DAXESHKUMAR NATWERLAL PATEL POA PARESHKUMAR KANUBHAI DAVE V. INCOME TAX OFFICER, WARD - I OR HIS SUCCESSOR

SCA/15140/2018

AI Insights

The case involves Daxeshkumar Natwerlal Patel, who challenged a notice issued by the Income Tax Officer under section 148 of the Income Tax Act, 1961, seeking to reopen his assessment for the year 2011-12. The notice was based on the alleged non-disclosure of capital gains from the sale of immovable property. The petitioner argued that he had already included the capital gains in his return and that the reassessment was initiated without proper factual basis or legal authority. The court examined the reasons for reopening the assessment and found them to be factually incorrect and lacking in proper application of mind, leading to the quashing of the notice.

• Counselvise Citation: [2018] 140 COUNSELVISE.COM (IT) 685226 (HC-GUJARAT)
• Appeal Type: Others
• Pronouncement Date: 11-12-2018
• Assessment Year: misc
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Others
• Court: HIGH COURT
• Department Lawyers: MAUNA BHATT
• Assessee Lawyers: S N DIVATIA
• Keywords: Application of mind; Capital Gain; Income Tax; Jurisdiction; Notice; Reassessment
• Section: 147; 148; 143(3); 151

Judgement Text

"C/SCA/15140/2018 JUDGMENT IN THE HIGH COURT OF GUJARAT AT AHMEDABAD R/SPECIAL CIVIL APPLICATION NO. 15140 of 2018 FOR APPROVAL AND SIGNATURE: HONOURABLE MS.JUSTICE HARSHA DEVANI and HONOURABLE DR.JUSTICE A. P. THAKER ====================================== 1 Whether Reporters of Local Papers may be allowed to see the judgment? NO 2 To be referred to the Reporter or not? NO 3 Whether their Lordships wish to see the fair copy of the judgment? NO 4 Whether this case involves a substantial question of law as to the interpretation of the constitution of India, 1950 or any order made thereunder? NO ====================================== DAXESHKUMAR NATWERLAL PATEL POA PARESHKUMAR KANUBHAI DAVE Versus INCOME TAX OFFICER, WARD - I OR HIS SUCCESSOR ====================================== Appearance: MR SN DIVATIA(1378) for the PETITIONER(s) No. 1 MRS MAUNA M BHATT(174) for the RESPONDENT(s) No. 1 ====================================== CORAM: HONOURABLE MS.JUSTICE HARSHA DEVANI and HONOURABLE DR.JUSTICE A. P. THAKER Page 1 of 10 C/SCA/15140/2018 JUDGMENT Date : 11/12/2018 ORAL JUDGMENT (PER : HONOURABLE MS.JUSTICE HARSHA DEVANI) 1. Rule. Mrs. Mauna M. Bhatt, learned Senior Standing Counsel, waives service of notice of rule on behalf of the respondent. 2. Having regard to the controversy involved in the present case which lies in a very narrow compass and with the consent of the learned advocates for the respective parties, the matter was taken up for final hearing today. 3. By this petition under article 226 of the Constitution of India, the petitioner has challenged the validity of the notice dated 31.03.2018, issued by the respondent under section 148 of the Income Tax Act, 1961 (hereinafter referred to as, 'the Act'), whereby, the respondent proposes to reassess the total income of the petitioner for assessment year 2011-12. 4. The petitioner is an individual engaged in the business of construction activities as proprietor of Safal Infrastructure. The petitioner filed his return of income for assessment year 2011- 12 on 07.09.2011 declaring total income of Rs.26,14,610/-. The case was taken up for scrutiny and assessment came to be made under section 143(3) of the Act on 21.01.2014 on a total income of Rs.26,50,610/-. Thereafter, the respondent on the basis of information received by him carried out verification of the financial transaction of sale of immovable property being residential house bearing C.S. No.38, Muni. C.No. 1/25/11 at Rang Mahaal Mohalla, Mehsana for a sum of Rs.6,07,000/- Page 2 of 10 C/SCA/15140/2018 JUDGMENT during the financial year relevant to assessment year 2011-12, and issued a notice dated 21.03.2018 to the petitioner for verification of above transaction. In response thereto, the petitioner gave reply dated 26.03.2018 pointing out that the capital gain arising from the transaction of sale of building in Rang Mahaal has been included in his income. The petitioner also enclosed the Computation of Income and a copy of the Sale Deed. Thereafter, by the impugned notice dated 31.03.2018, the respondent seeks to reopen the assessment of the petitioner for the assessment year 2011-12. Upon receipt of such notice, the petitioner filed return of income vide letter dated 03.04.2018 and thereafter, called upon the respondent to furnish a copy of the reasons recorded. Upon such reasons being furnished, the petitioner filed objections vide letter dated 26.05.2018. By an order dated 16.07.2018, the respondent rejected the objections. Being aggrieved, the petitioner has filed the present petition. 5. Mr. S. N. Divatia, learned advocate for the petitioner, submitted that in this case, the assessment for assessment year 2011-12 is sought to be reopened by the impugned notice dated 31.03.2018, which is clearly beyond a period of four years from the end of relevant assessment year, and hence, in the absence of any failure on the part of the petitioner to disclose fully and truly the material facts necessary for his assessment, the assumption on the part of the Assessing Officer is without any authority of law. The attention of the court was invited to the reasons recorded for reopening the re- assessment to point out that the Assessing Officer has recorded that the petitioner has sold the immovable property on 10.12.2010 for consideration of Rs.6,07,000/- during the Page 3 of 10 C/SCA/15140/2018 JUDGMENT financial year 2010-11. Referring to the return of income filed by the petitioner and more particularly, to the computation of long term capital gain, it was pointed out that the sale value of the building is Rs.6,48,000/- and not Rs.6,07,000/- as recorded in the reasons. Thus, the reasons recorded are factually incorrect. It was further pointed out that the Assessing Officer has recorded that the assessee has not shown capital gain in the return of income for the above- mentioned property. It was pointed out that in the return on income, the long term capital gain of Rs.3,76,751/- is duly stated and in the statement of long term capital gain, there is a reference to the description of the property and all other details including the sale value and the long term capital gain. It was submitted that, therefore, the reasons have been recorded without application of mind to the facts of the case. 5.1 The learned advocate further pointed out that the Assessing Officer has recorded that a letter for verification of sale of immovable property was issued to the assessee on 21.03.2018 and the assessee had filed his reply on 26.03.2018 but had not furnished any details in this regard. Attention was invited to the reply dated 26.03.2018, enclosed along with the petition, to point out that the petitioner had duly furnished the necessary details. It was submitted that, therefore, the Assessing Officer has proceeded to issue the notice under section 148 of the Act without proper application of mind to the facts of the case. It was further pointed out that the Assessing Officer has recorded that there was no scrutiny assessment under section 143(3) of the Act for the year under consideration, which again reflects lack of proper application of mind on the part of the Assessing Officer and that in absence Page 4 of 10 C/SCA/15140/2018 JUDGMENT of any income having escaped assessment, the Assessing Officer was not justified in issuing the impugned notice and assuming the jurisdiction under section 147 of the Act. 6. On the other hand, Mrs. Mauna M. Bhatt, learned Senior Standing Counsel for the respondent, reiterated the contentions raised in the affidavit-in-reply. It was submitted that insofar as the incorrect recording of the fact that in this case there was no scrutiny assessment under section 143(3) of the Act is concerned, the Assessing Officer has duly corrected himself in the order disposing of the objections by pointing out that, in the first paragraph of the reasons recorded it is duly reflected that the assessment under section 143(3) of the Act had been carried out. It was urged that income has escaped assessment on account of failure on the part of the petitioner to disclosed fully and truly all material facts and therefore, there is no jurisdictional error on the part of the Assessing Officer in issuing the impugned notice, so as to warrant interference by this court. 7. Before adverting to the merits of the case, reference may be made to the reasons recorded for reopening the assessment which read as under: “1. Brief details of the Assessee: Assessee is an individual and he has filed the return for the year under consideration declaring total income at Rs.26,14,610/-. The assessee is engaged in the business of construction activities. The assessment u/s. 143(3) of the Act was completed on 21.01.2014 determining total Page 5 of 10 C/SCA/15140/2018 JUDGMENT income at Rs.26,50,610/- after making addition of Rs.36,000/- on account of disallowance of salary expenses. 2. Brief details of information collected/received by the AO: From the ITS details it is seen that the assessee has sold immovable property (Reg. No. 13609) on 10/12/2010 for the consideration of Rs.6,07,000/- during the F.Y. 2010- 11. Assessee has not offered amount to the extent of Rs.6,07,000/- for income tax. 3. Analysis of information collected/received: The assessee has not shown capital gain in the return of income for the above mentioned property. 4. Enquiries made by the AO as sequel to information collected/received: In this matter a letter for verification of sale of immovable property was issued to the assessee on 21.03.2018 and the assessee filed his reply in tapal on 26.03.2018. The assessee has not furnished any details in this regard. 5. Findings of AO: From the above facts available, it appears that capital gain of sale of immovable property of Rs.6,07,000/- has Page 6 of 10 C/SCA/15140/2018 JUDGMENT escaped. 6. Basis of forming reason to believe and details of escapement of income: Therefore, from the above facts, I have reason to believe that income to the extent of Rs.6,07,000/- chargeable to the tax has escaped assessment for the year under consideration. 7. No information about any asset outside India. 8. Applicability of the provisions of section 147/151 to the facts of the case: In this case a return of income was filed for the year under consideration but no scrutiny assessment u/s. 143(3) of the was made. Accordingly in this case, the only requirement to initiate proceeding u/s. 147 is reason to believe which has been recorded above. (refer paragraph 6) It is pertinent to mention here that in this case the assessee has filed return of income for the year under consideration but no assessment as stipulated u/s. 2(40) of the Act was made and the return of income was only processed u/s. 143(1) of the Act. In view of the above, the provisions of clause (b) of Explanation 2 to section 147 are applicable to facts of this case and the assessment year under consideration is deemed to be a case where income chargeable to tax has escaped Page 7 of 10 C/SCA/15140/2018 JUDGMENT assessment. In this case more than four years have lapsed from the end of assessment year consideration. Hence necessary sanction to issue notice u/s. 148 has been obtained separately from Principle Commissioner of income tax as per the provisions of section 151 of the Act.” 8. On a bare perusal of the reasons recorded, it is apparent that the Assessing Officer seeks to reopen the assessment on the ground that the petitioner had sold the immovable property for a consideration of Rs.6,07,000/- during financial year 2010-11 but had not shown the capital gain arising out of such transaction in the return of income and therefore, income chargeable to tax has escaped assessment. In this regard, a perusal of the return of income filed by the petitioner shows that he has duly shown the long term capital gain arising out of the sale of property in question and has also given a detailed computation of income in the statement of Long Term Capital Gain. Therefore, the Assessing Officer appears to have proceeded on a factually incorrect premise to the effect that the petitioner had not offered the long term capital gain for taxation. 9. Moreover, it is evident that the consideration received on account of sale of the immovable property as reflected in the reasons recorded is also incorrect inasmuch as the correct figure is Rs.6,48,000/- and not Rs.6,07,000/-. Besides, by the letter of verification dated 21.03.2018, the Assessing Officer had called upon the petitioner to furnish the details of sale of the property in question, in response to which, the petitioner Page 8 of 10 C/SCA/15140/2018 JUDGMENT had given a reply dated 26.03.2018 pointing out that transaction of sale building in Rang Mahaal which has been mentioned in the letter dated 21.03.2018 and the capital gain emerging therefrom, has been included in the income. The petitioner had also enclosed copies of the computation of income as well as the sale deed of the property in question. Despite the aforesaid position, in the reasons recorded, the Assessing Officer has stated that the assessee has not furnished any details in this regard despite letter having been issued to him. 10. In the aforesaid backdrop, it is evident that the Assessing Officer has not applied his mind to the facts of the case and that the formation of belief on the part of the Assessing Officer that income chargeable to tax has escaped assessment is also based on an incorrect premise that the petitioner had not offered the capital gain arising from the sale of immoveable property in the return of income. Under the circumstances, on the basis of the material on record, the Assessing Officer could not have formed the belief that income chargeable to tax has escaped assessment in the case of the petitioner. Therefore, the prerequisite condition for reopening the assessment is not satisfied in the present case. 11. Moreover, in this case, the assessment is sought to be reopened beyond a period of four years from the end of relevant assessment year. Therefore, unless there is any failure on the part of the petitioner to disclose fully and truly all material facts necessary for his assessment for the year under consideration, the assumption of jurisdiction under section 147 of the Act on the part of the Assessing Officer is without any Page 9 of 10 C/SCA/15140/2018 JUDGMENT authority of law. The facts as emerging from the record as discussed hereinabove, make it amply clear that the petitioner had duly furnished all necessary details for consideration, consequently, in the absence of any failure on the part of the petitioner to furnish all material facts necessary for his assessment, the assumption of jurisdiction on the part of the Assessing Officer under section 147 of the Act is invalid. 10. For the forgoing reasons, the petition succeeds and is, accordingly allowed. The impugned notice dated 31.03.2018 (Annexure 'A' to the petition), issued under section 148 of the Act for assessment year 2011-12 is hereby quashed and set aside. Rule is made absolute accordingly, with no order as to costs. [Harsha Devani, J.] [A. P. Thaker, J.] hiren Page 10 of 10 "