DEVENDRASINH CHHATRASINH VAGHELA V. JOINT COMMISSIONER OF INCOME TAX (OSD)

SCA/3506/2018

AI Insights

The case involves Devendrasinh Chhatrasinh Vaghela, the petitioner, who challenged a notice issued by the Joint Commissioner of Income Tax (OSD), the respondent, to reopen his income tax assessment for the year 2012-13. The original assessment was completed under Section 143(3) of the Income-tax Act, where the petitioner's income was accepted as declared. The reopening notice was issued after a scrutiny revealed potential discrepancies in the claims made under Section 54B regarding the sale of agricultural lands. The court examined whether the reopening was justified, considering the time elapsed and the absence of any undisclosed material facts by the petitioner.

• Counselvise Citation: [2018] 140 COUNSELVISE.COM (IT) 690712 (HC-GUJARAT)
• Appeal Type: Others
• Pronouncement Date: 20-08-2018
• Assessment Year: misc
• Other Referred Cases: Gujarat Power Corporation Ltd. vs. Assistant Commissioner of Income-tax
• Laws Referred To: Income-tax Act
• Result in Favour of: Others
• Court: HIGH COURT
• Department Lawyers: MAUNA BHATT
• Assessee Lawyers: TUSHAR HEMANI; VAIBHAVI PARIKH
• Keywords: Agriculture; Dairy Farming; Deduction under section 54B; Interest; Non-Agricultural Land; Reopening of assessment; Short Term Capital Gain; Income from rental charges
• Section: 147; 148; 143(3); 54B; 50C

Judgement Text

"C/SCA/3506/2018 ORDER IN THE HIGH COURT OF GUJARAT AT AHMEDABAD R/SPECIAL CIVIL APPLICATION NO. 3506 of 2018 ========================================================== DEVENDRASINH CHHATRASINH VAGHELA Versus JOINT COMMISSIONER OF INCOME TAX (OSD) ========================================================== Appearance: MR TUSHAR HEMANI with MS VAIBHAVI K PARIKH(3238) for the PETITIONER(s) No. 1 MRS MAUNA M BHATT(174) for the RESPONDENT(s) No. 1 ========================================================== CORAM: HONOURABLE MR.JUSTICE AKIL KURESHI and HONOURABLE MR.JUSTICE B.N. KARIA Date : 20/08/2018 ORAL ORDER (PER : HONOURABLE MR.JUSTICE AKIL KURESHI) 1. The petitioner has challenged a notice dated 6.9.2017 issued by the respondent – Assessing Officer to reopen the petitioner’s assessment for the assessment year 2012­13. 2. Brief facts are as under :­ 2.1 The petitioner is an individual and is engaged in various businesses. He earns income from rental charges, interest, dairy farming and agriculture. For the assessment years 2012­13, the petitioner had filed return of income on 18.3.2014 declaring total income of Rs.38.99 lacs (rounded off). Such Page 1 of 12 C/SCA/3506/2018 ORDER return was taken in scrutiny. During the scrutiny assessment, Assessing Officer raised multiple queries which were replied by the assessee. The Assessing Officer passed order of assessment under Section 143(3) of the Income­tax Act, (‘the Act’ for short) on 30.3.2015 accepting the returned income. 3. To reopen such assessment, the respondent issued the impugned the notice, as can be seen was done beyond the period of four years from the end of relevant assessment year. In order to do so, he had recorded following reasons :­ “In this case, return of income filed by the assessee on 18.03.2014 declaring total income at Rs.38,99,360/­. The case was selected under scrutiny and the assessment was finalized u/s.143(3) on 30.03.2015 determining the total income at Rs.38,99,360/­. Scrutiny of the records revealed that, the assessee has claimed and allowed deduction of Rs.4,54,15,006/­ u/s.54B of the IT Act in computation of Short Term Capital Gain for the sale of four agricultural lands. Subsequently, it was found that the lands sold were held by the assessee for less than two years or lands sold were non­ agricultural land. The details of which are as under :­ Purchase value Purchase value Description of property Document No. Sale value Short Term Capital Gain Exemption claimed Remarks 5421 dt. 11344250 Village 5621 dt. 25387755 14043505 14043505 With the Page 2 of 12 C/SCA/3506/2018 ORDER 03.05.11 (purchase value as per sale deed Rs.1000000) Makarba City,Taluka – Ahmedabad, Block/Survey no.548, Hissa- 18, 2630 Sq.Mt. Agri.land. 7.5.11 period of 4 days property was sold 11637 dt. 17.11.09 5353360 (purchase value Rs.3642000/st amp value- 178500 regs. Fees Rs.36600) Village Makarba City,Taluka – Ahmedabad, Block/Survey no.548, Hissa- 6, 1214 Sq.Mt. Non-Agri.land. 11368 dt. 01.10.11 16550000 11196840 11196840 Less than period of 2 yr. property was sold and land was sold as non-agri. 9338 dt. 25.09.09 1237435 Village Makarba City,Taluka – Ahmedabad, Block/Survey no.548, Hissa- 31, 3035 Sq.Mt. Non- Agri.land. 9323 dt. 05.08.11 6440816 5203381 5203381 Period of 2 yr. was not completed and land was sold as non-agri. - 4028520 Village Makarba City,Taluka – Ahmedabad, Block/Survey no.548, Hissa- 16, 708 Sq.Mt. Non-Agri.land. 13459 dt. 16.12.11 19000000 14971480 14971480 Nonagricult ural permission was granted vide order no.CB/Ad/M NA/Sr.532 dt. 13.11.09 Thus, lands sold by the assessee was not utilized for the agricultural purpose two years immediately preceding the date on which transfer took place. Hence the assessee has violated the provision of section 54B of the IT Act and deduction was incorrectly allowed. This resulted into under assessment of Rs.4,54,15,006/­. In view of the above, I have reason to believe that, income chargeable to tax has escaped assessment within the meaning of section 147 of the IT Act for the A.Y. 2012­13 by an amount of Rs.4,54,15,006/­. The assessee also failed to disclose fully and truly all material facts necessary for his assessment. Therefore, this is a fit case for issue of notice u/s.148 of the IT Act, for the A.Y. 2012­13.” Page 3 of 12 C/SCA/3506/2018 ORDER 4. Upon being supplied the reasons the assessee filed objections to the notice of reopening under a letter dated 15.12.2017. Such objections were rejected by the Assessing Officer by an order dated 16.1.2018 upon which this petition is filed. 5. Appearing for the petitioner learned counsel Shri Tushar Hemani contended that the notice has been issued beyond a period of four years from the relevant assessment year. In absence of any failure on part of the petitioner to discuss truly and fully all material facts such notice could not have been issued. He further contended that all the issues which the Assessing Officer now wants to examine, were considered during the original scrutiny assessment. After thorough examination, the Assessing Officer accepted the declaration made by the petitioner. Any attempt on his part now to re­examine these issues could amount to change of opinion. 6. On the other hand, learned counsel Mrs. Bhatt for the Department opposed the petition contending that the petitioner’s claim of long term capital gain was not supported by necessary facts. The petitioner has not held the agriculture land for more than two years Page 4 of 12 C/SCA/3506/2018 ORDER before transfer and there was no evidence that the land was put to agriculture use in the last two years before sale. These aspects were not examined by the Assessing Officer during the original assessment. 7. We may recall the notice for reopening is based on the Assessing Officer’s belief that the assessee had claimed deduction under Section 54B of the Act in relation to the proceeds received upon sale of agricultural lands which claim was not sustainable. His contentions were that these properties were not held by the assessee for the requisite period before sale and in some cases the lands were not put to agriculture use for two years prior to sale. Perusal of the materials would show that during the original assessment the Assessing Officer had examined such claim of the assessee at considerable length. As would be clear during the discussion hereinafter, the Assessing Officer had raised multiple queries which were duly replied by the assessee before the final order of assessment was passed in which the Assessing Officer made no additions. 8. For example, in letter dated 17.2.2015 the Assessing Officer called upon the assessee to Page 5 of 12 C/SCA/3506/2018 ORDER provide details including regarding “full details of properties alongwith evidences of sale/purchase during the year.” In yet another letter dated 13.3.2015 the Assessing Officer indicated as under :­ “4. Further, as per the AIR information available with this office, it is seen that you have purchased various immovable properties on different dates total valued at Rs.13,96,51,750/­. Further, as per the AIR information, it is also noticed that you have sold various immovable properties on different dates total valued at Rs.7,85,48,500/­. You are, therefore, required to furnish details of the properties purchased explaining the source thereof with supporting evidences and copies of purchase deeds as well as details of sold properties with copies of purchase and sale deeds of the sold properties with working of capital gain arisen. Since you are not complying the statutory notices issued till date, in the case of absence of the above details, you are requested to show cause as to why the purchases of immovable properties should not be treated as unexplained purchases out of undisclosed sources to the tune of Rs.13,96,51,750/­ and the sale consideration received on sale of properties at Rs.7,85,48,500/­ should not be treated as your income for the year under consideration.” 9. Similarly, during the assessment the Assessing Officer had asked the assessee to provide revised IPR acknowledgment with Page 6 of 12 C/SCA/3506/2018 ORDER computation of income. 10. All these questions and details were replied and supplied by the assessee over the period. For example, under a letter dated 23.3.2015 the assessee provided full details of properties, evidences of sale and purchase during the year. Alongwith the same reply the assessee had also provided full working out of the short term capital gain. Under letter dated 28.3.2015, the assessee had provided the revised IPR acknowledgment with computation of income. Copies of personal balance­sheet, profit and loss account and capital account alongwith evidences were provided. 11. On 26.3.2015, the Assessing Officer asked the assessee to explain why the valuation of disposed of property not be adopted in terms of Section 50C of the Act, since higher valuation was shown for the stamp duty purpose. To this, the assessee replied under letter dated 30.3.2015 pointing out that though in the balance­sheet the actual sale consideration received by the assessee is shown, for the purpose of income­ tax valuation as per Section 50C is adopted. 12. It can thus be seen that the assessee had Page 7 of 12 C/SCA/3506/2018 ORDER made necessary claims in the return filed in relation to the proceeds out of sale of lands. The claim included the deduction under Section 54B of the Act. The Assessing Officer examined the transactions and the petitioner’s claim during the assessment proceedings. As noted multiple queries were raised. All such queries were answered. Documents called for were supplied. It was only after thorough investigation that the Assessing Officer passed order of assessment. It would be open for the Assessing Officer to re­examine such a claim on the premise that one more angle involved in the claim required consideration which had not taken place during the original assessment. All the documents and materials necessary for examination of the claim was before the Assessing Officer. In fact as noted, the Assessing Officer also was curious to examine the applicability of Section 50C of the Act, since the valuation for stamp duty purposes was higher than declared sale consideration. The assessee produced the sale deeds and pointed out that it was the valuation adopted for the purpose of stamp duty which was declared as the sale proceeds for the purpose of income­tax. Page 8 of 12 C/SCA/3506/2018 ORDER 13. In case of Gujarat Power Corporation Ltd., vs. Assistant Commissioner of Income­tax reported in (2013) 350 ITR 266 (Guj.) the Division Bench of this Court in the context of reopening of the assessment previously framed after scrutiny observed as under :­ “41. The powers under section 147 of the Act are special powers and peculiar in nature where a quasi­judicial order previously passed after full hearing and which has otherwise become final is subject to reopening on certain grounds. Ordinarily, a judicial or quasi­judicial order is subject to appeal, revision or even review if statute so permits but not liable to be re­opened by the same authority. Such powers are vested by the Legislature presumably in view of the highly complex nature of assessment proceedings involving large number of assessees concerning multiple questions of claims, deductions and exemptions, which assessments have to be completed in a time frame. To protect the interest of the revenue, therefore, such special provisions are made under section 147 of the Act. However, it must be appreciated that an assessment previously framed after scrutiny when reopened, results into considerable hardship to the assessee. The assessment gets reopened not only qua those grounds which are recorded in the reasons, but also with respect to entire original assessment, of course at the hands of the revenue. This obviously would lead to considerable hardship and uncertainty. It is precisely for this reason that even while recognizing such powers, in special requirements of the statute, certain safeguards are provided by the statute which are zealously guarded by the courts. Interpreting such statutory provisions courts upon courts have held that Page 9 of 12 C/SCA/3506/2018 ORDER an assessment previously framed cannot be reopened on a mere change of opinion. It is stated that power to reopening cannot be equated with review. 42. Bearing in mind these conflicting interests, if we revert back to central issue in debate, it can hardly be disputed that once the Assessing Officer notices a certain claim made by the assessee in the return filed, has some doubt about eligibility of such a claim and therefore, raises queries, extracts response from the assessee, thereafter in what manner such claim should be treated in the final order of assessment, is an issue on which the assessee would have no control whatsoever. Whether the Assessing Officer allows such a claim, rejects such a claim or partially allows and partially rejects the claim, are all options available with the Assessing Officer, over which the assessee beyond trying to persuade the Assessing Officer, would have no control whatsoever. Therefore, while framing the assessment, allowing the claim fully or partially, in what manner the assessment order should be framed, is totally beyond the control of the assessee. If the Assessing Officer, therefore, after scrutinizing the claim minutely during the assessment proceedings, does not reject such a claim, but chooses not to give any reasons for such a course of action that he adopts, it can hardly be stated that he did not form an opinion on such a claim. It is not unknown that assessments of larger corporations in the modern day, involve large number of complex claims, voluminous material, numerous exemptions and deductions. If the Assessing Officer is burdened with the responsibility of giving reasons for several claims so made and accepted by him, it would even otherwise cast an unreasonable expectation which within the short frame of time available under law would be too much to expect him to carry. Irrespective of this, in a given case, if the Page 10 of 12 C/SCA/3506/2018 ORDER Assessing Officer on his own for reasons best known to him, chooses not to assign reasons for not rejecting the claim of an assessee after thorough scrutiny, it can hardly be stated by the revenue that the Assessing Officer can not be seen to have formed any opinion on such a claim. Such a contention, in our opinion, would be devoid of merits. If a claim made by the assessee in the return is not rejected, it stands allowed. If such a claim is scrutinized by the Assessing Officer during assessment, it means he was convinced about the validity of the claim. His formation of opinion is thus complete. Merely because he chooses not to assign his reasons in the assessment order would not alter this position. It may be a non­reasoned order but not of acceptance of a claim without formation of opinion. Any other view would give arbitrary powers to the Assessing Officer. 43. We are, therefore, of the opinion that in a situation where the Assessing Officer during scrutiny assessment, notices a claim of exemption, deduction or such like made by the assessee, having some prima facie doubt raises queries, asking the assessee to satisfy him with respect to such a claim and thereafter, does not make any addition in the final order of assessment, he can be stated to have formed an opinion whether or not in the final order he gives his reasons for not making the addition.” 14. Additionally, we also notice that in the context of notice of reopening which is issued beyond the period of four years from the end of relevant assessment year, there is nothing on record to suggest that there was any failure on the part of the assessee to Page 11 of 12 C/SCA/3506/2018 ORDER disclose truly and fully all material facts necessary for assessment. Thus an essential pre condition to enable the Assessing Officer to issue notice of reopening is not satisfied. 15. On such grounds, impugned notice is set aside. Petition is allowed and disposed of. (AKIL KURESHI, J) (B.N. KARIA, J) K.K. SAIYED Page 12 of 12 "