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Shri Dipendra Nath Chunder, Kolkata v. I.T.O.,Ward-54(4), Kolkata
Concise Analytical Summary of the Opinion
Factual and Procedural Background
This appeal arises from an order dated 19.09.2019 of the Commissioner of Income-tax (Appeals)-21, Kolkata, in case No.1044/ITO,W-22(4)/CIT(A)-21/Kol/2014-15 involving proceedings under provisions identified in the record (references include sections 147 and 148 of the Income Tax Act, 1961). The Assessing Officer issued a notice under section 148 (dated 05.03.2012 in the reasons communication) for assessment year 2009-10.
The factual nucleus in the Assessing Officer's recorded reasons is that the assessee claimed exemption under section 54 for a long-term capital gain arising on sale of a property dated 13.03.2006. The sale proceeds were deposited in the State Bank of India Capital Gain Scheme and withdrawn on maturity after three years. It was recorded that the assessee did not utilize the proceeds for purchase or construction of new property within the period specified under section 54. The three-year period expired on 13.03.2009, and because the assessee did not disclose the long-term capital gain in the return for assessment year 2009-10, the Assessing Officer recorded a reason to believe that income had escaped assessment and issued notice under section 148.
The assessee challenged the reassessment on the ground that the reasons for reopening did not indicate that any taxable income had escaped assessment (and, more particularly in light of limitation provisions, that escaped income met any statutory threshold). The revenue defended the reopening as supported by the assessing officer's reasons and sanctioning authority's approval. The Tribunal heard both parties, perused the file and statutory material, and rendered the impugned decision.
Legal Issues Presented
- Whether the Assessing Officer's reasons recorded for issuing notice under section 148 sufficiently indicate that taxable income has escaped assessment so as to justify reopening the assessment for A.Y. 2009-10.
- Whether, in the context of notices issued after four years from the end of the relevant assessment year but within six years, the recorded reasons and the sanctioning authority's approval satisfy the requirement that the escaped income is likely to amount to Rs. 1 lakh or more (i.e., the applicability of section 149(1)(b) and the requirement of material to show escaped income ≥ Rs.1 lakh).
Arguments of the Parties
Appellant's Arguments
- The assessee's counsel submitted that the Assessing Officer's reasons for reopening do not indicate that the assessee's taxable income had escaped assessment; in particular the reasons do not disclose any computation or even a statement that escaped income meets the statutory threshold for extended limitation periods.
- On that basis, the reassessment initiated by notice under section 148 is liable to be quashed.
Revenue's Arguments
- The revenue submitted that the Assessing Officer's reasons sufficiently pinpoint that the assessee's taxable income had escaped assessment and that the reopening was therefore justified.
- The department relied on the fact of sanction by Joint/Additional Commissioner to contend that the statutory requirement for issuing notice beyond the normal four-year period had been fulfilled.
- The department placed several judicial authorities on record in support of its stance (a list of judgments was submitted during argument).
Table of Precedents Cited
| Precedent | Rule or Principle Cited For | Application by the Court |
|---|---|---|
| Mahesh Kumar Gupta vs. Commissioner of Income Tax & Another, (2007) 363 ITR 350 (All) | Interpretation of time limits and conditions under section 149(1)(b): reopening beyond four years (but within six) requires material to show escaped income is likely to amount to Rs.1 lakh or more; sanctioning authority must apply mind to this fact when granting sanction. | The Tribunal adopted this decision mutatis mutandis and applied its principles to hold that the impugned reopening/reassessment was not sustainable and must be quashed because the reasons did not indicate escaped income of Rs.1 lakh or more nor enable the sanctioning authority to have formed the required satisfaction. |
| GKN Driveshafts (India) Ltd. Vs. Income Tax Officer and others, 259 ITR | One of several authorities filed by the department (as cited in the record) relating generally to nondisclosure/reason to believe issues. | The Court recorded that this and similar judgments filed by the department have no connection to the precise point in issue and were not relied upon to support the reopening; they were considered not to address the specific limitation/sufficiency of reasons point central to the dispute. |
| Dr. H.S. Bawa Vs. CIT, 25 Taxman 15 (P&H) | Filed by the department; relates to nondisclosure/failure to disclose income and related issues. | The Court found the judgment not directly relevant to the specific statutory-limitation/reason-sufficiency question and did not apply it to sustain the reopening. |
| Vikram Kothari HUF Vs. State of U.P., 10 Taxman 280 (Alld) | Filed by the department among other authorities; generally on procedural/assessments matters as per record. | The Court noted it as cited by the department but found it not connected to the central point and did not rely on it for the present decision. |
| Export Credit Guarantee Corporation of India Vs. Addl. Commissioner of Income Tax, 30 Taxman 211 (Bom) | Filed by the department; listed among authorities pertaining to assessment/procedure. | The Court observed it was cited but not relevant to the specific issue and did not adopt it for upholding the reassessment. |
| A.C.I.T. Vs. Rajesh Jhavri, 291 ITR 500 (SC) | Filed by the department; relates to assessment matters (as cited in the record). | The Court concluded this authority did not bear on the limitation/threshold issue and was not applied to support the reopening. |
| C.C.I.T. Vs. Kanhaiya Lal Kapoor, 147 Taxman 12 (Alld) | Filed by the department and listed in the record; concerns assessment-related principles. | The Court noted the citation but determined it did not address the narrow question whether the reasons disclosed escaped income ≥ Rs.1 lakh; it was therefore not applied. |
| Pooran Mal Vs. Director of Inspection, New Delhi, 93 ITR 505 | Filed by the department among other authorities; relates to inspection/assessment matters in broad terms. | The Tribunal treated this citation as not germane to the specific issue and did not rely upon it in upholding the reopening. |
| Deep Chand Daga Vs. I.T.O., 77 ITR 661 (MP) | Filed by the department; another cited authority concerning assessment/procedural aspects. | The Court observed it was cited but found it unconnected to the central limitation-based issue; it was not used to sustain the reassessment. |
| Fisher Xomox Sarunar Ltd. Versus Assistant Commissioner of Income-tax, 294 ITR 620 (Mad) | Filed by the department; relates to matters of nondisclosure/reason to believe as listed by the record. | The Tribunal recorded the citation but concluded the precedent did not address the crucial question of whether reasons recorded showed escaped income ≥ Rs.1 lakh and therefore did not rely on it. |
Court's Reasoning and Analysis
The Court undertook a focused analysis of the Assessing Officer's recorded reasons for reopening and the statutory limitation framework. The steps of the Court's reasoning as presented in the opinion are:
- The recorded reasons were examined and the Court found that they do not contain any statement or computation indicating that the assessee's taxable income had escaped assessment; the Court described the reasons as not even containing "a whisper" about escaped taxable income.
- The Court reviewed the applicable statutory scheme — particularly the time limits under section 149(1) of the Income Tax Act (as reproduced in the opinion) — which delineates that notices under section 148 are barred after four years unless exceptions such as clause (b) apply (i.e., where escaped income is likely to amount to Rs.1 lakh or more, enabling extension up to six years).
- The Court relied on the decision of the Hon'ble Allahabad High Court in Mahesh Kumar Gupta v. CIT (2007) 363 ITR 350 (All), which was reproduced at length. That decision emphasized that where reopening is sought beyond the normal four-year period under clause (b) of section 149(1), there must be material recorded to show the escaped income is likely to be Rs.1 lakh or more, and the sanctioning authority must have had material before it to form the required satisfaction.
- The Tribunal assessed the department's attempt to rely on the sanction granted by the Joint/Additional Commissioner and noted that the sanctioning authority was not shown to have been aware of facts establishing escaped income of Rs.1 lakh or more at the time of giving sanction. The Court interpreted the proviso to section 151(1) as reinforcing that the assessing officer must record relevant facts enabling the sanctioning authority to apply its mind to the issue of whether extended limitation is warranted.
- The Court observed that the judgments placed on record by the department concerned general questions of nondisclosure or what amounts to "reason to believe," but did not address the specific limitation/threshold issue. Consequently, those authorities were not found to be supportive of sustaining the reassessment.
- On this statutory and precedential basis, the Tribunal concluded that the initiation of reassessment proceedings after more than four years (and within six years) based on the reasons recorded was barred by time because the reasons did not show that escaped income was likely to amount to Rs.1 lakh or more. The Tribunal therefore quashed the impugned reopening/reassessment and held the reassessment not sustainable in law.
Holding and Implications
Holding: The Court allowed the assessee's appeal and held that the impugned reopening/reassessment is not sustainable in law and stands quashed. (The appeal was allowed; order pronounced in open court on 19/02/2020 by S.S. Godara, Judicial Member, Kolkata.)
Implications:
- Direct effect on the parties: The reassessment initiated by the notice under section 148 (for A.Y. 2009-10 as recorded) was quashed and the assessee's appeal was allowed. All other remaining issues on the merits were rendered infructuous by this decision.
- On broader legal consequences: The Court applied and adopted the Allahabad High Court decision in Mahesh Kumar Gupta (2007) mutatis mutandis to the facts, emphasizing the requirement that reasons recorded for reopening beyond four years must disclose sufficient material to show escaped income likely ≥ Rs.1 lakh so that the sanctioning authority may apply its mind. The opinion does not set out any extended novel legal principle beyond its application of that precedent to the facts of this case.
This assessees appeal for assessment year 2009-10, arises against the Commissioner of Income-tax (Appeals)-21, Kolkatas order dated 19.09.2019 passed in case No.1044/ITO,W-22(4)/CIT(A)-21/Kol/2014-15 involving proceedings u/s.
144 r.w.s. 147 of the Income Tax Act, 1961; in short the Act. Heard both the parties. Case file perused.
2. Learned counsels first and foremost plea during the course of hearing is that the Assessing Officers re-opening reasons recorded reads as under:- Sub: Reason for notice u/s 148 dt. 05.03.2012 for A.Y 2009-10 PAN: AAGPC 1548 P Ref: Your petition dt. 19.03.2012
---------------------------------- Please refer to the above. ITA No.2425/Kol/2019 A.Y. 2009-10 Sh. Dipendra Nath Chunder Vs. ITO Wd-54(4), Kol. Page 2 In response to your letter dated 19.03.2012 as mentioned above, the reason for notice u/s.1148 within the meaning of section 147 of I.T. Act, 1961 is hereby communicated to you in the following paragraph. Exemption u/s. 54 has been claimed from the Long Term Capital Gain, resulted from the sale of property on 13.03.2006.The proceed of the sale has been deposited in State Bank of India Capital Gain Scheme and withdrawn on maturity after three years. The assessee did not utilize the proceeds for either purchase or construction of a new property within the period as specified u/s.54 of I.T. Act 1961. As per proviso 1(i) below section 54 The amount not so utilized shall be charged under section 45 as income of the previous year in which the period of three years from the date of transfer of the original asset expires. In the instant case, three years from the date of transfer of original asset expires on 13.03.2009. Since the assessee did not disclose the LTCG in his return for A.Y 2009-10, there is sufficient reason to believe that income has escaped assessment. Mr. Suranas case accordingly is that once the above extracted reasons do not indicate even assessees taxable income having escaped assessment, the impugned re- assessment is liable to be quashed on this count alone. The Revenues case on the other hand, submits that Assessing Officers foregoing re-opening reasons are speaking which sufficiently pin-point assessees taxable income having escaped assessment.
3. I have given my thoughtful consideration. It is sufficiently clear from a perusal of the Assessing Officers re-opening reasons that there is not even a whisper about the assessees taxable income having escaped assessment. I notice in this backdrop that the case law of hon'ble Allahabad high courts decision in Mahesh Kumar Gupta vs. Commissioner of Income Tax & Another (2007) 363 ITR 350 (All) has decided the very issue in assessees favour as under:- The dispute relates to the assessment year 2000-2001 in all these petitions. The petitioners' filed returns which were accepted. The further allegation is that the sale consideration was invested in fixed deposit and UTI Bonds etc. with which we are presently not concerned. The present writ petition arises out of the reassessment notice under section 148 of the Income Tax Act. The said notice is dated 23rd of March, 2007 for the assessment year 2000- 2001. In response to the notice the petitioner has filed the return of income and also his/her objections challenging the very initiation of reassessment proceedings on various grounds. The objections having been dismissed by the order dated 29th of June, 2007, impugned in these petitions. Heard Sri Nikhil Agrawal, learned counsel for the petitioners and Sri D. Awasthi, learned standing counsel for the respondents. ITA No.2425/Kol/2019 A.Y. 2009-10 Sh. Dipendra Nath Chunder Vs. ITO Wd-54(4), Kol. Page 3 The only point urged before us is that the impugned notice under section 148 of the Income Tax Act is barred by time. Therefore, the proceedings for reassessment should be dropped. The controversy centres around the interpretation of section 149 (1) (b) of the Income Tax Act. For the sake of convenience, the relevant portion of section 149 is reproduced below:- Time limit for notice,
149. (1) No notice under section 148 shall be issued for the relevant assessment year,- (a) if four years have elapsed from the end of the relevant assessment year, unless-the case falls under sub- clause (b) or sub- clause (c); (b) if four years, but not more than six years, have elapsed from the end of the relevant assessment year unless the income chargeable to tax which has escaped assessment amounts to or is likely to amount to rupees one lakh or more for that year; Explanation - In determining income chargeable to tax which has escaped assessment for the purposes of this sub-section, the provisions of Explanation 2 of section 147 shall apply as they apply for the purposes of that section.] (2) The provisions of sub- section (1) as to the issue of notice shall be subject to the provisions of section 151. (3) If the person on whom a notice under section 148 is to be served is a person treated as the agent of a non- resident under section 163 and the assessment, reassessment or recomputation to be made in pursuance of the notice is to be made on him as the agent of such non- resident, the notice shall not be issued after the expiry of a period of six years from the end of the relevant assessment year. Sri Nikhil Agrawal, learned counsel for the petitioner, submits that the notice under section
148 is dated 23rd of March, 2007 and it relates to the assessment year 2000-2001. A period of four years from the end of the relevant assessment year is normal period within which assessing authority can issue a notice unless the case falls under the clause (b) (c). Clause-(b) gives extended period of six years from the end of the relevant assessment year unless the income chargeable to tax which has escaped the assessment amounts to or is likely to amount one Lakh of rupees or more for that year. The argument is that in the case on hand, there is no material before the department to 'Show that the income which is said to have been escaped, amounts to or is likely to amount to Rs.1 Lakhs or more. Attention of the Court was invited towards its earlier order dated 7th of August, 2007, which is reproduced below:- "The original record of the sanction by the Addl. Commissioner has been produced by learned counsel for the Income Tax Department. It does not show that while according sanction, mind had been applied by the Addl. Commissioner whether the income which was believed to have escaped assessment exceeded Rupees One Lakh. In fact there was no suggestion from the side of the proposing officer that the amount was above Rupees One Lakh. The limitation for issuing notice will be enhanced from (our years to six years, only if income escaping assessment was in excess of Rupees One Lakh. The notice has admittedly been issued beyond four years and within six years. Counter affidavit may be filed within two weeks, rejoinder affidavit may be filed within two weeks thereafter List thereafter. ITA No.2425/Kol/2019 A.Y. 2009-10 Sh. Dipendra Nath Chunder Vs. ITO Wd-54(4), Kol. Page 4 The original file has been returned to the learned standing counsel of the Income Tax Department." A counter affidavit has been filed on behalf of the respondents. There it has been stated that an assessee has not disclosed the income under the head 'capital gains' in the return filed on 30th of August, 2000 and sale consideration was above Rs.10 Lakhs the income escaped was more than Rs.1 Lakh, vide para 3 of the counter affidavit. It appears that the respondents have no idea about the sale consideration and that is the reason few paragraphs afterwards in para 5 it has been stated that the sale consideration was around Rs.6 Lakhs, The whole basis of the counter affidavit is that the assessee did not act in accordance with law and it was obligatory upon him to pay the taxes on short term capital gain income which has escaped the assessment. In the counter affidavit, no material has been disclosed therein to show that at the time of seeking sanction for extension of period of limitation as provided for under section 149 the Assessing Authority or the sanctioning authority had any material in their possession that the income chargeable to tax which has escaped the assessment amounts to or is likely to amount to Rs.1 Lakh or more. At this stage, we may consider the reasons recorded by the Income Tax Officer for reopening the assessment. The same is reproduced below:- "During the Assessment Year 2000-2001 the assessee Shri Mahesh Kumar Gupta sold the property (land) situated at 13-D Tashkant Marg, Allahabad after converting leasehold land into freehold and the capital gain/loss arrived at was offered for duration as long term capital gains. The assessee sold the property within three years after converting the land into freehold resulting into short term capital gains in view of the judgment of Hon'ble Karnataka High Court in the case of CIT vs. Dr. V.V. Mody (218 ITR page 1). I have, therefore, reason to believe that the income chargeable to tax under the head Short Term Capital Gains has escaped assessment." The reason assigned for reopening is that the petitioner after converting the leasehold land into freehold sold the property within three years after converting the land into freehold resulting into short term capital gain in view of the Karnataka High Court's decision referred to above. What income is said to have been escaped does not find mention therein. Even assuming for the sake of argument, the income was liable to be taxed as short term gain unless there is any material before the authority concerned that it exceeds the limit of Rs.1 Lakh, extended period of limitation of six years will not be available to the department. The normal period of limitation is four years for giving the notice under section 148 and where the escaped income is likely to amount to Rs.1 Lakh or more, the extended period of limitation of six. years would be attracted. this objection of the petitioner has been rejected by the impugned order on the ground that since the permission has been. granted by the Joint/Additional Commissioner, Income Tax, statutory requirement stands fulfilled vide para-
3 of the order which is reproduced below:- You have also objected that it is not mentioned in the reasons of taking action u/s
148 that the escaped income is more that 100000/-. In this connection this to inform that it is mentioned in notice u/s 148 itself that the notice is being issued after proper sanction of Joint/ Addl. Commissioner of Income Tax. This fulfills the requirement of law, your have provided the reasons. of initiating action u/s 148 not computation of income. The computation of income will be provided after proper hearing & giving proper opportunities to be heard," The stand of the department as is evident from the above quoted paragraph has no legs to stand. The Joint / Additional Commissioner, Income Tax was not aware about the fact that the ITA No.2425/Kol/2019 A.Y. 2009-10 Sh. Dipendra Nath Chunder Vs. ITO Wd-54(4), Kol. Page 5 income chargeable to tax which has escaped the assessment is Rs.1 Lakh or more for the relevant Assessment Year. The proviso to section 151 (1) fortifies our view which says that after the expiry of four years from the end of the relevant Assessment Year no notice under section 148 shall be issued or unless the Chief Commissioner or Commissioner is satisfied on the reasons recorded by the Assessing Officer that it is a fit case for issue of such notice. On a true and proper constructions of the proviso it is imperative that the Assessing Officer in his reason should state that the escaped income is likely to be Rs.1 Lakh or more so that the Chief Commissioner or the Commissioner may record his satisfaction. The sanctioning authority must be aware that it has exercised power of extended period of limitation under 149 (1) (b) of the Act. Exception has been carved out by clause (b) to section 149(1) in respect the income chargeable to tax which has escaped assessment, amounts to Rs.1 Lakh or more. To fall within exception clause the relevant facts should have been recorded by the Assessing Authority in its order while recording the reason so that a sanctioning authority may apply its mind to the proposition while granting the sanction. The learned counsel for the department after close of the argument has filed the following judgements for consideration of this Court:-
1. GKN Driveshafts (India) Ltd. Vs. Income Tax Officer and others, 259 ITR, page
2. Dr. H.S. Bawa Vs. CIT, 25 Taxman, 15 (P&H).
3. Vikram Kothari HUF Vs. State of U.P., 10 Taxman, 280 (Alld).
4. Export Credit Guarantee Corporation of India Vs. Addl. Commissioner of Income Tax, 30 Taxman, 211 (Bom).
5. A.CLT. Vs. Rajesh Jhavri, 291 ITR, Page 500 (SC).
6. C.C.I.T. Vs. Kanhaiya Lal Kapoor, 147 Taxman, 12 (Alld).
7. Pooran Mal Vs. Director of Inspection, New Delhi, 93, ITR 505.
8. Deep Chand.Daga Vs. I.T.O., 77 ITR,661 (MP).
9. Fisher Xomox Sarunar Ltd. Versus Assistant Commissioner of Income-tax. 294 ITR 620 (Mad.) None of the judgments referred to above have any connection to the point in issue even remotely. They relate either to the question of nondisclosure of income or failure on the part of the assessee to disclose the income fully or truly and what amounts to "reason to believe an information". None of these points were urged before us and we failed to understand the filing of the rulings by the counsel as referred to herein above. The only point urged and pressed before us is whether in absence of anything in the reasons recorded to suggest that the income chargeable to tax which has escaped the assessment is Rs.One lakh or more having not been mentioned the reassessment notice given after four years of the close of the assessment order is valid or not. For the reasons given above, we find sufficient force in the argument of the learned counsel for the petitioner that on the basis of the reasons recorded by the Assessing Officer, the initiation of the reassessment proceedings relevant to the Assessment Year , 2000-2001 by means of the notice dated. 23:3.2007 after more than four years is clearly barred by time. ITA No.2425/Kol/2019 A.Y. 2009-10 Sh. Dipendra Nath Chunder Vs. ITO Wd-54(4), Kol. Page 6 In the result, all the three writ petitions succeed and are allowed and the impugned notices dated 23rd.of March, 2007 are hereby quashed. I adopt the above extracted detailed judicial precedents mutatis mutandis to hold that the impugned re-opening / re-assessment is not sustainable in the eyes of law. The same stands quashed. All other remaining issues on merits are rendered infructuous.
4. This assessees appeal is allowed. Order pronounced in open court on 19/02/2020 Sd/- (S.S. Godara) Judicial Member Kolkata, *Dkp/Sr.PS - 19/02/2020 / Copy of Order Forwarded to:- /Appellant-Shri Dipendra Nath Chunder, 11,Old P. O St. Kolkata-700001 /Respondent-ITO Wd-54(5), 3, Govt. Place, BBD Bagh, Kolkata-700 001
3. " % / Concerned CIT
4. %- / CIT (A)
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