GUJARAT HIGH COURT
MUMTAZ HAJI MOHMAD MEMON
VS. ITO
26-09-2018
CIVIL APPLICATION NO.
21030 of 2017
1. The petitioner has
challenged a notice dated 31.03.2017 issued by the respondent Assessing Officer
for reopening of the petitioner’s assessment for the assessment year 201011.
2. Facts are as under.
3. Petitioner is an
individual. For the said assessment year 2010- 11, the petitioner had filed the
return of income on 16.06.2010. On 28.04.2009, the petitioner had along with
two other coowners, sold immovable property situated at Village: Udhna, for a
declared sale consideration of Rs.50 lakhs. In the return of income, the
petitioner disclosed such sale and after adjusting the cost of improvement and
indexed cost of acquisition, offered a sum of Rs.2,45,900/by way of capital
gain. Such return was not taken in scrutiny. To reopen such assessment, the
Assessing Officer issued the impugned notice. In order to do so, he had
recorded following reasons:
“As per the information
available with office, the assessee had sold an immovable property for
consideration of Rs.1,18,95,000/with SubRegistrar Office, Surat 2, Udhana,
during the FY.200910 relevant to A.Y. 201011, jointly with two other persons.
Therefore, the share of the assessee comes to Rs.39,65,000/( presuming 1/3rd of
Rs.1,18,95,000/).
However, on
verification from ITD system, it is seen that the assessee has not filed return
of income for A.Y. 2010-11.
Since, the assessee has
not filed return of income, capital gain earned on the sale of immovable
property has not been offered for taxation by the assessee. Therefore, the
property sale transactions made by her during the financial year 2009-10 are
unexplained/undisclosed.
In view of the above
facts, I, have reason to believe that income chargeable to tax has escaped
assessment within the meaning of Section 147 of the IT Act for A.Y.2010-11 by
an amount of Rs.39,65,000/and it is a fit case for reopening the assessment for
A.Y.2010-11.”
4. Perusal of the
reasons would show that according to the Assessing Officer, the petitioner had
not filed any return at all for the said year. Further, as per the information
available to him, the Assessing Officer believed that the property in question
was sold for a consideration of Rs.1,18,95,000/jointly.
The petitioner’s share being
1/3rd thereof, he would have received total sale consideration of
Rs.39,65,000/.
The Assessing Officer
further recorded that upon verification of ITD system, the assessee has not
filed the return of income for the said assessment year and not offered the
capital gain arising out of the said sale consideration to tax.
5. The petitioner
raised objections to the notice of reopening under a letter dated 09.10.2017.
In such objections, he pointed out that the property was sold on 28.04.2009 for
a sale consideration of Rs.50 lakhs and not for Rs.1,18,95,000/as stated in the
reasons. He produced copy of the sale deed. He therefore contended that the
reasons proceeded on wrong factual foundation. He also pointed out that he had
filed the return of income, in which, he had declared his share of
Rs.16,66,667/of the sale consideration.
After deducting the
cost of acquisition and improvement charges, he also offered a sum of
Rs.2,45,900/by way of capital gain. He therefore contended that on both counts,
the Assessing Officer had recorded wrong reasons.
6. The Assessing
Officer rejected such objections by an order dated 27.10.2017. In such order,
he recorded that the coowner Ayubkhan Pathan had declared the total sale
consideration of the property at Rs.1,18,95,000/.
Further, the report
received from the subregistrar, Surat, would show that the market value of the
said property was determined at Rs.1,18,95,000/. He was therefore of the
opinion that the assessee should have shown his share of the sale consideration
at Rs.39,65,000/, in spite of which, he declared the sum at Rs.16,66,667/.
Primarily on these grounds, the objections were rejected. Notably, the
Assessing Officer did not make any comment on the assessee’s contention that
contrary to what was recorded in the reasons, the assessee had only filed the
return of income for the relevant assessment year.
7. In this petition,
the petitioner has reiterated the grounds raised in the objections. In the
affidavit in reply, the respondent has conceded that the reference to the
assessee not having filed the return of income was an error. However, he has
stressed on the fact that the market value of the property was assessed at
Rs.1,18,95,000/for the purpose of stamp valuation and in terms of section 50C
of the the Income Tax Act, 1961 (‘the Act’ for short). This would substitute
the sale consideration for the purpose of computing capital gain tax.
8. Learned counsel for
the petitioner raised following contentions:
I. The reasons recorded
are erroneous. The Assessing Officer has proceeded on completely wrong factual
premises. The reasons therefore lack validity.
II. Report of the
subregistrar, Surat, referred to by the Assessing Officer in the order
disposing of the objections was received only after recording reasons and issuing
notice. Any reliance on such report would therefore be wholly impermissible.
III. The Assessing
Officer has attempted to improve the reasons in the affidavit in reply filed in
the petition which is not permissible. In this respect, counsel relied on the
judgment of Division Bench of this Court in case of Sagar Enterprises v.
Assistant Commissioner of Incometax reported in [2002] 257 ITR 335 (Guj).
9. Learned counsel for
the Revenue opposed the petition contending that even though reference to the
assessee not having filed the return may be an error, the same would not
vitiate the action of the Assessing Officer. The fact remains that the assessee
had shown a sale consideration of Rs.50 lakhs in the sale deed whereas for the
purpose of stamp duty calculation, the market value of the property was valued
at Rs.1,18,95,000/. Section 50C of the Act would therefore apply.
10. We are conscious
that in the present case, the return filed by the assessee was not taken in
scrutiny. Nevertheless, in such a case also the requirement that the Assessing
Officer must have reason to believe that income chargeable to tax has escaped
assessment, would apply. Reference in this respect can be made to the decision
of this Court in case of Inductotherm (India) P. Ltd. v. M. Gopalan, Deputy
Commissioner of IncomeTax reported in [2013] 356 ITR 481 (Guj). Validity of the
reasons recorded by the Assessing Officer would therefore be one of the issues.
11. In this context, we
have noted that the reasons proceeded on two fundamental grounds. One, that the
property in question was sold for a sum of Rs.1,18,95,000/and two; that the
assessee had not filed the return and that therefore his 1/3rd share out of the
sale proceeds was not offered to tax. Both these factual grounds are totally incorrect
as is now virtually admitted by the Revenue. It is undisputed that the assessee
had actually filed the return of income for the said assessment year and income
also offered his share of the declared sale consideration to tax as capital
gain. The Assessing Officer may have dispute with respect to computation of
such capital gain, he cannot simply dispute the fact that the assessee did file
the return. Importantly, even the second factual assertion of the Assessing
Officer in the reasons recorded is totally incorrect. He has referred to said
sum of Rs.1,18,95,000/as a sale price of the property. The assessee had
produced before the Assessing Officer, the sale deed in which, the sale
consideration disclosed was Rs.50 lakhs.
12. The Assessing
Officer may be correct in pointing out that when the sale consideration as per
the sale deed is Rs.50 lakhs but the registering authority has valued the
property on the date of sale at Rs.1,18,95,000/for stamp duty calculation,
section 50C of the Act would apply, of course, subject to the riders contained
therein. However, this is not the cited reason for reopening the assessment.
The reasons cited are that the assessee filed no return and that 1/3rd share of
the assessee from the actual sale consideration of Rs.1,18,95,000/therefore,
was not brought to tax.
These reasons are
interconnected and interwoven. In fact, even if these reasons are seen as
separate and severable grounds, both being factually incorrect, Revenue simply
cannot hope to salvage the impugned notice. Through the affidavit-in-reply a
faint attempt has been made to entirely shift the center of the reasons to a
completely new theory viz. the possible applicability of section 50C of the
Act. The reasons recorded nowhere mentioned this possibility.
Reasons recorded, in
fact, ignored the fact that the sale consideration as per the sale deed was
Rs.50 lakhs and that the assessee had by filing the return offered his share of
such proceeds by way of capital gain.
13. In the result, impugned
notice is quashed. Petition is disposed of.
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