Greater Mohali Area Development Authority v. Deputy Commissioner Of Income Tax Circle-6(1), Mohali




    
   

 !"##$%&%'( )* Greater Mohali Area Development Authority, PUDA Bhawan, Sector 62, Mohali .......Petitioner versus Deputy Commissioner of Income Tax, Circle$6(1) Mohali ......Respondent  (  +,  -
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Present:

Ms. Radhika Suri, Senior Advocate with Mr. M.S. Kanda, Advocate for the petitioner.

Mrs. Urvashi Dhugga, Senior Standing Counsel for the respondent.

***** .-
0 The petition has been filed for quashing an order dated 27.11.2012 disposing of the petitioner's objections to the reasons recorded for re$opening the assessment under Sections 147 and 148 of the Income Tax Act, 1961 ( for short 'the Act').

2.

The petitioner filed a return for the assessment year 2010$11. The audited balance sheet was a part of the return. The Schedule of Current Liabilities and Provisions read as under:$ "''1!2-"!"#3#'"$$1'"&456 GREATER MOHALI AREA DEVELOPMENT AUTHORITY, SAS NAGAR,







 
 
  

 


  











  







 


 




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3.

The Assessing Officer (A.O.) by a letter dated 27.11.2012 issued a questionnaire item 9 whereof read: "


        

  

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4.

The assessment under section 143(3) of the Act was finalized vide order dated 31.12.2012. The effect of the EDC upon the petitioner's income was not referred to in the assessment orders. 5.

On 06/07.02.2017 a notice under Section 147/148 of the Act was issued proposing to re$open the assessment as according to the A.O., the petitioner's income chargeable to tax had escaped assessment. The reasons recorded on 12.06.2017 were supplied. As much turns on the reasons, it is necessary to refer to them in their entirety. They read as under:$ "

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5,*   During perusal of records in this case, it was seen that the assessee had received External Development Charges (EDC) from Land Developers/Colonizers/Real Estate

Builders/Promoters during the F.Y. 2008$09. The said External Development Charges were not brought to the ambit of tax by the assessee but were instead shown as a liability in its Balance Sheet under the head "Other Liabilities".

It is pertinent to mention here that External Development Charges are received from the Land Developers/Colonizers/Real Estate Builders/Promoters who seek approval from the assessee (i.e. Greater Mohali Area Development Authority) or other Competent Authority to develop a Residential or Commercial or Institutional Zone on their piece/chunk of land. The said amount received under the nomenclature "#$ %   &"is supposed be used by the assessee for carrying on of External Development Works and other related jobs outside the land of the Land Developer/Colonizer/Real Estate Builder/Promoter who has paid the External Development Charges (EDC).

Thus, it is seen that the receipt of External Development Charges by the asseseee is attributable to its regular business. Further, the receipt and expenditure of the said amount is a regular, routine and re$occurring phenomenon as External Development Charges are being regularly received by the assessee from Land Developers/Colonizers/Real Estate Builders/Promoters in every year and similarly these are being regularly expended/utilized/spent for the purpose of carrying out External Development Works and other related jobs. In light of the above, it is observed that both the receipts as well as the expenditure related to External Development Charges (EDC) are clearly revenue in nature as they are attributable to the regular business of the assessee and are also a routine, regular and re$occurring phenomenon.

Accordingly, the assessee was required to credit the receipts of External Development Charges to its P&L Account and debit the expenses incurred on account of the same. Since, the assessee is following Cash System of accounting, therefore, the net amount received by the assessee during the year as External Development Charges was required to be brought to the ambit of tax by crediting the receipts earned during the year and debiting the expenses incurred on account of external development work and other related jobs.

However, the assessee had failed to do so and has rather shown the External Development Charges (EDC) received as a liability in its Balance Sheet. The said failure on the part of the assessee has led to escapement of taxable income as the net income earned on account of the External Development Charges has escaped the ambit of taxation. Thus, after independent verification of records with respect to the above mentioned facts, I have reasons to believe that an income of Rs.1,27,70,37,351/$ has escaped assessment within the meaning of Section 147 of the Income Tax Act, 1961.

A calculation of the same is as under:$ i.

Opening Balance of External Development Charges (EDC) as on 01.04.2009.

Rs.327,96,93,897/$ ii.

EDC Received during the year Rs.136,41,70,883/$ iii.

Utilization during the year Rs.8,71,33,532/$ iv.

Closing Balance of External Development Charges (EDC) as on 31.03.2010.

Rs.455,67,31,248/$.

v.

Net amount received during the year on account of External Development Charges (i.e. (iv) $ (i) Rs.127,70,37,351/$.

This escapement of income is due to failure of the assessee to fully and truly disclose all the material facts relating to its income and due to default on its part by not treating the amount received on account of External Development Charges (EDC) as Revenue receipt."

6.

The petitioner filed objections. The respondent disposed of the objections vide order dated 27/30.06.2017. It was held that re$opening of the assessment was not based on a change of opinion and that the proceedings are valid. The petitioner was directed to show$cause why addition should not be made. The grounds for the objections filed and the reasons for the order rejecting them were raised before us. It is not necessary, therefore, to refer to the same here.

7.

The question that arises is whether the proceedings for reassessment are maintainable in view of the petitioner's reply dated 05.12.2012 to the respondents' queries raised in their letter dated 27.11.2012.

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Mrs. Suri also rightly submitted that it is essential that the Assessing Officer had reason to believe that income chargeable to tax escaped assessment and that a mere change of opinion is no ground to initiate proceedings for reassessment.

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10.

The reasons for re$opening which we quoted earlier clearly indicate that the Assessing Officer had reason to believe that income on account of EDC had escaped assessment. The assessment order, as we noted, did not deal with EDC or its effect upon the petitioner's income. The reasons on the other hand deal in considerable detail with the concept of EDC, the purpose of EDC, the manner in which it is paid and received and then accounted for and utilized. None of these aspects are even remotely adverted to in the assessment order and as we will indicate later, in the assessment proceedings that preceded it. Based on these facts, the Assessing Officer

drew his inferences of law viz. that EDC is revenue in nature. We do not for a moment suggest that the reasons draw the correct inferences. All that we say is that the Assessing Officer had reason to believe though not to hold that income on account of EDC had escaped assessment. 11.

We will shortly deal with the question whether the reasons constituted a mere change of opinion.

12.

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14.

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15.

The mere absence in the assessment order of a reference to the EDC received by the petitioner is not conclusive. What is important is the reason for its absence. In our view it was on account of the assesses failure to disclose fully and truly all material facts. The words "all material facts are significant". Moreover, section 147 requires the assessee to declare the material not merely fully but also "truly". In our view these requirements were not met either in the return or in the answer to the query relating to EDC.

16.

A questionnaire was indeed issued during the assessment proceedings. There was, however, no specific question with regard to EDC. The petitioner was requested to provide "details of current liabilities for each Account amounting to Rs.7,311,864,244.78".

Although the Assessing Officer called upon the petitioner to provide details of current liabilities for each account, the petitioner merely forwarded the details mentioned in the said schedule to the balance sheet. The manner in which these details were forwarded is important. Let us first proceed on the basis that the details were forwarded strictly as stated in the balance sheet. As we noted earlier, the balance sheet included a "SCHEDULE OF CURRENT LIABILITIES AND PROVISIONS". The Schedule was divided into two parts $ 'A' and 'B'. The caption of part A was "Current Liabilities" and the caption of part$B was "Others Liabilities". The query related only to part 'A' i.e. current liabilities.

As the query was with respect to current liabilities it is obvious that the Assessing Officer would have applied his mind only to the entries under "A Current Liabilities" and not the entries under "B Others Liabilities". EDC was not referred to in part "A" Current Liabilities" but only in part "B Other Liabilities". Thus the Assessing Officer's attention was not focused on the entries under "B Others Liabilities". 17.

It is true that the query refers to the amount of Rs. 7,311,864,244.78 which is the aggregate of "A Current Liabilities" and "B Others Liabilities". Mrs. Suri's reliance upon the fact that as this included amounts under "B Other Liabilities", it follows that the AO considered the effect of EDC is not well founded. It is possible that the Assessing Officer mentioned the amount only because it stood at the foot of the Schedule.

18.

From a perusal of the order sheet of the A.O. it is evident that after the filing of the reply to the questionnaire, details were asked only regarding administrative expenses incurred office$wise, installments

received of houses and details of houses and their costs, as to why CPF contribution may not be dis$allowed. This itself shows that there was no discussion or application of mind by the A.O. on the issue of EDC. 19.

Moreover in answer to the queries the petitioner did not at least clearly show EDC to be a current Liability. We set out the relevant portion of the reply dated 05.12.2012. Paragraph$8 thereof had the caption "Detail of sundry creditors is given as under:$...." The table below had two columns, namely, headed "Current Liabilities" and "Year 31.03.2010 Amount (In Rs......)" Below the heading of the first column of the table "Current Liabilities" was a list of 8 "Creditors and Payables". EDC was not referred to in paragraph$8. Paragraph$9 of the reply had the caption "Detail of Current Liabilities is given as under:$..." The table below had two columns with the headings "Current Liabilities" and "Year 31.03.2010 Amount (In Rs.....")

Below the heading of the first column were two headings/items, the first heading "Current Liabilities as per the detail given in point No.8" and the second heading "Other Liabilities". There are no items mentioned under the first heading. However, EDC is referred to in items 2 and 7 of the second heading "Other Liabilities". Thus, reading paragraphs 8 and 9 together gives the impression that the current liabilities were as stated in Point No.8/para$8. As noted earlier, paragraph$8 purported to furnish the details of sundry creditors; the table thereunder had the column current liabilities below which were the caption "creditors and payables". The 8 items thereunder did not include EDC. The other caption in the first column of the table in paragraph$9 was "Other Liabilities" and it is under this caption that the EDC is referred to.

liability". The Assessing Officer's query in the letter dated 27.11.2012 pertains to the details of current liabilities. The Assessing Officer's attention would obviously have been focused on the items referred to by the assessee under the caption "current liabilities" as the query was in respect of "current liabilities". If the assessee intended EDC to be considered a current liability, it should have been more specific and included EDC under the caption "current liabilities" at least in answer to the Assessing Officer's query. That the method of indicating EDC under the caption "other liabilities" may be permissible under the provisions of the said Act, the Company Act and under the accounting procedure is not relevant for the present purpose.  20.

Added to all this is the fact that apart from the two amounts of EDC being mentioned in the annexure to the balance sheet and in the answer to the queries, there was no disclosure of any material by the petitioner. The petitioner thereby indicated that there was nothing else to be considered with respect to EDC.

21.

This is not a case where any inference had been drawn by the A.O. regarding EDC. The case would have been different if the A.O. during the course of assessment had raised a query with regard to the EDC. The assessee would have produced the material relating to it and thereafter the A.O. would have either accepted the contentions or rejected them. In such circumstances, the primary facts would have been before the A.O. It would have been for him to probe further, if so required. This is not the situation in this case. Hence, the reopening cannot be said to be without jurisdiction. 22.

There is no requirement under Section 147 of the Act that the material forming the basis for reason to believe should be from an outside source. The material on record can also be the basis to re$open the

assessment. We will assume that there was tangible material before the A.O. on record for formation of reason to believe that there was an under assessment. It would not affect the right to reassess. (A) In 7 :  '(9 ?  &   7 >  />  34;@6'0,&0 the Supreme Courtheld as under: IIL0 %!)
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This case goes a step further. There was material even outside the record with the Assessing Officer which requires consideration. There are detailed provisions regarding the EDC. The Act deals with the liabilities to pay EDC. It also deals with the nature of the charge. The statutory agreements to be entered into and declarations to be filed with the authorities also referred to the payment of the EDC. EDC has been the subject matter of litigation before this Court. None of this was before the Assessing Officer in the assessment proceedings. Thus apart from the material on record, there was other tangible material that was not considered during the assessment proceedings.

There is no question in the facts of the present case of the re$opening being on account of a change of opinion. The issue of change of opinion could only arise if the issue had been dealt with or the material with regard to EDC was there before the A.O. at the time of framing the assessment. As is apparent from the record, the issue was not considered at the time of assessment. There was no occasion for the A.O. to make further inquiry with regard to EDC.

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There cannot be any quarrel with the proposition that the assessee has no control over the framing of an assessment order. There can be cases where after discussion the A.O. may be satisfied on the issue and does not find it appropriate to discuss the same in the assessment order. This is not the case here. The petitioner has failed to establish that there was any discussion or adjudication on the said issue. In such circumstance, there would be no occasion for the petitioner to argue that merely because the said issue has not been discussed in the assessment order, it will not mean that it was not considered.

26.

In this view of the matter it is not necessary to consider Mrs. Dugga's other submissions including as to the maintainability of the petition and the authority of the petitioner to file this petition. 27.

The writ petition is dismissed.

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   )*   7##3!?7!<%'8#7 Whether speaking/reasoned √Yes/No Whether Reportable:

√Yes/No