TaxTMI 
TaxTMI 
2026 (5) TMI 858
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....mba, AOR, Ms. Manisha T. Karia, Sr. Adv., Mr. Vipin Kumar, AOR, Mr. Deepin Deepak Sahni, Adv., Mr. Vishal Navale, Adv., 2 Ms. Shreya Gupta, Adv., Ms. Ananya Arora, Adv., Mr. Varun Khetwani, Adv. JUDGMENT PER J.B. PARDIWALA, J. For the convenience of exposition, this judgment is divided into the following parts: INDEX A. FACTUAL MATRIX: ....................................................................................... 5 (i) The Impugned Order in Civil Appeal No. 744 of 2013: .................................. 7 (ii) The Impugned Order in Civil Appeal No. 9107 of 2012: .............................. 10 (iii) The Impugned Order in Civil Appeal 19487 of 2017 .................................... 12 B. SUBMISSIONS ON BEHALF OF THE PARTIES ..................................... 16 (i) Submissions on behalf of the Assessee: ........................................................... 16 (ii) Submissions on behalf of the Revenue: .......................................................... 21 C. ISSUES TO BE DETERMINED ................................................................... 26 D. ANA....
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.... reopening of assessment for the AY 2007-08. The High Court, vide its impugned judgment & order dated 23.09.2011, allowed the writ petition and quashed the notice for reopening of assessment for the AY 2007-08, holding that the Assessing Officer had sought to reopen the assessment on mere change of opinion. The High Court held that the Assessing Officer could not have done so, in the absence of any tangible material to justify such reopening. Aggrieved by the judgment & order of the High Court dated 23.09.2011, the Revenue preferred SLP(C) No. 17029 of 2012 before this Court, which culminated in Civil Appeal No. 744 of 2013. 6. Civil Appeal No. 9107 of 2012, arises from Writ Petition (C) No. 1648 of 2011, filed by the SPPL before the Bombay High Court, seeking to challenge the reopening of assessment for the AY 2008-09. The High Court, vide its impugned judgment & order dated 19.12.2011, dismissed the writ petition and thereby upheld the validity of the notice of reopening of assessment by distinguishing between the AY 2007-08 and AY 2008-09 respectively on the basis of information derived from the Assessment Order of the AOP for the AY 2008-09. Aggrieved by the judgment & order....
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.... except for the numerical figures for the respective AYs. 11. The reasons recorded stated that a Survey under Section 133A of the IT Act had been carried out at the business premises of the SPPL on 23.12.2010 during which the books of account and the following six documents were seized and impounded: • Original copy of the AOP Agreement dated 29.04.2003. • Copy of the audited financial statements of M/s Fortaleza Developers for FY 2007-08. • Books of account of the assessee company showing the treatment of land in its accounts since inception. • Copy of the development agreement between the Assessee Company and M/s. Yerawada Stud Farm and Agriculture. • Letter written by Auditor Shri Suresh C. Shah to the Assessee Company dated 19.06.2008, indicating the working of the amount that has to be received by the assessee from M/s Fortaleza Developers. • Standard agreements in respect of sale of residential units in Fortaleza Complex. 12. Moreover, statement of one Shri Ashok V. Suratwala, Director of the SPPL, was also recorded on oath under Section 131 of the IT Act. According to the 'reasons recorded' u....
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....s decision in Commissioner of Income Tax, Delhi v. Kelvinator of India Limited [(2010) 320 ITR 561] observed that although the power of the Assessing Officer to reopen assessment under Section 148 is much wider than the position which existed prior to the amendment brought about by the Direct Tax Laws (Amendment) Act, 1987, yet the power to reopen an assessment is conditional on the existence of a reason to believe that income has escaped assessment. Post the Direct Tax Laws (Amendment) Act, 1989, the Assessing Officer has no power to review his assessment, nor can an assessment be reopened merely on the basis of change of opinion. For the Assessing Officer to validly reopen an assessment in law, there must be tangible material on the basis of which he comes to the conclusion that income has escaped assessment. 17. The High Court then went on to observe that the material on record indicates that the return of income by the SPPL contains a disclosure of the profits received by the SPPL from the AOP and which the SPPL claims to be exempt in light of Section 167B(2) of the IT Act. The High Court placed reliance on the note appended to the return of income as well as the profit and ....
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....angible material and the same was nothing but a mere change in opinion. In such circumstances, the High Court quashed the Section 148 notice dated 11.01.2011, with respect to the reopening of assessment for the AY 2007-08. (ii) The Impugned Order in Civil Appeal No. 9107 of 2012: 22. Thereafter, when the writ petition challenging the reopening of assessment for the AY 2008-09 came up for hearing before the High Court, the SPPL argued that since the grounds of reopening assessment were substantially similar to those of the AY 2007-08 and that there were no material differences in the factual matrix between the two AYs, the notice of reassessment for the AY 2008-09 should similarly be set aside. 23. However, with respect to the reopening of assessment for the AY 2008-09 respectively, the High Court reached a conclusion different from that of the AY 2007-08. This time around, the High Court held that the Section 148 notice seeking reopening of assessment for the AY 2008-09 was valid. 24. The High Court distinguished between the AY 2007-08 and the AY 2008-09 respectively on the basis of the Assessment Orders passed in the case of the AOP for the AY 2007-08 and the AY 2008-0....
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....e Assessing Officer dated 29 December 2010 contained a detailed elaboration of the nature of the agreement and concluded that the agreement was based on revenue sharing. In other words, the share representing 35% in the gross receipts was not a share in profits, but a share in revenue. Counsel appearing on behalf of the Assessee submitted that it is always open to the parties to devise their own formula or arrangement for determining the manner in which profits should be distributed. Whether the arrangement is in fact, an arrangement for distribution of profits or otherwise, is a matter which will fall for determination of the Assessing Officer on merits after the reopening takes place, in the course of reassessment proceedings. However, the point to be noted is that in the judgment of this Court dated 23 September 2011, the Court had in paragraph 12 noted that the existence or validity of the AOP is not questioned; the AOP had been assessed as such and it was on that basis that the Department had approved the assessment proceedings pertaining to the AOP. The Court also observed that the assessment of the AOP was not sought to be reopened. The facts of Assessment Year 2008-09 are m....
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.... 27. In the meantime, the same question whether clause 7 of the AOP Agreement is a profit sharing clause or a revenue sharing clause emerged in the course of a parallel set of proceedings between the AOP and the Revenue. On 12.10.2012, the ITAT vide its order in the matter M/s Fortaleza Developers v. The Commissioner of Income Tax-15, Mumbai [ITA No. 2648/MUM/2012 (A.Y. 2007-08)] held that the AOP had been assessed as a distinct assessable entity and was held to be eligible for deduction of its profits under Section 80IB(10) of the IT Act. The quantum of deduction under Section 80IB(10) would depend on the income earned from eligible project and not upon the mode of distribution of shares amongst the members of the AOP. The manner in which the AOP distributes its profit has no bearing on the eligible quantum of deduction under Section 80IB(10) as the eligible quantum will be gross receipts from the project reduced by expenses incurred on the project. The ITAT further held that the 35% share received by the SPPL from the AOP was not in the nature of overriding title to the revenue, but was only a share of profit of the SPPL. Thus, the ITAT unequivocally held that the entire quantu....
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....was already decided in the case of the AOP by a Coordinate Bench with respect to the assessment matters of the AOP, the two appeals filed by the Revenue in the matter of the SPPL did not give rise to any substantial question of law that could be adjudicated upon. The High Court observed that following the finding of fact arrived at by the ITAT in the case of the AOP for the subject assessment years that there was no surrender of development rights by the SPPL to the AOP and that the SPPL received only its share of profit, would hold good even in the present set of appeal because the interpretation of Clause 7 of the AOP agreement would not change depending upon the assessee concerned. Observing thus, the High Court upheld the ITAT's order that the income accrued to the SPPL from the AOP, on the basis of Clause 7 of the AOP agreement was not in the nature of overriding title to the revenue generated by the AOP but only a share of profit of the SPPL in the AOP and accordingly dismissed the appeals filed by the Revenue. Hence, aggrieved by the High Court's order dated 24.03.2017, the Revenue preferred the present Civil Appeal no. 19487 of 2017 before this court, seeking that the impug....
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....ed the AOP Agreement, the books of account including the appropriation account of the AOP, as well as the ledger extract account of the AOP which actually represented the share of profit received by the SPPL from the AOP. Since the Assessment Order under Section 143(3) had been passed after considering such documents, reopening of assessment based on revisiting the same issue tantamount to review of the assessment order, which is impermissible in law. 38. With respect to the statement of the SPPL's director recorded under Section 133A of the Act, the learned counsel submitted that the statement merely reiterated the existence of the AOP between the SPPL and RKC respectively for joint development of the said plot of land. The fact relating to sharing of 35% of the gross sale proceeds was within the knowledge of the Assessing Officer since such information was referred to in the AOP Agreement and the Auditor's comments in Form 29B. The same was with the Revenue at the time of assessment, and hence did not amount to any new and tangible material at the time of formation of belief with respect to escapement of income for reopening of assessment. Thus, the belief as formed by the Ass....
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....present case does not survive, rendering the grounds of reopening as illegal and erroneous in law. 41. The learned counsel vehemently argued that there is no difference in the arrangement between the SPPL and RKC by way of formation of the AOP between the AY 2007-08 and the AY 2008-09 respectively and that the reasons recorded for reopening assessments of the SPPL for both the years were the same. Thus, the High Court's decision of questioning the notice of reopening assessment for the AY 2007-08 should have also been followed with respect to the AY 2008-09 and the Section 148 notice of reopening assessment should have seen quashed. 42. Furthermore, the learned counsel relied upon this Court's judgment in ITO v. Atchaiah [(1996) 1 SCC 417], to argue that the income earned by an association of persons is to be separately assessed in the hands of the AOP as an independent person. Since the income accrued to the SPPL from the AOP is a share of the AOP's profit, such income had already suffered taxation in the hands of the AOP, albeit as a deduction under Section 80IB(10). Thus, in light of Section 86 read with Section 67A and Section 167B(2) of the IT Act, respectively the said ....
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....es of the business (construction of flats). The balance would constitute the revenue share of RKC, which RKC was at liberty to withdraw for its own use. 46. The learned ASG argued that on a plain reading of the said Clause 7 of the AOP Agreement, it is evident that the amount received by the SPPL from the AOP is in the nature of a revenue share of 35% of the gross receipts of the AOP from sale of flats to buyers. As such, such amount constitutes taxable income in the hands of the SPPL. 47. The learned ASG argued that it is not in dispute that the AOP agreement was actually implemented by the parties in a manner consistent with the above interpretation of Clause 7 and he pointed out illustrations from the facts on record. For instance, in the AY 2008-09, the gross receipts of the AOP from the sale of housing units was an amount of approximately INR 41.26 crore. As per the AOP agreement, the SPPL was entitled to 35% of the gross receipts of the AOP during the AY, which is an amount of INR 14.44 crore approximately (i.e. 35% of INR 41.26 crore). The appropriation account of the AOP, which is reproduced in the order of the Assessing Officer, as also in the order of the CIT(A) ref....
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....SPPL from the AOP was a share of revenue/gross receipts of the AOP and not a share of the profits of the AOP. He argued that, this interpretation arrived at by the Assessing Officer, is consistent with how the parties actually understood and gave effect to the Clause. He submitted that a contrary finding in the proceedings in the case of the AOP is not determinative of the treatment of this amount in the hands of the SPPL and at any rate cannot foreclose examination of the issue by this Court. He argued that the fact that the Bombay High Court has taken a view in favour of the AOP while during consideration of the assessment proceedings of the AOP, even if (on demurrer) was binding on a co-ordinate bench of the same court, does not foreclose examination of the issue by this Court. 50. It was further argued by the learned ASG that since the entire amount paid by the AOP to the SPPL was reduced from the taxable income of the AOP by operation of Section 80IB(10), it did not suffer any taxation at all, much less at the maximum marginal rate applicable to the AOP. Section 86 of the Act provides that where an AOP is chargeable to tax on its total income at the maximum marginal rate, t....
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....primary reason for reopening the assessment, as disclosed in the common document for both the AYs was the discovery of the AOP Agreement during the survey action under Section 133A of the Act, which showed that the SPPL was receiving a share of the gross receipts of the AOP from the sale of the residential units. Since the very same reasons for reopening assessment were upheld by the High Court for AY 2008-09 by way of order dated 19.12.2011, it defeats reason to contend that the same material was found to be tangible and disclosing escapement of income in the AY 2008-09 were not found to be tangible material to for the AY 2007-08, more particularly when there was no material change in the factual position during each of these AYs. Thus, for the reasons specified by the High Court itself in its order dated 19.12.2011 for the AY 2008-09, the reopening of assessment for the AY 2007-08 should also be held to be valid. 54. Thus, the learned ASG respectfully prayed that Civil Appeal Nos. 19487 of 2017 and 744 of 2013 filed by the Revenue be allowed and Civil Appeal No. 9107 of 2012 filed by the Assessee be dismissed. C. ISSUES TO BE DETERMINED 55. Having heard the learned couns....
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....ssment 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 or in response to a notice issued under sub-section (1) of Section 142 or Section 148 or to disclose fully and truly all material facts 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 matters 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 necessarily 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:- (a) where return of income has been furnished by the assessee although his total income or the total inco....
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....ed under sub-section (2) of Section 143 after the expiry of twelve months specified in the proviso to sub-section (2) of Section 143, as it stood immediately before the amendment of said sub-section by the Finance Act, 2002 (20 of 2002) but before the expiry of the time limit for making the assessment, reassessment or recomputation as specified in sub-section (2) of Section 153, every such notice referred to in this clause shall be deemed to be a valid notice: Provided further that in a case- (a) where a return has been furnished during the period commencing on the 1st day of October, 1991 and ending on the 30th day of September, 2005, in response to a notice served under this section, and (b) subsequently a notice has been served under clause (ii) of sub-section (2) of Section 143 after the expiry of twelve months specified in the proviso to clause (ii) of sub-section (2) of Section 143, but before the expiry of the time limit for making the assessment, re-assessment or recomputation as specified in sub-section (2) of Section 153, every such notice referred to in this clause shall be deemed to be a valid notice. Explanation.-For the removal of d....
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.... on the anvil of the requirements stated under Section 147 of the Act. The essential condition precedents to exercise jurisdiction for reopening an assessment under Section 147 read with Section 148 of the Act are: a) The Assessing Officer must have 'reason to believe' that 'income' chargeable to tax has 'escaped assessment;' and b) The Assessing Officer must record reasons for reopening of assessment before issuing notice under Section 148 (b) Meaning and scope of "reason to believe" under Section 147 of the IT Act, 1961: 63. The expression "reason to believe" in Section 147 of the IT Act means cause or justification and there need not be an established fact of assessment at this stage. The Assessing Officer need not have finally ascertained the facts to prove escapement of income. The Revenue's contention that the outcome of the third connected matter before us, i.e. Civil Appeal No 19487 of 2017, would determine the outcome of the matters testing the validity of the reopening of assessment, is not a legally sustainable submission. The validity of the reopening has to be ascertained by limiting the enquiry to the 'reasons recorded' under Section 148 only, ....
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....om assessment, before assuming jurisdiction under Section 147. In other words, this tangible material must provide him with the reason to believe that the income has escaped assessment. This Court in Commissioner of Income Tax, Delhi v. Kelvinator of India Ltd. [(2010) 320 ITR 561] (hereinafter referred to as "Kelvinator"), has succinctly dealt with the difference between review and reassessment in the context of interpreting the expression "reason to believe" through the following observation: "5. On going through the changes, quoted above, made to Section 147 of the Act, we find that, prior to the Direct Tax Laws (Amendment) Act, 1987, reopening could be done under the 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 reopen the assessment. Therefore, post-1-4-1989, power to reopen is much wider. However, one needs to give a schematic interpretation....
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....elieve' in the place of the words 'for reasons to be recorded by him in writing, is of the opinion'. Other provisions of the new Section 147, however, remain the same." [Emphasis supplied] (c) Whether the Assessing Officer had any tangible material or were the reopening of assessments on mere change of opinion? 65. In the present matter, the Revenue has sought to reopen assessment on the basis of books of account and six documents impounded during the survey dated 23.12.2010, carried out at the premises of the SPPL. Alongside impounding the above-mentioned documents, the statement of one Shri Ashok V. Suratwala, Director of the SPPL, was recorded on oath under Section 131 of the Act. The relevant portion of the reasons recorded under Section 148, (as found identical for both the AY 2007-08 and the AY 2008-09), reads as follows: "4. Survey under section 133A of the Act was carried out in business premises of the assessee on 23.12.2010. The books of account and documents were found and impounded during the course of survey. The impugned materials included the following documents: * Original copy of the AOP agreement dated 28.04.2003. * Copy o....
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.... land and when the land is to be finally transferred to the society/community that will be formed after all the residential unit are sold, the assessee company will sign the conveyance as transferor and AOP as a confirming party. * The AOP, M/s Fortaleza Developers has claimed deduction under Section 80IB(10) of the Act on the profits and gains of business derived by it from sale of flats in Fortaleza Complex. 6. Thus, it is found that the assessee is not receiving the share of the profit from the AOP but is receiving the consideration in the form of 35% share in proceeds of sale, against the development rights in a land surrendered by it to other member of AOP and finally to the purchaser of the flat/residential units. 7. In view of this, the income received by Assessee from AOP M/s Fortaleza Developers is not a share of profit, but consideration received against the development rights sold/surrendered. Hence the income of [Rs. 3,49,18,587/- for AY 2007-08 & Rs. 14,18,52,156 for AY 2008-09] is not an exempt income but taxable in the hands of assessee. Therefore, income of [Rs. 3,49,18,587/- for AY 2007-08 & Rs. 14,18,52,156 for AY 2008-09] chargeable to ....
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....in the original assessment orders. If such 'tangible material' had already been relied upon by the Assessing Officer to form an opinion in the original assessment orders, then relying upon the same for the purpose of reopening assessment would amount to review instead of reassessment, and that would not be permissible in law, as noted by this Court in Kelvinator (supra). However, if the 'tangible material' is extraneous to the original assessment records, or was present but not considered or acted upon by the Assessing Officer during the initial proceedings, such information provides a valid jurisdictional basis for the Revenue to reopen the assessment. 69. It is settled law that mere intimation by an assessee of a transaction does not preclude the Assessing Officer from reopening assessment if there is tangible material to prima facie indicate that primary facts regarding the true nature of the transaction had not been brought to the notice of the Assessing Officer by the assessee. The observations made by this Court in Calcutta Discount Co. Ltd. v. Income Tax Officer, Companies District I Calcutta and Anr. [(1961)41 ITR 191] (hereinafter referred to as "Calcutta Discount"), an....
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....scovered by the assessing authority, from the documents and other evidence disclosed. 10. Does the duty however extend beyond the full and truthful disclosure of all primary facts? In our opinion, the answer to this question must be in the negative. Once all the primary facts are before the assessing authority, he requires no further assistance by way of disclosure. It is for him to decide what inferences of facts can be reasonably drawn and what legal inferences have ultimately to be drawn. It is not for somebody else - far less the assessee - to tell the assessing authority what inferences whether of facts or - law should be drawn. Indeed, when it is remembered that people often differ as regards what inferences should be drawn from given facts, it will be meaningless to demand that the assessee must disclose what inferences - whether of facts or law he would draw from the primary facts. 11. If from primary facts more inferences than one could be drawn, it would not be possible to say that the assessee should have drawn any particular inference and communicated it to the assessing authority. How could an assessee be charged with failure to communicate an inferen....
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....n subsequently. The subsequent information on the basis of which the ITO acquired reasons to believe that income chargeable to tax had escaped assessment on account of the omission of the assessee to make a full and true disclosure of the primary facts was relevant, reliable and specific. It was not at all vague or non-specific. *** 25. From a combined review of the judgments of this Court, it follows that an Income Tax Officer acquires jurisdiction to reopen assessment under Section 147(a) read with Section 148 of the Income Tax Act, 1961 only if on the basis of specific, reliable and relevant information coming to his possession subsequently, he has reasons which he must record, to believe that by reason of omission or failure on the part of the assessee to make a true and full disclosure of all material facts necessary for his assessment during the concluded assessment proceedings, any part of his income, profit or gains chargeable to income tax has escaped assessment. He may start reassessment proceedings either because some fresh facts come to light which were not previously disclosed or some information with regard to the facts previously disclosed comes int....
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....urn around and say "you accepted my lie, now your hands are tied and you can do nothing". It would be travesty of justice to allow the assessee that latitude." [Emphasis supplied] 72. Before proceeding further, it is pertinent to clarify at this stage that in the matter before us, since the notice for reopening assessment under Section 148 was served upon the SPPL within four years from the end of the relevant assessment years, the first proviso to Section 147 is not attracted. Consequently, the Revenue is not required to establish a failure on the part of the assessee to disclose fully and truly all material facts. However, the Explanation 1 to Section 147 remains highly relevant to the present matter for the interpretative guidance it provides to what amounts to disclosure and the relevance of the information that remains buried in the books of account or other evidence from which material evidence could with due diligence have been discovered by the Assessing Officer. The Explanation 1 to Section 147 clarifies the statutory objective that the mere production of account books or other evidence before the Assessing Officer does not necessarily amount to 'disclosure' wi....
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....not shed light on the primary fact that the income which it declared as a share of the 'profit' of the AOP, was a 35% share of the gross sale receipts of the residential units sold by the AOP. When the information gathered in the form of the impounded documents and the SPPL's director's statement came to the Revenue's knowledge, the true purport of the transaction between the SPPL and the AOP was revealed. 76. In light of the position of law as explained in Calcutta Discount (supra) and Phool Chand (supra), the mere disclosure of the existence of the AOP and the quantum of income derived by the SPPL from the AOP at the time of original assessment, does not preclude the Assessing Officer from reopening assessment where fresh information emerges which prima facie indicates that certain income has escaped assessment. The statements made by the SPPL regarding the AOP in its return of income or in the course of the original assessment do not amount to discharging its duty to provide the assessing officer with the primary facts relevant to determining the issue in dispute. A perusal of the materials on record would indicate that SPPL had merely informed the Revenue that certain income....
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....s to the 35:65 gross receipt sharing arrangement found in Clause 11 of the JV Agreement with Clause 7 of the AOP Agreement. We must clarify that despite the superficial resemblance between these two clauses regarding the 35:65 ratio of dividing sale proceeds between the respective parties, the Assessing Officer's analysis of the JV Agreement cannot be construed as an opinion on Clause 7 of the AOP Agreement or the nature of the income accrued from the AOP. The Joint Venture (JV) Agreement between RKA and the SPPL was specifically directed towards the development of commercial units for the project "Victoria Complex." On the other hand, the AOP Agreement between RKC and the SPPL, which is central to the matter before us, pertained to the development of a wholly different project for residential units. These are two legally distinct agreements involving different contracting parties and separate subject matters. The Joint Venture (JV) Agreement between RKA and the SPPL was specifically directed toward the development of commercial units. On the other hand, the AOP Agreement between RKC and the SPPL pertained to the development of a wholly different project for residential units. Thes....
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....PL from the AOP. Hence, when 'tangible material' in the form of the impounded documents and the director's statement shed light on the manner in which the SPPL received its income from the AOP, it gave rise to 'reasons to believe' that income liable to tax has escaped assessment. As observed by this Court in Phool Chand (supra), it would be immaterial whether the Income Tax Officer at the time of making the original assessment could or, could not have found by further enquiry or investigation, whether the transaction was genuine or not, if on the basis of subsequent information, the Income Tax Officer has reasons to believe that income chargeable to tax had escaped assessment. He may start reassessment proceedings either because some fresh facts come to light which were not previously disclosed or some information with regard to the facts previously disclosed comes into his possession which tends to expose the untruthfulness of those facts. In such situations, it is not a case of mere change of opinion or the drawing of a different inference from the same facts as were earlier available but acting on fresh information. Applying the principle as laid down by this Court in Phool Chan....
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....justifiable reason to interfere with the order under challenge. However, we clarify that when a notice under Section 148 of the Income Tax Act is issued, the proper course of action for the noticee is to file return and if he so desires, to seek reasons for issuing notices. The assessing officer is bound to furnish reasons within a reasonable time. On receipt of reasons, the noticee is entitled to file objections to issuance of notice and the assessing officer is bound to dispose of the same by passing a speaking order. In the instant case, as the reasons have been disclosed in these proceedings, the assessing officer has to dispose of the objections, if filed, by passing a speaking order, before proceeding with the assessment in respect of the abovesaid five assessment years." [Emphasis supplied] 87. Thus, it is settled law that the validity of a reopening must be tested solely on the basis of the reasons recorded at the time of issuing the notice under Section 148. A document not referred to in those reasons recorded under Section 148 cannot be used to justify the validity of the reopening, as the assessee must not be deprived of a fair opportunity to dispute such gro....
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....ondent assessee herein received only its share of profits would hold good even in the present appeal. This is so as the finding of fact and the interpretation of clause 7 of the Agreement dated 29th April, 2003 will not change depending upon the assessee concerned. In fact, the High Court in its order dated 3rd October, 2016 placed reliance upon its earlier order dated 9th April, 2015 in appeal filed by the Revenue from the order of the order of the Tribunal for Assessment Year 2007-08 in respect of M/s Fortaleza Developers (AOP), which was dismissed by this Court on 9th April, 2015. 9. Thus, in the above facts, the question as proposed being already decided in case of M/s Fortaleza Developers (AOP) by this Court, does not give rise to any substantial question of law. Thus, not entertained. 10. Accordingly, both the appeals are dismissed. No order as to costs." 91. Aggrieved by the impugned order of the High Court dated 24.03.2017, the Revenue has preferred this present Civil Appeal no. 19487 of 2017, by raising the following two questions of law: a. Whether on the facts and in circumstances of the case, the ITAT was correct in holding that 35% share r....
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.... its profit or revenue. 96. In order to decide this issue, it is essential that we reproduce the subject Clause 7 of the AOP Agreement which is in contention: "7. Sharing of revenue and Income: All Agreement for sale of residential units in the housing project undertaking by the AOP shall be entered into only between the authorized signatories of the AOP and the respective purchasers of the housing units. The members of the AOP hereby agree that neither of them, will during the validity of this Agreement execute any independent or separate Agreement on their own with any prospective Purchaser. All payments receivable from the Purchasers towards the above shall be received only in the name of the AOP, i.e. Fortaleza Developers and the said amounts received from purchasers of the housing units as aforesaid shall be deposited only in the bank account in the name of the AOP, i.e. Fortaleza Developers. Out of the aforesaid amounts received from the Purchasers of the housing units (representing the gross sale proceeds of the Units inclusive of the value of land) SPPL, shall be entitled to as its share of revenue/income an amount comprising of 35% of such Receipts. It....
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....true test is whether the amount sought to be deducted, in truth, never reached the assessee as his income. Obligations, no doubt, there are in every case, but it is the nature of the obligation which is the decisive fact. There is a difference between an amount which a person is obliged to apply out of his income and an amount which by the nature of the obligation cannot be said to be a part of the income of the assessee. Whereby the obligation income is diverted before it reaches the assessee, it is deductible; but where the income is required to be applied to discharge an obligation after such income reaches the assessee, the same consequence, in law, does not follow. It is the first kind of payment which can truly be excused and not the second. The second payment is merely an obligation to pay another a portion of one's own income, which has been received and is since applied. The first is a case in which the income never reaches the assessee, who even if he were to collect it, does so, not as part of his income, but for and on behalf of the person to whom it is payable.[...]" [Emphasis supplied] 99. Upon analysing Clause 7 of the AOP Agreement in light of the ab....
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....me from the AOP is a share of its profit and not merely a share of its revenue. 103. It is a well-settled principle of accounting and law that profit is the surplus that remains after all the expenses have been deducted from the gross receipts. Since the SPPL's share remained insulated from the expenses of the AOP, the amount received by it lacks the essential characteristics of "profit" and is, in pith and substance, a business receipt arising from the surrender of development rights or a share of gross revenue. 104. Therefore, since the amount received by the SPPL from the AOP is not a share of its profit but a share of revenue, the impugned order of the High Court and the ITAT which incorrectly held otherwise, are liable to be set aside. 105. Thus, we hereby allow the Civil Appeal no. 19487 of 2017 and hold that since the amount received by the SPPL from the AOP is not a share of its profit, the amount accrued to the SPPL from the AOP would be liable to be taxed in the hands of the assessee as a business receipt, in accordance with the respective Assessment Orders of the SPPL for the AY 2008-09 and the AY 2009-10 respectively. E. CONCLUSION (i) Civil Appeal No. 74....
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.... to 'reasons to believe' that income liable to tax has escaped assessment. 111. As observed by this Court in Phool Chand (supra), it would be immaterial whether the Income Tax Officer at the time of making the original assessment could or, could not have found by further enquiry or investigation, whether the transaction was genuine or not, if on the basis of subsequent information, the Income Tax Officer has reasons to believe that income chargeable to tax had escaped assessment. He may start reassessment proceedings either because some fresh facts come to light which were not previously disclosed or some information with regard to the facts previously disclosed comes into his possession which tends to expose the untruthfulness of those facts. In such situations, it is not a case of mere change of opinion or the drawing of a different inference from the same facts as were earlier available but acting on fresh information. 112. Applying the principle as laid down by this Court in Phool Chand (supra), when fresh information was acquired in the course of the survey dated 23.12.2010 which prima facie led the Assessing Officer to believe that the true nature of the income was not ....
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....observation in Chunilal Mehta (supra) it is settled law that the interpretation of a contractual clause, which forms the foundation of a party's rights, constitutes a question of law and hence, this Court is not bound by the interpretation of Clause 7 of the AOP Agreement which has been adopted by the adjudicatory forums below. 120. It is not the SPPL's case that the actual manner of the subtracting expenses from the gross sale receipts was any different from how Clause 7 indicated. It has been the case of the SPPL all throughout that the income accrued to the SPPL from the AOP was in strict accordance with Clause 7 of the AOP agreement. Therefore, a correct interpretation of the said clause is crucial in order to determine whether the income accrued to the SPPL from the AOP is a share of its profit or revenue, which in turn forms the basis of whether such income is to be taxed in the hands of the SPPL or not. 121. A plain and literal reading of Clause 7, supported by the statement of the SPPL's Director under Section 131, leads to the inescapable conclusion that the parties to the AOP Agreement intended to share revenue, not profits. As per the mandate of Clause 7 of the AOP....