PARUL INDUSTRIES V. ASSISTANT COMMISSIONER OF INCOME TAX

SCA/4074/2014

AI Insights

The case involves Parul Industries, which challenged a notice issued by the Assistant Commissioner of Income Tax for reopening their assessment for the Assessment Year 2008-09. The notice was based on audit objections regarding the computation of long-term capital gains, specifically the cost of improvements claimed on a land asset before obtaining non-agricultural use permission. The petitioner argued that the reopening was unjustified as the issues had been previously examined during the original assessment. The court examined the procedural validity of the reopening and found that it was initiated at the behest of the audit party without the Assessing Officer's independent satisfaction, leading to the quashing of the notice.

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 758457 (HC-GUJARAT)
• Appeal Type: Others
• Pronouncement Date: 26-08-2014
• Assessment Year: misc
• Other Referred Cases: CIT v. Kelvinator of India Limited, J.V Agrawal v. Income-tax Officer, Sarla Rajkumar Varma v. Assistant Commissioner of Income-tax, Gujarat Power Corporation Limited v. Asstt. CIT, CIT v. Usha International Limited, Ranchhodbhai Bhaijibhai Patel v. Commissioner of Income-tax, Gujarat-II, Ahmedabad, Surat Textile Mills Limited v. Income-tax Officer
• Laws Referred To: Income-tax Act, 1961
• Result in Favour of: Others
• Court: HIGH COURT
• Department Lawyers: K M PARIKH
• Assessee Lawyers: MANISH SHAH
• Keywords: Assessment Reopening; Audit objections; Income Tax; Long Term Capital Gain; Subjective satisfaction
• Section: 148; 143(3); 142(1); 143(2); 142

Judgement Text

"C/SCA/4074/2014 JUDGMENT IN THE HIGH COURT OF GUJARAT AT AHMEDABAD SPECIAL CIVIL APPLICATION No. 4074 of 2014 FOR APPROVAL AND SIGNATURE: HONOURABLE Ms. JUSTICE HARSHA DEVANI and HONOURABLE Ms. JUSTICE SONIA GOKANI ================================================================ 1 Whether Reporters of Local Papers may be allowed to see the judgment ? 2 To be referred to the Reporter or not ? 3 Whether their Lordships wish to see the fair copy of the judgment ? 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 ? 5 Whether it is to be circulated to the civil judge ? ================================================================ PARUL INDUSTRIES....Petitioner(s) Versus ASSISTANT COMMISSIONER OF INCOME TAX....Respondent(s) ================================================================ Appearance: Mr MANISH J SHAH, ADVOCATE for the Petitioner(s) No. 1 Mr KM PARIKH, ADVOCATE for the Respondent(s) No. 1 ================================================================ CORAM: HONOURABLE Ms. JUSTICE HARSHA DEVANI and HONOURABLE Ms. JUSTICE SONIA GOKANI 26 th August 2014 ORAL JUDGMENT (PER : HONOURABLE Ms. JUSTICE SONIA GOKANI) Rule. Learned senior standing counsel Shri K.M Parikh appears and Page 1 of 27 C/SCA/4074/2014 JUDGMENT waives service of notice of rule on behalf of the respondent. With the consent of the learned counsel, the matter is finally heard and decided today. 2. Challenge in this petition, preferred under Article 226 of the Constitution of India, is to the notice dated 7 th March 2013 issued under Section 148 of the Income­tax Act, 1961 {“the Act” for short} for reopening of the assessment within four years from the end of relevant assessment year ie., 2008­ 09 with the following prayers : “9. (A) this Hon'ble Court be pleased to call for the records of the proceedings, look into them and be pleased to issue a writ of certiorari or any other appropriate writ, order or direction quashing the 148 notice at Exhibit I and the order of the respondent rejecting the objections at Exhibit P. (B) this Hon'ble Court be pleased to issue a writ of mandamus or any other appropriate writ, order or direction asking the respondent not to proceed further in pursuance of the said notice and the order of the respondent rejecting the objections. (C) Pending the hearing and final disposal of this application, this Hon'ble Court be pleased to grant the say of further proceedings in pursuance of Section 148 notice at Exhibit I and the order of the respondent rejecting the objections at Exhibit P. Page 2 of 27 C/SCA/4074/2014 JUDGMENT (D) This Hon'ble Court be pleased to grant any further or other relief, as this Hon'ble Court deems just and proper in the interest of justice, and (E) This Hon'ble Court be pleased to allow this application with costs against the respondent.” 3. Brief facts necessary for the purpose of deciding this petition are as follows :­ 3.1 The petitioner is in the business of dealing in formulations of Pesticides and other chemicals. The petitioner filed its return of income for the Assessment Year 2008­09 on 31 st July 2008 showing its total income at Rs. Nil. On 31 st July 2008, the computation of income statement was given for long term capital gain [LTCG] which reflected an amount of consideration received, the indexed cost and the indexed cost of improvement alongwith the cost of improvement incurred on the land in question. The petitioner also filed a revised return on 30 th January 2009 where, once again, such LTCG was provided on the very lines, as given in the original return of income. 3.2 Notice under sub­section (2) of Section 143 of the Act dated 21 st September 2009 was issued by the Department. Yet another notice under Section 142 of the Act was given on 8 th July 2001 calling for certain details in respect of long term capital gain and other connected details. Yet another notice Page 3 of 27 C/SCA/4074/2014 JUDGMENT dated 14 th August 2010 also was received by the petitioner under Section 142 (1) of the Act asking the petitioner to furnish further details by 27 th August 2010. In such communication, the details were given viz., (i) of the purchase of land; (ii) cost of improvement incurred in different years; and (iii) computation of capital gains which was given alongwith the return of income as well as with the revised return. On due scrutiny, the assessment order under sub­section (3) of Section 143 of the Act was passed on 30 th September 2010. 3.3 Certain audit objections were raised in respect of capital gains, after the scrutiny assessment was over and the Chartered Accountant of the petitioner once again had clarified the very issue and drew the attention of the audit party to the details furnished during the time of original assessment. However, impugned notice dated 7 th March 2013 came to be issued under section 148 of the Act by the Assessing Officer stating that he had a reason to believe that the income chargeable to tax has escaped assessment for the A.Y 2008­09. 3.4 The reasons recorded were requested for and were furnished to the petitioner on 25 th March 2013, which reads thus ­ “Reasons for re­opening for assessment in the case of M/s. Parul Industries, Baroda for the A.Y 2008­09 In this case assessment u/s. 143 (3) was completed on 30.09.2010 determining total income at Rs. 14,32,020/=. 2. Scrutiny of records revealed that the assessee was shown Page 4 of 27 C/SCA/4074/2014 JUDGMENT long term capital gain by Rs. 43,64,203/= after deducting indexed cost of Rs. 14,98,778/= and cost of improvement of Rs. 36,78,639/= from the sales consideration of Rs. 95,41,620/=. Further scrutiny revealed that assessee had shown cost of improvement during 1992­93 – Rs. 85,000/=; 1993­94 Rs. 7,74,370/=; 1994­95 Rs. 1,95,000/=; 1995­96 Rs. 4,23,605; 1996­97 Rs. 2,01,455/=; 1998­99 Rs. 70,406/= and on this expenses assessee is taken indexation benefit of improvement. Further, scrutiny revealed that this property is landed property and permission for non agricultural purpose for industrial use was given on 31.07.1997 by T.D.O, Jambusar and the assessee has claimed cost of improvement even before getting the permission for non­agricultural use which was given in the year 1997. So, the cost of improvement taken on this land is not correct. In the circumstances, Rs. 9,85,140/= is the escapement of income within the meaning of Section 147 of the I.T Act working of which is given as under. In view of the above, I have reason to believe that income of Rs. 9,85,140/= chargeable to tax has escaped assessment within the meaning of section 147 of the I.T Act for the A.Y 2008­09 and this is a fit case for issue of notice u/s. 148 of the Act. Accordingly, issued notice u/s. 148 of the I.T Act, 1961 for the Assessment Year 2008­09 with prior approval of CIT­I, Baroda vide letter No. BRD/CIT­I/Audit/148­reasons/12­ 13 dated 26.02.2013. “ 3.5 Objections to the reopening of the assessment were furnished through the Chartered Accountant on 24 th December 2013 which, of course, were not Page 5 of 27 C/SCA/4074/2014 JUDGMENT found sustainable and the order of disposal of the objections against reopening under Section 147 of the Act came to be passed on 3 rd March 2014. Therefore, the present petition seeking aforementioned reliefs. 3.6 Affidavit­in­reply is filed by the respondent inter alia contending that the notice for reopening is within four years from the end of relevant assessment year, and therefore, the Court is not required to intervene. More particularly, when alternative remedy is available, no interference by way of a writ petition is desirable. It is the case of the respondent that permission for non­agricultural purpose for industrial use of the land was given on 31 st July 1997 by the Taluka Development Officer, Jambusar but, the cost of improvement has been sought much prior to getting the permission for non agricultural use. In other words, when the land was agriculture land, any cost incurred for improvement can not be made available as such land could not be treated as capital asset for such period, as per the provisions of Section 2 (14) of the Income­tax Act, 1961. And, as the assessee was ineligible to claim cost of improvement of land prior to 31 st July 1997 and in absence of any documentary evidence to support such expenses, notice of reopening within four years from the end of relevant assessment year is justifiable. Reliance placed by the petitioner on the decision of the Apex Court in case of CIT v. Kelvinator of India Limited, reported in 302 ITR 561 is held to be distinguishable on the basis of facts of the present case. Page 6 of 27 C/SCA/4074/2014 JUDGMENT 3.7 Affidavit­in­rejoinder is also placed into service by the partner of the petitioner­firm wherein all the averments made by the respondent in the affidavit­in­reply have been denied. 4. Learned counsel Mr. Manish J. Shah appearing for the petitioner and learned senior standing counsel Mr. K.M Parikh appearing for the Department were heard at length. 5. Admittedly, notice issued for reopening under Section 148 of the Act is within four years from the end of relevant assessment year, and therefore, Court should be extremely slow in intervening at such notice stage. Facts are hardly in dispute that at the time of processing the return of income filed by the petitioner, the petitioner in the computation of income had furnished statement of long term capital gain. Details furnished by it is the amount of consideration received, indexed cost, the indexed cost of improvement with cost of improvement in both – original return as well as revised return and the statement of LTCG. It also appears that the notice under sub­section 143 (2) dated 24 th September 2009; a notice under Section 142 dated 8 th July 2010 and communication dated 8 th July 2010 were sent to the petitioner calling for the details for the purpose of assessment. Yet another notice dated 14 th August 2010 under Section 142 (1) also was issued. A chart also has been supplied reflecting the date of purchase of the land, cost of improvement incurred in different Page 7 of 27 C/SCA/4074/2014 JUDGMENT years as well as computation of capital gains. Scrutiny assessment came to be passed under sub­section (3) of Section 143, after considering all these details. It is also to be noticed that assessment order dated 30 th September 2010 is very brief specifying therein that no commercial activities were carried out by the assessee. 5.1 It would be apt to reproduce the assessment order dated 30 th September 2010, which reads thus ­ “The assessee filed the return of income on declaring total loss of Rs. 51,262/=. The return was duly processed u/s. 143 (1) of the Act. Assessee has also filed revised return of income on 2.2.2009 declaring total income of Rs. 43,12,940/=. The case was selected for scrutiny and notice u/s. 143 (2) of the Act was issued on 24.09.2009 and served upon the assessee. Thereafter, notice u/s. 142 (1) of the Act along with detailed questionnaire was issued on 08.07.2009 and served upon the assessee for compliance. 2. In response to notice u/s. 142 (1) of the Act, Shri Rahul Parikh, Chartered Accountant, duly authorized by the assessee, attended from time to time and the case was discussed with him. 3. Assessee is in the business of dealing in formulations of Pesticides and other chemicals. During the year under consideration, no commercial activities has been carried out by the assessee. Copy of Balance sheet, profit and loss account, and other details were called for verified and kept on record. Details as per questionnaire were called for verified and placed on record. Bank pass books and other details were called for and verified on test check basis. Page 8 of 27 C/SCA/4074/2014 JUDGMENT After discussion the return income of the assessee is accepted.” 6. It appears that after the said order was passed on 30 th September 2010, the impugned notice dated 7 th March 2013 came to be issued for reopening the assessment on the ground that the Assessing Officer has reason to believe that the income chargeable to tax for the A.Y 2008­09 has escaped the assessment within the meaning of Section 147 of the Income­tax Act, 1961. 7. It is averred in the petition and also vehemently urged before us that this notice of reopening is at the behest of the audit party and there is absence of subjective satisfaction of the Assessing Officer, while issuing the notice and only at the behest of the audit party, such a notice is issued, and therefore, on that count alone, the same deserves to be quashed. 8. We deemed it appropriate to call for the original file to satisfy ourselves as to whether there was any substance in the averments made by the petitioner. 9. In the original file submitted by the department through the learned standing counsel, it emerges that the audit party at the time of carrying out audit has pointed out that there was incorrect computation of capital gain in case of petitioner in the following manner :­ “As per Section 48 provides that from the full value of consideration received or accruing as a result of the transfer of capital asset, the following amounts should be deducted to arrive Page 9 of 27 C/SCA/4074/2014 JUDGMENT at the amount if capital gains : (i) The cost of acquisition of the capital assets; (ii) The expenditure incurred on any improvement to the capital assets; (iii) Expenditure incurred wholly and exclusively in connection with the transfer of the capital assets, such as stamp duty, registration charges, legal fees, brokerage, etc. The assessee has filed its return of income on Dt. 24.09.2008 declaring total income of Rs. 4312940/­. Thereafter the case was finalized under section 143 (3) on 30.09.2010 and determining total income of Rs. 4312940/­. Scrutiny of records revealed that the assessee was shown long term capital gain by Rs. 4364203/­ after deducting indexed cost of Rs. 1498778/­ and cost of improvement of Rs. 3678639/­ from the sales consideration of Rs. 9541620/­. Further scrutiny revealed that the assessee had shown cost of improvement during 1992­93 Rs. 85,000/­ 1993­94 Rs. 774370/­ 1994­95 Rs. 195000/­ 1995­96 Rs. 423605/­ 1996­97 Rs. 201455/­ 1998­99 Rs. 70406/­ and this expenses assessee is taken indexation benefit of improvement further scrutiny revealed that this property is land and permission of non agricultural purpose for industrial use was given on 31/7/1997 by TDO, Jambusar. So, the cost of improvement taken on this land required to be verified because on this land in each year assessee had spent expenses and expenses before use of non agri. Permission was given in 1997. In absence of detailed regarding expenses done in each year the cost of improvement allowed was not verified. Hence, the assessing officer may be requested to verify the facts as tax involvement of Rs. 985140/­ {3678639 x 20% = 735728/­ + EC 3% Rs. 22072/­ + 234­B 30% Rs. 227340/­ = Rs. 985140/­}. Page 10 of 27 C/SCA/4074/2014 JUDGMENT The A.O may offer his remarks.” 9. The Deputy Commissioner of Income Tax, Circle­ 2 (2), Baroda did not find observation of the audit party acceptable, and therefore, responded thus­ “The observation of the Audit party is not accepted. The expenditure incurred on any improvement as Capital assets is allowable as per Sec. 48 of the Act. The observation that permission of non agricultural purpose was given on 31.7.1997 by the TDO Jambusar is irrelevant. Whether permission given on later date or before is not the question. The question is whether the expenditure incurred on the capital asset or not, which the assessee has made. Assessee has incurred expenditure in each year for the improvement of Capital Asset. In view of the above, it is requested that the Half­margin no. 9 requires to be dropped.” 9.1 The audit party on receiving such reply from the Assessing Officer noted that the Assessing Officer's reply was not acceptable by stating thus, “On being pointed out, the A.O not accepting the objection replied that permission for non agriculture purpose was given on 31/7/1997 by the TDO, Jambusar was irrelevant whether permission given on later date or before was not the question. The question was whether the expenditure incurred on capital asset or not which the assessee had made. The assessee incurred expenses in each year for the improvement of capital asset. The reply of the A.O was not accepted as the I.T Act does not permit expenses which were violating other Act.” 9.2 The Assistant Commissioner of Income­tax vide communication dated 22 nd October 2012 addressed to the Commissioner of Income­tax I, Baroda not only had reproduced the gist of audit party but also reply given by the Assessing Officer to it and thereafter proposed remedial action by stating, thus Page 11 of 27 C/SCA/4074/2014 JUDGMENT ­ “Remedial Action proposed – The objection raised by the audit is not acceptable in principle. In this case, order u/s. 143 (3) of the Act was passed on 30.09.2010. However, to verify the issue on the angle of Audit para and as a precautionary measure, the assessment may be re­opened u/s. 147 of the Act for which the following remedial action is proposed :­ (a) To re­open the assessment u/s. 147 of the I.T Act, for which time is available upto 31.03.2013.” 9.3 Request was made to the Commissioner of Income­tax for permitting to reopen the assessment under section 147 for which the time was available upto 31 st March 2013. On receipt of such permission, notice of reopening under Section 148 had been issued. 10. Thus, it is quite eloquent and apparently clear that at the first go itself, when the audit party raised an objection pointing out that there was an error in computation of capital gain and called for remarks of the Assessing Officer, objection of the audit party was not acceptable to the Assessing Officer. In no unclear terms a noting has been made by the Assessing Officer giving his unequivocal opinion that the expenditure incurred in improvement is allowable under Section 48 of the Act. It further noted that the permission for non agricultural use was given by the TDO, Jambusar on 31.7.1997 is of no relevance. Whether permission given on a later date or before was not a question, but, the question was whether the expenditure incurred was on the Page 12 of 27 C/SCA/4074/2014 JUDGMENT capital asset or not and whether the same has been made good by the assessee or not is the issue and expenditure in each year for improvement of the capital asset had been found to have been incurred by the assessee. 11. The audit party did not find reply of the Assessing Officer acceptable on the ground that the Income­tax Act would not permit expenditure which was violating the other acts, and therefore, it was incorrect computation of capital gain. While proposing the remedial measure of reopening of the assessment for the relevant assessment year, the Assessing Officer still maintained that the computation of income was faultless. While seeking permission from the Commissioner of Income­tax, the Assessing Officer still maintained the objection raised by the audit party is not acceptable in principle. He issued notice with a further note that the order came to be passed on 30 th September 2010 after scrutiny assessment. However, with a view to verify the issue from the angle of audit party and as a precautionary measure, the assessment was proposed to be reopened under Section 147 of the Act. As the time limit was upto 31 st March 2013, in a communication dated 22 nd October 2012, a request was made and the same was permitted. 12. It is apparently clear thus that the Assessing Officer himself had no reason to believe that any income had escaped the assessment and such reopening of the assessment is clearly at the behest of the audit party Page 13 of 27 C/SCA/4074/2014 JUDGMENT objections. This Court, on number of occasions has held and observed that any issuance of notice of reopening at the best of the audit party sans satisfaction of the Assessing Officer himself, such notice must be quashed. What is important while issuing the notice for reopening within four years from the end of relevant assessment year or beyond four years must have a reason to believe that the income chargeable to tax has escaped the assessment. 13. Relevant would be also to refer to a decision of this Court rendered in case of J.V Agrawal v. Income­tax Officer, reported in 200 Taxmann.com 8 wherein the assessee, as a consortium of companies, was engaged in the civil construction business which was in the nature of construction of infrastructure facilities which claimed deduction u/s. 80­IA of the Act, which was allowed in assessment completed under section 143 (3) of the Act. The Assessing Officer reopened the assessment on the ground that during the assessment proceedings, it was remained to be verified whether the assessee was owner of the infrastructure facility for which the deduction under Section 80­IA was claimed and whether expenses incurred were liable to be disallowed under section 40A (ia) of the Act. This Court, noting that all necessary facts and material relevant to the claim for deduction under Section 80­IA (4) were considered by the Assessing Officer and after due application of mind to all those materials and allowed deduction, in absence of any tangible material Page 14 of 27 C/SCA/4074/2014 JUDGMENT with the Assessing Officer to validly exercise powers of reopening, the Court held the impugned notice for reopening illegal on the ground that it was based on mere change of opinion and the re­assessment powers cannot be exercised to merely review the earlier assessment. As in the reasons recorded it was mentioned that during the course of assessment, it has remained to be verified whether the assessee was the owner of the infrastructure facility or not. The Court held that, “..It cannot be gainsaid that re­opening of assessment for the purpose of 'verifying' or 'verification' will be necessarily an action based on a mere change of opinion. The connotation of word 'to be verified', 'verification' is to re­examine the existing material. Verification is always with reference to the details already considered once. When one wants to verify his decision, it means that one reviews the decision.” 13.1 This Court in Sarla Rajkumar Varma v. Assistant Commissioner of Income­tax, reported in [2014] 43 Taxmann.com 372 (Guj), the petitioner had challenged reopening of assessment and objections were raised to the reopening of the assessment on the ground that the question was already examined at the time of original assessment and additionally contended that the ground on which assessment was sought to be reopened lacked validity. The Court, after detailed examination of the material as also on hearing both the sides, noticed that there was no additional, independent or extraneous material relied upon by the Assessing Officer in the reasons recorded for Page 15 of 27 C/SCA/4074/2014 JUDGMENT issuing notice for reopening. Further more, the Court also noticed that any further affidavit or statement from any source would not cure such position as what is of vital importance for judging the validity of notice for reopening is, the reasons recorded by the Assessing Officer wherein he had stated that on going through the record, he found certain facts and according to which the claim of deduction under Section 80­IB (10) of the Act was not sustainable. Therefore, this Court concluded that where the Assessing Officer relied upon, on the material already on the record, to contend that the claim for deduction under Section 80IB (10) of the Act was not valid, and during the scrutiny such claim was not examined for valid reasons, within four years from the original assessment, it may be open for the Assessing Officer to examine the same even on the basis of material on record. Apt would be, to refer to the observations made in this respect ­ “.... In case of Gujarat Power Corporation Limited v. Asstt. CIT [2013] 250 ITR 266/[2012] Taxman 63 (Guj), this Court had an occasion to examine at considerable length, the parameters for reopening of assessment within four years. The contention of the counsel for the assessee, that even in such case, the reason to reopen must be based on material extraneous to the record, was rejected. It was held that the Assessing Officer must have some tangible material to form a belief that income chargeable to tax had escaped assessment. Such tangible material need not be alien to record. It was observed that reopening of assessment within a Page 16 of 27 C/SCA/4074/2014 JUDGMENT period of four years could be made as long as it not based on mere change of opening. Merely, because certain material which is otherwise tangible and enable the Assessing Officer to form a belief that income chargeable to tax has escaped assessment, formed part of the original assessment record, that per se would not bar the Assessing Officer from reopening the assessment on the basis of such material. The expression 'tangible material' does not mean material alien to original record. 11. Similar view was expressed by three Judge Bench of Delhi High Court in case of CIT v. Usha International Limited [2012] 348 ITR 485. It was held that in a case where the assessment order itself records that the issue was raised and decided in favour of the assessee, the re­assessment proceedings will be hit by the principle of change of opinion. It was further observed that reassessment proceedings will be invalid in case an issue or query is raised and answered by the assessee in original assessment proceedings but thereafter the Assessing Officer does not make any addition in the assessment order. In such a situation, it should be accepted that issue was examined,but the Assessing Officer did not find any ground or reason to make addition or reject the stand of the assessee. 14. It can thus be seen that the claim of deduction under section 80­IB (10) of the Act came up for scrutiny minutely by the Assessing Officer in the original assessment proceedings. He disallowed the claim to the extent he was convinced that the same was exaggerated. He allowed only part of the claim. 15. It is true that this pointed element of the housing project Page 17 of 27 C/SCA/4074/2014 JUDGMENT not having been completed within 10 years of the date of development permission granted by the local authority was not raised by the Assessing Officer. However, in the return filed, this was virtually the only claim of the petitioner. The petitioner had declared gross total income of Rs. 22,85,259/­ and claimed deduction under section 80­IB (10) of the Act of Rs. 21,59,675/=. If the Assessing Officer had no doubt about the basis of claim itself, the same could have been examined. On the basis of the same material, it would now not be open for the Assessing Officer to re­ examine the claim on the premise that a certain element of the claim was not gone into at the time of original assessment proceedings.” 14. In the instant case, as can be noticed from the material on record that at the time of filing of the return of income, the petitioner had in computation of income, claimed long term capital gain after showing the profit on sale of land. The statement of long term capital gain also specifies the particulars, the sale price and the year, indexed cost of the year, indexed cost of improvement and the capital gain. Again, in the computation of tax in the total income, the statement of long term capital gain is making it very clear as to what is indexed cost of improvement. The profit and loss account for the year ending 31 st March 2008 shows the profit on sale of land, the balance sheet as on 31.3.2008 also in partners capital account has reflected land as an asset and the value has been quantified. In the notice issued on 8 th July 2009 under sub­section (2) of Section Page 18 of 27 C/SCA/4074/2014 JUDGMENT 143 of the Act, the query raised is as follow :­ “3. You have shown income of Rs. 22,08,863/= in your revised return of income under the Head Profit on sale of Fixed assets. Please furnish details of sale of fixed assets, date of purchase, WDV amount, date of sale, name and address of the party to whom sold, sale consideration, etc. 4. You have also Long Term Capital gain of Rs. 43,64,203/=. Please furnish details of Long Term capital gain, date of purchase, amount, date of sale and sale consideration.” 15. Notice under sub­section (1) of Section 142 in connection with the said assessment year directed the assessee to furnish in writing, in prescribed manner, the information called for to be submitted on 27 th August 2010. On 16 th August 2010, reply to the same has been given specifying that the assessee though is in the business of dealing in pesticides or formulation of pesticides and other chemicals and such other concern business, however, during the A.Y 2008­09, had no commercial activities. During the year under review, revised return of income showed profit on sale of fixed assets that was land. The year of purchase/improvement of land with the amount has been specified quantifying the same to be Rs. 22.91 lacs [rounded off]. Details of sale of fixed asset ie., land also is provided. 15.1 The assessment order thereafter came to be passed on 30 th September Page 19 of 27 C/SCA/4074/2014 JUDGMENT 2010 where the Assessing Officer has considered the balance sheet and profit & loss account and other details which were called for verification and were also kept on record. Details as per the questionnaire were called for, verified and they were placed on record. Bank passbook and other details were called for and were verified on test check basis. The return of income of the assessee thereafter came to be accepted. 16. Thus, it is apparent that the reasons must be based on material not necessarily extraneous to the record. The Assessing Officer must have some tangible material to form a belief that the income chargeable to tax has escaped the assessment. On mere change of opinion, the reopening of assessment within period of four years cannot be made. However, if a certain claim is examined during the course of scrutiny assessment on raising the queries and eventually, as held in case of Gujarat Power Corporation Limited [Supra] that with or without any reason, if the claim is accepted, it surely cannot be subject matter of reopening on the basis of the same material as that would surely mean a mere change of opinion. 17. Here, as can be noticed that detailed queries were raised and after due scrutiny, on examination of the said issue, the Assessing Officer did not find any reason to reject the ground of the assessee or making any addition on the basis thereof, and therefore, to now reopen the assessment only with a view to Page 20 of 27 C/SCA/4074/2014 JUDGMENT examine the different angle or to verify the angle posed by the audit party, such reopening is not permissible. 18. It is to be noted at this stage that our attention is drawn to the decision of this Court rendered in case of Ranchhodbhai Bhaijibhai Patel v. Commissioner of Income­tax, Gujarat­II, Ahmedabad wherein, the assessee who owned large areas of agricultural land, entered into agreements of sale with two building companies. He obtained the cost of acquisition of the capital assets permission of the Collector to put the land to non­agricultural use on 23 rd January 1963 and in April and July of the same year, completed th sales. He claimed that the lands sold were agricultural lands and so the profits were not assessable as capital gains. Even if they were, he was entitled to deduct from the sale proceeds the “cost of acquisition of the capital assets” ie., the market value of the land as on 21 st January 1963 on which date they became capital assets. The Court, on the facts, held that at the time of sale, the lands were not agricultural lands within the meaning of section 2 (14) of the Act and therefore, profits from the sales were chargeable as capital gains. The cost of acquisition of the lands was their cost when they were first acquired by the assessee and since the lands had been acquired prior to 1 st January 1954, the assessee had the option under section 55 (2) to substitute the fair market value of the lands as on 1 st July 1954. In this respect, the Court further observed, thus ­ Page 21 of 27 C/SCA/4074/2014 JUDGMENT “...The reference clearly is to the point of time when the capital asset is acquired and the cost of such acquisition is required to be deducted from the full value of the consideration. Where the property transferred was not capital asset at the date of acquisition but subsequently became capital asset as in the present case, it is difficult to see how it can be said that the property as a capital asset was acquired by the assessee when it was converted into a capital asset and how it would be possible in such a case to determine the cost of acquisition. There are no two different acquisitions of property, one as a non capital asset and the other as a capital asset. The property is acquired by the assessee only once and merely its character changes in the sense that, whereas,originally it was non capital asset, it now becomes capital asset. It would indeed be doing violence to the language of section 48, clause (ii), to read the words “the cost of acquisition of the capital asset” in the manner suggested on behalf of the assessee. We would have to introduce an unwarranted fiction, namely, that when the property, which at the date of acquisition was non capital asset, becomes capital asset, it is deemed to be acquired by the assessee as a capital asset on that date and, further more, though there can be no cost of such acquisition, the market value of the property on that date should be deemed to be the cost of such acquisition. There is no warrant for imposing such legal fiction on the plain language of section 48, clause (ii). The only justification which could be put forward on behalf of the assessee for reading the section in this manner was that the legislature could not have intended that the appreciation in value which took place whilst the property as non capital asset should be subjected to tax which would be the inevitable result if we read the section Page 22 of 27 C/SCA/4074/2014 JUDGMENT as referring to the cost to which the assessee was put to acquiring the property. But this is a wholly erroneous approach in construing a statutory provision. The intention of the legislature must be gathered from the words use; it is well settled that what is unexpressed by the legislature must be taken as unintended. We cannot presume a certain intention on the part of the legislature and then bend the language of the section with a view to making it accord with such presumed intention.” 19. This Court in case of Surat Textile Mills Limited v. Income­tax Officer, reported in [2014] 46 Taxmann.com 419 (Guj) was considering the issue of reopening of the assessment by the Assessing Officer under Section 148 of the Act wherein original assessment was not made after scrutiny and it was a case of acceptance of return under section 143 (1) of the Act and in such a case, the review would have considerable latitude in reopening the assessment. The Court held, thus ­ “We are conscious that the original assessment was not made after scrutiny. It was a case of acceptance of return under section 143(1) of the Act. Under the circumstances, as held by the Supreme Court in the case of Rajesh Jhaveri Stock Brokers P. Ltd (supra), Revenue would have considerable latitude in reopening the assessment. In any case, there would be no case of change of opinion since the Assessing Officer could not have been stated to have formed any opinion previously. Nevertheless, reopening is resorted to under section 147 of the Act and Page 23 of 27 C/SCA/4074/2014 JUDGMENT the basic requirement of the Assessing Officer having reason to believe that income chargeable to tax had escaped assessment must be fulfilled. This Court in the case of Inductotherm (I) P. Ltd v. M.Gopalan, Deputy CIT, 356 ITR 481 (Guj.) held and observed as under : “13. Despite such difference in the scheme between a return which is accepted under section 143(1) of the Act as compared to a return of which scrutiny assessment under section 143(3) of the Act is framed, the basic requirement of section 147 of the Act that the Assessing Officer has reason to believe that income chargeable to tax has escaped assessment is not done away with. Section 147 of the Act permits the Assessing Officer to assess, re­assess the income or re­compute the loss or depreciation if he has reason to believe that any income chargeale to tax has escaped assessment for any assessment year. This power to reopen assessment is available in either case, namely, while a return has been either accepted under section 143(1) of the Act or a scrutiny assessment has been framed under section 143(3) of the Act. A common requirement in both of cases is that the Assessing Officer should have reason to believe that any income chargeable to tax has escaped assessment.” xxxxx xxxxx 16. It would, thus, emerge that even in case of reopening of an assessment which was previously accepted under section 143(1) of the Act without scrutiny, the Assessing Officer would have power to reopen the assessment, provided he had some tangible material on the basis of which he could form a reason to believe that income chargeable to tax had escaped assessment. However, as held by the Apex Court in the case of Assistant Commissioner of Income Tax v. Rajesh Jhaveri Stock Brokers P. Ltd., (supra) and several other decisions, such reason to believe need not necessarily be a firm final decision of the Assessing Officer.” Page 24 of 27 C/SCA/4074/2014 JUDGMENT As per the Assessing Officer, the petitioner was required to first claim the depreciation of the current year before claiming set off of the unabsorbed depreciation of business loss of the earlier period. The Supreme Court in the case of CIT v. Mahendra Mills, 243 ITR 56 held that language of section 32 and 34 of the Act is specific and admits of no ambiguity. It does not place any mandatory duty on the Assessing Officer to allow depreciation if the assessee does not want to claim that. The provision for claim of depreciation is certainly for the benefit of the assessee. If he does not wish to avail of that benefit for some reason, the benefit cannot be forced upon him. Explanation 5 to section 32(1) introduced with effect from 1.4.2002 now provides that for removal of doubts, it is declared that the provisions of the said subsection shall apply whether or not the assessee has claimed the deduction in respect of depreciation in computing his total income. Thus, the compulsion of claiming depreciation arose with introduction of the said explanation. 11. Reverting back to the facts of the case, we may recall that the sole ground on which the Assessing Officer desires to reopen the assessment is that the assessee did not claim depreciation of the current year while seeking set off of the unabsorbed business loss of earlier years. This, according to the Assessing Officer, would enable the assessee to claim depreciation selectively and prolong the claim beyond eight years. In view of the legal position clarified by different High Courts, what the assessee had done was well within thin the legal framework. It was open for the assessee not to claim depreciation till the amendment was made by explanation 5 in section 32(1) of the Act which had the effect only Page 25 of 27 C/SCA/4074/2014 JUDGMENT from 1.4.2002. That being the position, the very belief of the Assessing Officer that income chargeable to tax had escaped assessment lacks validity.” 20. In wake of the legal position referred to hereinabove, the belief of the Assessing Officer even if would have been there that income chargeable to tax had escaped assessment, the same lacks validity. Any reopening if is resorted to under Section 147 of the Act fundamental requirement of the Assessing Officer is to have a reason to believe that the income chargeable to tax had escaped assessment. This fundamental requirement is not done away with. Under any circumstances, as held in case of Asstt. Commissioner of Income­tax V. Rajesh Jhaveri Stock Brokers (P) Limited, reported in [2007] 291 ITR 500 and as referred to hereinabove, such reason to believe need not necessarily be a final decision of the Assessing Officer and yet when this requirement is not being fulfilled and when the Assessing Officer himself has no reason to believe that any income chargeable to tax has escaped the assessment, the very notice lacks validity. 21. Resultantly, petition is allowed. The impugned notice dated 7 th March 2013 is hereby quashed with all consequential proceedings. Rule made absolute with no order as to costs. {Harsha Devani, J.} Page 26 of 27 C/SCA/4074/2014 JUDGMENT {Ms. Sonia Gokani, J.} Prakash* Page 27 of 27 "