TaxTMI 
TaxTMI 
TaxTMI 
2022 (11) TMI 181
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.... has not been routed through the Profit & Loss account of the assessee thereby reduced book profits for the purpose of section 115JB of the Act. The AO held that there is an escapement of income to this extent and therefore asked the assessee to furnish the return of income. The assessee vide letter dated 18.10.2012 requested the AO to treat the original return of income as the return filed in response to notice u/s. 148 and filed letter of preliminary objections opposing issue of notice u/s. 148 based on facts. The AO registered the objections of the assessee and concluded the assessment u/s. 143(3) r.w.s. 147 of the Act. The AO while recomputing the total income of the assessee considered the original cost of acquisition instead of the value as on 1.4.1981 and determined the income of the assessee at Rs.4,88,22,789. The AO also added the gain on sale of land to the book profit of the company. Aggrieved, the assessee preferred an appeal before the CIT(Appeals). 3. Before the CIT(Appeals), the assessee contended the legality of the issue of notice u/s. 148. On merits, the assessee submitted before the CIT(A) that the AO is not justified in considering the original cost of the land....
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....9. The Appellant craves leave to add, alter, delete, substitute or remove any or all the grounds urged above during the hearing of the Appeals. 10. For the above and other grounds to be urged during the hearing of the Appeals the Appellant prays that its appeals be allowed in full in the interest of equity and justice." 6. The assessee also filed additional ground with regard to issue of notice u/s. 148 without obtaining the mandatory sanction u/s. 151 thereby the proceedings conducted are void ab initio. The effective grounds are as under:- "1. The impugned notice under section 148 is without jurisdiction since the learned DCIT has failed to obtain the mandatory sanction u/s. 151 of the Income-tax Act 1961 before issuing the said notice therefore the assessment proceedings conducted pursuant thereto are void-ab-initio. 2. The Appellant urges that the levy of interest under section 234B of the Act is also bad in law as the period, rate, quantum and the method of calculation adopted by the learned DCIT by which the interest is levied are not discernible and are wrong on the facts of the appellants case." 7. The ld. AR submitted that the additional grounds do not involve ....
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.... amount of Rs. 9,38,32,300/- had arisen on account of sale of land belonging to the assessee. The freehold land as on 31-03-2005 had been shown by the assessee at Rs. 11,67,700/ -. The assessee had shown a reduction of the value of its freehold land to the same extent of Rs. 11,67,700/- during 2005- 06. This clearly shows that the assessee company had sold the land during the year. 3. The receipt on account of the sale of land should have been brought by the assessee through the Profit and Loss account. It would be in violation of accounting policies to take the profit arising from the sale of land directly to the Balance sheet of the Company without bringing the same to the Profit and Loss account. To this extent, the assessee company has understated its profits worked out under companies Act to the extent of Rs. 9,38,32,300/ -. The nonshowing of the said incomes has resulted in reduction in the book profit worked out u/s. 115JB of the Income Tax Act to the extent of Rs. 9,38,32,300/-. The correct book profit of the assessee should have been Rs. 9,38,32,300 Rs. 5,34,59,161 which equals to Rs. 4,03,73,139/-. The taxes leviable u/s. 115JB on the same works out to Rs. 30,27,985/- ....
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....ontended that since the notice u/s. 148 is issued after the expiry of four years from the end of the AY 2006-07, no action shall be taken unless any income chargeable to tax has escaped assessment by reason of failure on the part of the assessee to make a return of income u/s. 139 or in response to notice u/s. 142(1) or section 148 or the assessee fails to disclose fully and truly all material facts necessary for the assessment. The assessee further submitted that the formation of reasons for reopening of the assessment is based on the balance sheet, profit & loss account and statement of total income filed by the assessee along with the return of income and not on any other additional information or material which has come to the knowledge of the AO and which is not disclosed by the assessee. The assessee further submitted that the balance sheet, profit & loss account and statement of income filed by the assessee disclosed the material facts such as gross consideration received, the indexed cost to be deducted from sale consideration and long term capital gain arising out of the said sale. The assessee therefore submitted that the mandatory condition required u/s. 147 for reopenin....
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....anya Properties (Ref: Para 22). The judgement has decreed upon as to whether the reasons recorded by the AO (Assessing Officer) is sufficient even when the reasons did not spell out that the escapement of income was due to failure on the part of the assessee to disclose fully and truly all the material facts necessary for making assessment. 3. However, the facts are clearly distinguishable. The quoted case was that of JDA and such JDA was in knowledge of AO and the latter did not invoke the provisions of sec. 45(2) of the I.T Act while assessing the income. However, subsequently the AO invoked the provisions of sec. 45(2) of the Act while assessing the income u/s.147of the Act, considering the JDA as transfer of asset. The Hon'ble Court held that the reasons recorded by the AO mentioned only about the incidence of capital gain in the case of JDA and did not mention anything about failure on the part of assessee in disclosing all material facts fully and truly necessary for making assessment. 4. Whereas in the instant case, the reasons recorded clearly mention that the assessee has failed to credit the sale proceeds to the P&L account whereas it has credited the proceeds d....
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....at assessment year." 17. We notice that the Supreme Court in the case of CIT vs Kelvinator of India Ltd [2010] 320 ITR 561 (SC) has considered a similar issue of reopening of assessment and held that - 4. On going through the changes, quoted above, made to section 147 of the Act, we find that, prior to Direct Tax Laws (Amendment) Act, 1987 , re- opening could be done under above two conditions and fulfilment of the said conditions alone conferred jurisdiction on the Assessing Officer to make a back assessment, but in section 147 of the Act [with effect from 1-4-1989], they are given a go-by and only one condition has remained, viz., that where the Assessing Officer has reason to believe that income has escaped assessment, confers jurisdiction to re-open the assessment. Therefore, post 1-4-1989 , 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, section 147 would give arbitrary powers to the Assessing Officer to re-open 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 r....
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....ismissed with no order as to costs. 18. We also notice that the Karnataka High Court in the case of Chaitanya Properties (supra) has relied on the decision of the Hon'ble Supreme Court while deciding the issue of reopening of assessment. In assessee's case, the impugned additions are done by the AO for the reason that - (i) In the books of accounts of the assessee the profit on sale of land after adjusting the cost of land has been directly credited to the capital reserve and not routed through the profit & loss account which would have resulted in increased book profit for the purpose of section 115JB. (ii) The indexed cost of acquisition as calculated by the assessee is not based on the original cost of acquisition but on the cost as of 1.4.1981 which is not substantiated. (iii) Excess loss claimed on sale of depreciable assets. 19. We notice that the assessee has in the computation of total in shown in the long term capital gain arising out of the sale of land and also the short term capital gains from sale of depreciable assets (pg. 2 of PB). The materials based on which the AO has reopened the assessment i.e. the financial statements of the assessee, details of sal....