ROYAL INFRASTRUCTURE V. DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE 1(2)(1)

SCA/20084/2018

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The case involves Royal Infrastructure challenging a notice issued by the Deputy Commissioner of Income Tax under section 148 of the Income Tax Act, 1961, which proposed to reopen their assessment for the year 2011-12. The reopening was based on the sale of flats to related parties in 2013-14, which allegedly contravened the conditions for claiming deductions under section 80IB(10) of the Act. The petitioner argued that the reopening was unjustified as the sales occurred in a subsequent year and did not affect the earlier assessment. The court agreed with the petitioner, emphasizing that each assessment year is treated independently under the Income Tax Act, and events in one year cannot retrospectively affect the deductions claimed in another.

• Counselvise Citation: [2019] 140 COUNSELVISE.COM (IT) 760155 (HC-GUJARAT)
• Appeal Type: Others
• Pronouncement Date: 29-04-2019
• Assessment Year: misc
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Others
• Court: HIGH COURT
• Department Lawyers: VARUN PATEL
• Assessee Lawyers: MANISH SHAH
• Keywords: Assessment Year 2011-12; Deduction under section 80IB; Income Tax; Reopening of assessment
• Section: 147; 148; 142(1); 143(2); 139(1); 44AB; 80IB; 80IB(10); 226

Judgement Text

"C/SCA/20084/2018 JUDGMENT IN THE HIGH COURT OF GUJARAT AT AHMEDABAD R/SPECIAL CIVIL APPLICATION NO. 20084 of 2018 FOR APPROVAL AND SIGNATURE: HONOURABLE MS.JUSTICE HARSHA DEVANI and HONOURABLE MR. JUSTICE BHARGAV D. KARIA ========================================================== 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 or any order made thereunder ? ========================================================== ROYAL INFRASTRUCTURE Versus DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE 1(2)(1) ========================================================== Appearance: MR MANISH J SHAH(1320) for the Petitioner(s) No. 1 MR.VARUN K.PATEL(3802) for the Respondent(s) No. 1 ========================================================== CORAM: HONOURABLE MS.JUSTICE HARSHA DEVANI and HONOURABLE MR. JUSTICE BHARGAV D. KARIA Date : 29/04/2019 ORAL JUDGMENT (PER : HONOURABLE MS.JUSTICE HARSHA DEVANI) 1. By this petition under article 226 of the Page 1 of 8 C/SCA/20084/2018 JUDGMENT Constitution of India, the petitioner has challenged the notice dated 26.03.2018 issued by the respondent under section 148 of the Income­ Tax Act, 1961 (hereinafter referred to as “the Act”) proposing to reopen the assessment of the petitioner for the assessment year 2011­12. 2. The facts stated briefly are that the petitioner submitted its return of income for the assessment year 2011­12 on 31.08.2011 computing the gross total income at Rs.1,10,66,146/­ and claimed deduction of Rs.79,91,226/­ under section 80IB of the Act resulting into a total income of Rs.30,74,920/­. The petitioner also filed an audit report under section 44AB of the Act in Form No.3CB and Form No.10CCB, being the audit report for claiming deduction under section 80IB of the Act. The return of income was accepted as such, as no scrutiny assessment was carried out in pursuance of the return filed under section 139(1) of the Act. 3. Thereafter, the respondent issued the impugned notice dated 26.03.2018 under section 148 of the Act for the assessment year 2011­12 stating that income chargeable to tax had escaped assessment and called upon the petitioner to file its return of income. In response to the notice, the petitioner addressed a letter dated Page 2 of 8 C/SCA/20084/2018 JUDGMENT 06.04.2018 requesting the respondent to treat the return filed on 31.08.2011 as the return filed in response to the notice under section 148 of the Act. The petitioner, thereafter, received notices dated 20.08.2018 under section 143(2) and 142(1) of the Act. Along with the notice under section 142(1) of the Act, the respondent furnished an annexure wherein he had reproduced the reasons recorded for reopening the assessment. In response to the reasons recorded, the petitioner filed its objections vide letter dated 24.08.2018. The respondent rejected such objections vide letter dated 11.12.2018. Being aggrieved, the petitioner has filed the present petition. 4. Mr. Manish Shah, learned advocate for the petitioner, invited the attention of the court to the reasons recorded for reopening the assessment to submit that in this case the Assessing Officer seeks to reopen the assessment for assessment year 2011­12 on the ground that the petitioner had sold flats to related parties in the assessment year 2013­14. It was submitted that at the time of filing the return of income for assessment year 2011­12, the petitioner was not aware that subsequently any flat/s would be sold to related parties and hence, there was no failure on the part of the petitioner to disclose Page 3 of 8 C/SCA/20084/2018 JUDGMENT truly and fully all materials facts necessary for its assessment. Therefore, the assumption of jurisdiction on the part of the Assessing Officer is without authority of law, and hence, the impugned notice deserves to be quashed and set aside. 5. On the other hand, Mr. Varun Patel, learned senior standing counsel for the respondent, placed reliance upon the averments made in the affidavit­in­reply filed on behalf of the respondent, wherein it has been stated that the Assessing Officer, on the basis of information gathered during the assessment proceedings for assessment year 2013­14, has observed that the petitioner – assessee had sold Flat No.403 to Shri Gautam K. Patel and Flat No.404 to Smt. Bhavna Gautam Patel, who are husband and wife, and thereby, contravened the mandatory provisions of clause (f)(i) of section 80IB(10) of the Act, which is a condition precedent for availing the benefit of deduction under the said section. Therefore, on the basis of such information, the Assessing Officer had reason to believe that income chargeable to tax to the extent of Rs.79,91,226/­ had escaped assessment. It was submitted that therefore, the Assessing Officer was justified in reopening the assessment by issuing the impugned notice under section 148 of Page 4 of 8 C/SCA/20084/2018 JUDGMENT the Act. 6. In this case, the reason for reopening is that during the course of proceedings for assessment year 2013­14, it was noticed that the assessee had sold Flat No.403 of Tower No.49 to Shri Gautam K. Patel and Flat No.404 of Tower No.9 to Smt. Bhavna Gautam Patel, who, as per the information gathered, were husband and wife. In view thereof, the Assessing Officer has formed the belief that income of Rs.79,91,226/­ chargeable to tax has escaped assessment because the assessee was not entitled to deduction under section 80IB(10) of the Act in view of the fact that the requirements of clause (f)(i) thereof were not satisfied. In this case, though the impugned notice has been issued beyond a period of four years from the end of relevant assessment year, the proviso to section 147 of the Act would not be attracted as there was no assessment under section 143(3) of the Act. 7. It may be pertinent to note that upon receipt of the reasons recorded, the petitioner raised objections pointing out that the flats under consideration, namely, Flats No.403 and 404, were sold to related parties in assessment year 2013­ 14, which cannot be considered to disallow the claim under section 80IB(10) of the Act in the Page 5 of 8 C/SCA/20084/2018 JUDGMENT earlier years; that at the time when the petitioner filed the return of income for assessment year 2011­12, it was not aware that flats would be sold to related parties subsequently; as assessment under the Income­tax law is independent and separate for each assessment year, the disallowance cannot be made applicable to the whole project. It was also contended that the provisions of clauses (e) and (f) of section 80IB(10) of the Act are prospective in nature and do not operate retrospectively. 8. In the order rejecting the objections, the Assessing Officer has, as usual, perfunctorily disposed of the objections, without dealing with the submissions advanced by the petitioner in proper perspective. As noted earlier, in this case, the first proviso to section 147 of the Act is not attracted, and hence, the inquiry, at this stage, is limited to whether there are any reasonable grounds for the Assessing Officer to form the belief that income chargeable to tax has escaped assessment. 9. The question that therefore arises for consideration is whether on the reasons recorded for reopening the assessment, the Assessing Officer could have formed the belief that income Page 6 of 8 C/SCA/20084/2018 JUDGMENT chargeable to tax has escaped assessment. The facts are not in dispute. The Assessing Officer seeks to reopen the assessment for assessment year 2011­12 for the reason that in the previous year relevant to assessment year 2013­14, the petitioner had sold two flats to related persons. Therefore, on the basis of an event that took place in financial year 2012­13, the Assessing Officer seeks to disallow a deduction that was allowed in assessment year 2011­12. 10. It is well settled that under the Income­tax Act, 1961, the assessment for each year is a separate assessment and has to be assessed separately. While making the assessment for a particular year, the Assessing Officer has to see whether the assessee is entitled to claim a deduction in that assessment year. Insofar as assessment year 2011­12 is concerned, the assessee had duly complied with the requirements of section 80IB(10) of the Act and was therefore, entitled to the deduction claimed thereunder. However, now, the Assessing Officer seeks to reopen the assessment and disallow such deduction on the ground that in the previous year relevant to assessment year 2013­14, the petitioner had sold flats to related persons. In the opinion of this court, if, in the year 2013­14, any event has taken place that disentitles the petitioner Page 7 of 8 C/SCA/20084/2018 JUDGMENT from claiming deduction under section 80IB(10) of the Act, it would relate to that year alone. The assessments of the earlier years wherein deduction had been allowed because the petitioner/assessee was, otherwise, entitled to such deduction, cannot be reopened to disallow a claim, which was valid in the year under consideration. In the aforesaid premises, this court is of the considered opinion that on the reasons recorded for reopening the assessment, no reasonable person could have formed the belief that income chargeable to tax has escaped assessment. The impugned notice under section 148 of the Act, therefore cannot be sustained. 11. For the foregoing reasons, the petition succeeds and is, accordingly, allowed. The impugned notice dated 26.03.2018 issued under section 148 of the Act seeking to reopen the assessment for the assessment year 2011­12 is hereby quashed and set aside. Rule is made absolute accordingly with no order as to costs. (HARSHA DEVANI, J) (BHARGAV D. KARIA, J) PRAVIN KARUNAN Page 8 of 8 "