proviso to Section 147 is yet another safeguard against the arbitrary exercise of power by the Assessing Officer, according to which when an assessment under sub-Section (3) of Section 143 has been....
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....Revenue expenditure' in the hands of the firm that the relevant documents including the lease agreement were statedly perused, which led the Assessing Officer to have reasons to believe that taxable income in the hands of individual partners has escaped assessment. (29) The petitioners' forceful contention that even if the conversion of land-use from 'industrial' to 'commercial' has increased its value manifold, such increase, at the best, amounts to accretion in the value of their capital asset and it shall get taxed at the time of transfer of their immovable property OR the equally appealing plea of the Revenue that the 'conversion charges' were paid by the lessee to the Chandigarh Administration, without such an obligation for and on behalf of the assessees and such payment is thus constructive receipt towards rent in their hands, are surely debatable and triable issues which deserve to be determined in accordance with the procedure contemplated under Section 143(3) of the Act. The reasons assigned by the Assessing Officer to tentatively believe that taxable income has escaped assessment cannot be brushed aside at the threshold without a fact-finding procedure, more-so when t....