High Court Of Gujarat
Vithalbhai G. Prajapati vs. ITO
Section 143(3)
Asst. Year 2009-10
Akil Kureshi & Biren Vaishnav, JJ.
Special Civil Application No. 19957 of 2016
28th August, 2017
Counsel Appeared:
Manish J Shah, Adv., for the Petitioner. : Nitin K Mehta, Adv., for the Respondent.
AKIL KURESHI, J:
The petitioner has challenged notice dated 15.03.2016 issued by the respondent-Assessing Officer to reopen the petitioner’s assessment for the assessment year 2009-10.
Facts are as under:
Petitioner-Vitthal Prajapati is a son and legal hair of deceased Takhiben Prajapati and is pursuing this petition in such capacity. Takhiben alongwith her four sons jointly held land bearing final plot No. 84/2 at Thaltej, Ahmedabad. This land was sold by them on 23.04.2008 for a sale consideration of Rs. 5.50 crores. Takhiben claiming that she had no taxable income did not file return of income for the relevant assessment year 2009-10. The other four sons did file their respective returns and disclosed this sale transaction.
3. The Assessing Officer issued a notice dated 31.03.2012 to Takhiben conveying to her that he had a reason to believe that income chargeable to tax in her case for the assessment year 2009-10 had escaped assessment and that she should, therefore, file a return within 30 days from the date of the receipt of the notice. Takhiben, in compliance of the said notice filed a return along with a communication dated 11.05.2012. In such return, she claimed that she had no other income. She disclosed the sale deed of 23.04.2008 out of which, she had received sale consideration of Rs. 1.10 crores. She took the date of acquisition of the property as 01.04.1981 for purchase value of Rs. 18.91 lacs (rounded off). She indexed such value till the date of sale to Rs. 1,10,05,806/-and claimed a loss of Rs. 5806/-in the return. During the course of assessment, the Assessing Officer looked further into this transaction as is apparent from the documents exchanged between the Assessing Officer and Takhiben. For example, on 18.06.2012, Takhiben wrote to the Assessing Officer that the property having been sold for Rs. 5.50 crores by five joint owners, the other owners had filed the return of income in whose cases, assessments were carried out and completed. Along with this letter, she had also annexed the documents pertaining to such assessments of the co-owners. Perusal of these documents would show that the sale considerations were the subject-matter of scrutiny assessments after which final orders of assessment were passed accepting declarations made by the respective assesses.
It appears that after issuance of notice to Takhiben for filing return of income for the said assessment year 2009-10, the Assessing Officer did not complete the assessment and in due course of time, such assessment became time barred. Neither the petitioner nor the department has produced the reasons recorded by the Assessing Officer for issuing the said notice dated 31.03.2012 nor the department has disputed the petitioner’s averments that no final order of assessment was passed by the Assessing Officer pursuant to such notice in case of Takhiben.
It appears that in case of the other co-owners i.e. the four sons of Takhiben, assessment orders under section 153A read with section 143(3) of the Act came to be passed on 26.03.2015, in which, the question of correct valuation of the said land was a focal point. The Assessing Officer relied on the valuation reports and came to the conclusion that the fair market value of the land on 01.04.1981 was highly inflated. The factum of these assessment orders were brought to the notice of the present respondent as the Assessing Officer of Takhiben. He thereupon issued the impugned notice dated 15.03.2016 seeking to reopen the assessment of Takhiben for the assessment year 2009-10 for which purpose, he had recorded following reasons:
“On verification of information available with thi office, it is observed that the above mentioned assessee had jointly sold (5 co-owners 1/5 the share of assessee) a plot of land, bearing Final Plot No. 84/2, in Thaltej to Dhara Builders of Ahmedabad on 23.04.2008. As per the valuation officer report dated 24.03.2015 vide No. 6(10)/VOII/2014-15943, fair market value of the plot of land estimated at Rs. 2,41,800/-at the rate of Rs. 31.58 sq.meters as against Rs. 94,55,160/-at the rate of Rs. 1,235/per sq.meters estimated by the assessee on the basis of report of their Valuer Nihir Dave and Associates.
On verification of the record of this office, it is seen that assessee has not filed the return of income for the A.Y. 2009-10. Hence, transaction made during the F.Y. 2008-09 is required to be taxed. In view of the above, sales consideration of Rs. 1,10,00,000/-received by the above named assessee is required to be taxed as the same is chargeable to long term capital gain.
I have, therefore, reasons to believe that income/gain chargeable to Tax has escaped assessment to the extent of Rs. 1,07,58,200/-(Rs. 1,10,00,000) (-) Rs. 2,41,800/-) for the A.Y. 2009-10 under the head income from capital gain. The above income/gain chargeable to tax has escaped assessment by reason of the failure on the part of the above named assessee trust who failed to disclose fully and truly all material fact necessary for the assessment for the A.Y. 2009-10 within the meaning of explanation 2(a) of section 147 of the IT Act 1961.â€
6. The petitioner, as the heir of Takhiben, raised objections to the notice for reopening under his communication dated 29.08.2016. Such objections were rejected by the Assessing Officer by an order dated 30.09.2016, upon which, this petition came to be filed.
7. Learned counsel for the petitioner raised following contentions:
i. The Assessing Officer having issued notice for reassessment on 31.01.2012 pursuant to which the petitioner had filed the return of income, did not pass final order of assessment since in scrutiny assessment of co-owners, the declaration of loss during the sale of land was accepted.
ii. Takhiben had, during the course of assessment, brought all the materials before the Assessing Officer specifying that the declaration made by Takhiben in the return was correct. No final order of assessment came to be passed. It was, thereafter, not open for the Assessing Officer to undertake the same exercise all over again.
iii. The reasons recorded by the Assessing Officer proceeded on the basis that Takhiben had filed no return which was factually incorrect. He, therefore, proceeded on the entirely wrong premise and his reasons therefore, lacked validity.
iv. It is also contended that the action of reopening of assessment was not authorized by the Commissioner of Income Tax as is required under the law.
v. It was contended that the fresh orders of assessment in case of the co-owners under section 153A read with section 143(3) of the Act were challenged by the assessees before the Commissioner (Appeals) who has allowed the appeals.
8. On the other hand, learned counsel Mr. Nitin Mehta for the department contended that the Assessing Officer has recorded proper reasons. Merely because inadvertently he has referred to the assessee not having filed the return would not be fatal to the notice. The reasons recorded do not proceed on this premise. The foundation of the reason is that the assessee has inflated the cost of acquisition of land to avoid capital gain. This came to the notice of Assessing Officer only recently when the assessement orders in case of co-owners were brought to his notice. He also made available the departmental file to show that the Commissioner had applied his mind and had sanctioned the issuance of the notice for reopening. He further submitted that the department has not accepted the order of Appellate Commissioner deleting the additions made by the Assessing Officer in case of co-owners.
9. The facts, though somewhat complex, are not highly disputed. To summarize the facts, the petitioner had originally filed the return of income which was filed in response to the notice by the Assessing Officer dated 31.03.2012. The only declaration in the return was of the sale of the immovable property through which, she had received sale consideration of Rs. 1.10 crores. During the assessment pursuant to such notice this was a focal point of the Assessing Officer. For whatever reasons, the Assessing Officer did not complete the assessment and, time for completion of the assessment lapsed. Much later, the Assessing Officer issued fresh notice of reopening on the ground that the assessee had showed the fair market value of plot of land at Rs. 94,55,160/-which was based on the valuer’s report whereas according to the Assessing Officer, a fair market value of the land was Rs. 2,41,800/-. In his opinion therefore, the income to the extent of Rs. 1,07,58,200/-, i.e. the difference between the sale consideration of Rs. 1.10 crores and the cost of acquisition of the land at Rs. 2,41,800/-, has escaped assessment.
10. We are conscious that the return filed by the assessee pursuant to the notice dated 31.03.2012 did not culminate into a final order of assessment. We are also conscious that presently, the Assessing Officer desires to rely on the assessments in case of co-owners which were completed in terms of section 153A read with section 143 of the Act. His contention therefore that he has material which did not form part of the original assessment proceedings would ordinarily require further scrutiny. However, for multiple reasons, we cannot sustain the present notice. Our reasons are as follows:
i. As would be demonstrated hereafter, the Assessing Officer has exhibited total non-application of mind while recording reasons and issuing impugned notice. As is well settled, recording of reasons is a mandatory requirement before the Assessing Officer can issue notice for reopening and that the notice must succeed or fail on the basis of reasons so recorded and the Assessing Officer cannot supply such reasons from any material or grounds outside of the reasons recorded by him.
ii. In background of such legal position, we may peruse the reasons more minutely. One of the grounds pressed in service by the Assessing Officer is that, according to him, the assessee had not filed the return of income for the said assessment year 2009-10. During the period relevant to the said assessment year, the assessee had received a sale consideration of Rs. 1.10 cores through sale of long term capital asset which had to be taxed as long term capital gain. This first premise of the Assessing Officer that the assessee had not filed the return is false. The record conclusively establishes that notice for filing return was issued on 31.03.2012, in response to which, the assessee filed the return declaring the said sale of land through which she had received a consideration of Rs. 1.10 crores. This was, in fact, the only worthwhile receipt of the assessee during the relevant period. During the assessment proceedings, the assessee had brought on record the assessment orders in case of the coowners of the land where identical valuation and declarations were accepted by the Assessing Officer.
11. If it was possible to disassociate the reason recorded by the Assessing Officer from such inadvertent reference to the assessee not having filed the return of income, we would have still examined the contention of the counsel for the Revenue that such error should not be fatal to the notice for reopening. However, this is not so in the present case. The Assessing Officer proceeded on the basis that the assessee had not filed the return of income. He therefore, had no basis for presuming as to what was the declaration made by the assessee in such return. He had no iota of information to believe that the assessee had claimed the cost of acquisition of the property at a particular rate which was, according to the Assessing Officer, not quite accurate. This was the main ground on which, the Assessing Officer now wishes to reopen the assessment. It is, therefore, not possible to sever the inaccurate recording of the Assessing Officer in the reasons recorded that the assessee had never filed the return of income.
12. The matter does not end here. The Assessing Officer, in the very first paragraph of the reasons, has referred to the fair market value of the plot of land which was, according to the department’s valuer, was estimated at Rs. 2,41,800/-as against Rs. 94,55,160/-estimated by the assessee. The reasons recorded do not refer to it as on which the estimation of fair market value of the land is taken. If his reference was, as would be presumed on the basis of later portion of his recording of reasons, to the crucial date of 01.04.1981 he has not said so in the reasons. More importantly, if the fair market value, according to him was Rs. 2,41,800/-for the plot of land while computing the possible value of the income having escaped assessment, he gives no benefit of indexation of such cost of acquisition from 01.04.1981 till the date of sale of land.
13. At all stages thus, the Assessing Officer exhibited absolute non-application of mind to the facts and materials on record. The notice for reopening of assessment was, therefore, based on reasons which were the product of such nonapplication of mind. Notice must therefore be quashed.
Before closing, we may clarify that the record would suggest that the Commissioner had given sanction for the notice of reopening. The department not having exhibited the view of the Commissioner’s appeal in case of co-owners in connection with the assessment orders under section 153A of the Act, we have not based our conclusion on this factor.
In the result, impugned notice dated 15.03.2016 is quashed. Petition is allowed and disposed of.
[Citation : 404 ITR 732]
