C/SCA/20021/2016 CAV JUDGMENT IN HIGH COURT OF GUJARAT AT AHMEDABAD SPECIAL CIVIL APPLICATION No. 20021 of 2016 With SPECIAL CIVIL APPLICATION No. 21143 of 2016 FOR APPROVAL AND SIGNATURE: HONOURABLE Mr. JUSTICE M.R. SHAH and HONOURABLE Mr. JUSTICE B.N. KARIA 1 Whether Reporters of Local Papers may be allowed to see judgment ? 2 To be referred to Reporter or not ? 3 Whether their Lordships wish to see fair copy of judgment ? 4 Whether this case involves substantial question of law as to interpretation of Constitution of India or any order made thereunder ? MUNIR ISMAIL VORAJI....Petitioner(s) Versus INCOME TAX OFFICER....Respondent(s) Appearance : Mr MANISH J SHAH, ADVOCATE for Petitioner(s) No. 1 Mr SUDHIR M MEHTA, ADVOCATE for Respondent(s) No. 1 CORAM: HONOURABLE Mr. JUSTICE M.R. SHAH and HONOURABLE Mr. JUSTICE B.N. KARIA 25th April 2017 Page 1 of 25 HC-NIC Page 1 of 25 Created On Sat May 13 10:07:39 IST 2017 C/SCA/20021/2016 CAV JUDGMENT CAV JUDGMENT (PER : HONOURABLE Mr. JUSTICE M.R. SHAH) As common question of law and fact arise in both these petitions, but with respect to different assesses, both these writ petitions are heard, decided and disposed of together by this common judgment and order. 2. By way of this petition under Article 226 of Constitution of India, being Special Civil Application No. 20021 of 2016, petitioner-assessee has prayed for issuance of appropriate writ and/or order to quash and set aside impugned notice under Section 148 of Income-tax Act, 1961 [Annexure F ] by which Assessing Officer has sought to reopen assessment for Assessment Year 2011-2012. petitioner has also prayed to quash and and set aside impugned order disposing of objections raised against reopening of assessment. 2.1 Similar prayer is made by petitioner of Special Civil Application No. 21143 of 2016, in which case also, Page 2 of 25 HC-NIC Page 2 of 25 Created On Sat May 13 10:07:39 IST 2017 C/SCA/20021/2016 CAV JUDGMENT assessment for Assessment Year 2011-2012 is sought to be reopened on similar grounds on which assessment in case of petitioner of Special Civil Application No. 20021 of 2016 is sought to be reopened. It is required to be noted that as such, petitioner of Special Civil Application No. 21143 of 2016 was co-owner of land in question. 2.2 For sake of convenience, facts arising in Special Civil Application No. 20021 of 2016 are narrated as under :- 3. Petitioner-assessee filed return of income for Assessment Year 2011-2012 on 21st June, 2011. That, assessee showed Long Term Capital Gain of Rs. 2,19,551/- in regard to his share in land, bearing Block no. 140 sold on 18th December, 2012 for consideration of Rs. 51,38,740/- by deducting therefrom, indexed cost of that share at Rs. 49,19,189/- on basis of 1st April, 1981 valuation cost of Rs. 6,91,869/- indexed by multiplying same by Page 3 of 25 HC-NIC Page 3 of 25 Created On Sat May 13 10:07:39 IST 2017 C/SCA/20021/2016 CAV JUDGMENT index of 711. That, at time of original assessment, assessee relied upon valuation made by Government approved valuer, in support of his claim of fair market value as on 1st April, 1981 at Rs. 400/- per sqm. That, thereafter, original return of income filed by assessee came to be accepted by Income-tax Department, accepting fair market value of land at Rs. 400/- per sqm. 3.1 That thereafter, petitioner was served with notice under Section 148 of Act on 16th October, 2014 alleging that income chargeable to tax has escaped assessment, asking petitioner to file return. That, at request of assessee, Assessing Officer asked for reasons recorded from Income-tax Officer, Ward-2 [3](3), Surat as in meantime, jurisdiction was transferred from I.T.O Ward-9 (3) Surat to ITO Ward-2 [3](3), Surat. That, said Assessing Officer supplied reasons recorded to reopen assessment for A.Y.2011-12, which reads as under :- Page 4 of 25 HC-NIC Page 4 of 25 Created On Sat May 13 10:07:39 IST 2017 C/SCA/20021/2016 CAV JUDGMENT In this case, information has been received from ITO (I&CI)-I & II, Surat wherein it was mentioned that assessee along with 16 other co-owners sold land situated at Survey No. 145. Block No. 140, Moje Mata Varachha, Surat for sale consideration of Rs. 3,81,73,500/- on 20.12.2010. On verification of details on ITD, it is noticed that assessee has filed his return of income for A.Y. 2011-12 declaring total income at Rs. 2,24,620/- on 21.06.2011. assessee has not offered said transaction in his return of income for taxation. On perusal of return of income, it was also noticed that assessee has not offered capital gain fully and truly in view of Section 50C of Act. From Income Tax angle, it may of potential nature. Hence, I have reason to believe that income for A.Y. 2011- 12 amounting to Rs. 29,36,423/- escaped assessment as assessee has failed to disclose fully and truly all material facts necessary in return of income within meaning of section 147 of Income Tax Act. So, notice u/s. 148 of I.T. Act, 1961 is to be issued for A.Y. 2011-12, for reopening of assessment. Page 5 of 25 HC-NIC Page 5 of 25 Created On Sat May 13 10:07:39 IST 2017 C/SCA/20021/2016 CAV JUDGMENT 3.2 That, on receipt of reasons recorded, assessee submitted his objections against reasons recorded vide letter/ communication dated 20th January, 2016. assessee pointed out that in fact, petitioner had filed return of income and had shown therein, capital gain by deducting therefrom, sale proceed, indexed cost of acquisition. At this stage, it is required to be noted that in reasons recorded, it was stated that assessee had not offered aforesaid transaction in his return of income for taxation, and therefore, assessee clarified that while filing return of income, assessee had shown capital gain. assessee also stated that sale price was equivalent to jantri price. That, considering objections raised by assessee, Assessing Officer dropped assessment proceedings by order dated 15th March 2016. However immediately thereafter, within period of week, Assessing Officer issued second notice under Section 148 of Act on 22nd March 2016 alleging inter alia Page 6 of 25 HC-NIC Page 6 of 25 Created On Sat May 13 10:07:39 IST 2017 C/SCA/20021/2016 CAV JUDGMENT that income chargeable to tax has escaped assessment for A.Y 2011-2012. That, thereafter, on request made by assessee, Assessing Officer supplied reasons recorded for reopening, which reads as under :- assessee filed return of income for A.Y.2011-12 on 21.06.2011 declaring total income of Rs. 2,24,620/-. As per computation of total income, assessee has shown LTCG of Rs. 2,19,551/- and income from other sources at Rs. 5070/-. In this case, information was received from ITO (I&CI) Surat that assessee has sold immovable property i.e. non agriculture land bearing Survey B. No. 145, Block No.140, T.P.No. 24, F.P. No.5, Moje Mota Varachha, Dist.Surat along with co-owners for consideration of Rs. 3,81,73,500/-. ITO (I&CI) further informed that assessee has taken FMV as on 1.4.1981 @ Rs. 400/- on basis of valuation report dated 24.03.2011 of approved valuer Shri P.K. Desai and also suggested to refer matter to Valuation Officer to determine correct value as on 1.4.1981. Page 7 of 25 HC-NIC Page 7 of 25 Created On Sat May 13 10:07:39 IST 2017 C/SCA/20021/2016 CAV JUDGMENT As it was noticed that assessee has taken FMV as on 1.4.1981 @ Rs. 400/- per sqr. Mtr which was found on higher side as compared to data/sale instances obtained from Sub Registrar and matter was referred to Valuation Officer to determine FMV as on 1.4.1981. assessee has not provided required data to Valuation Officer for purpose of valuation. However, Valuation Officer has assessed FMV as on 1.4.1981 @ Rs. 65 per sqr. Mtr. On basis of available data with him and adopted on other cases. In return of income, assessee has shown his share from sale proceeds at Rs. 51,38,740/- and has deducted indexed cost of acquisition of Rs. 49,19,189/- and net LTCG of Rs. 2,19,551/-. On basis of valuation officer s report, taxable Long term capital gain comes to Rs. 49,39,370/-, instead of Rs. 2,19,551/- disclosed in return of income. Thus, amount Rs. 41,19,819/- is required to be taxed in hands of assessee on account of undisclosed long term capital gain. I have gone through evidential materials available on record and on basis of these materials, I am satisfied that assessee has not offered taxable long term Page 8 of 25 HC-NIC Page 8 of 25 Created On Sat May 13 10:07:39 IST 2017 C/SCA/20021/2016 CAV JUDGMENT capital gain fully and truly in his return of income filed for A.Y. 2011-12. Due to non disclosure of this income, I have reason to believe that income of Rs. 41,19,819/- chargeable to tax has escaped assessment for A.Y. 2011-12, within meaning of section 147 of Act. Hence, case of assessee needs to be re-opened u/s. 147 of Act. I am satisfied that case of assessee is fit for action u/s 147 of IT Act. 3.3 On receipt of reasons recorded, assessee submitted his objections to second show cause notice issued under Section 148 of Act, and also raised objection against reopening of assessment. It was stated by assessee that reopening of assessment cannot be done on basis of Valuation Report [DVO s report]; that reference cannot be done without pendency of assessment proceedings; that there is no valuation report, as letter dated 10th March, 2016 of Valuer simply informs that rate which has been adopted in other two properties in same Town Planning Scheme. It was also submitted Page 9 of 25 HC-NIC Page 9 of 25 Created On Sat May 13 10:07:39 IST 2017 C/SCA/20021/2016 CAV JUDGMENT that prior to 1st July 2012, there was no justification to refer to valuation under Section 55A of Act because reference could be made only when report of registered valuer was less than fair market value; and whereas, as per valuation report, fair market value is much less. It was also submitted that proceedings have been initiated on basis of information from Income Tax Officer [I&CI], Surat, who has merely suggested to refer matter for ascertaining fair market value as on 1st April, 1981 to Valuation Officer, and therefore, reopening of assessment was on basis of borrowed satisfaction from different Income-tax Officer. It was further submitted that without pointing out any discrepancy in report of approved Valuer, reference to DVO was not permissible. That, by order dated 7th October 2016, Assessing Officer disposed of objections by not agreeing with objections raised by assessee. Hence, petitioner has preferred present Special Civil Application under Article 226 of Page 10 of 25 HC-NIC Page 10 of 25 Created On Sat May 13 10:07:39 IST 2017 C/SCA/20021/2016 CAV JUDGMENT Constitution of India challenging impugned Notice under Section 148 of Act, and also impugned reassessment proceedings. 3.4 In case of co-owner of land in question, assessment for A.Y. 2011-2012 is sought to be reopened on ground that in case of co-owner Munir Ismail Vorajee [petitioner of Special Civil Application No. 20021 of 2016], Valuation Officer has assessed fair market value as on 1st April 1981 at Rs. 65/- per sq.m. reopening in case of co- owner viz., Salim Ismail Vorajee is subject matter of Special Civil Application No. 21143 of 2016. 4. Shri Manish J Shah, learned advocate has appeared on behalf of respective petitioners and Shri Sudhir Mehta, learned advocate has appeared on behalf of Revenue. 4.1 Shri MJ Shah, learned advocate appearing on behalf of respective petitioners has vehemently submitted that impugned notices issued under Section 148 of Act are bad in law and illegal. It is Page 11 of 25 HC-NIC Page 11 of 25 Created On Sat May 13 10:07:39 IST 2017 C/SCA/20021/2016 CAV JUDGMENT further submitted by Shri Shah, learned for petitioners that impugned reopening of assessment for A.Y 2011-2012 is based on borrowed satisfaction and at instance of another ITO. It is further submitted by Shri MJ Shah, learned advocate for petitioners that in fact, solely based upon DVO s report, reopening of assessment is not permissible. 4.2 It is submitted by Mr. Shah, learned advocate for petitioners that reopening of assessment for A.Y 2011-2012 is absolutely bad in law and illegal, and therefore, deserves to be quashed and set-aside. It is further submitted by Shri Shah, learned advocate for petitioners that from reasons recorded to reopen assessment for A.Y 2011-2012, it appears that respondent had issued notice to make addition only on ground that fair market value as on 1st April 1981 of land sold by respective petitioners is valued by DVO on lower side, compared to value determined by registered Valuer and this difference in fair market value has Page 12 of 25 HC-NIC Page 12 of 25 Created On Sat May 13 10:07:39 IST 2017 C/SCA/20021/2016 CAV JUDGMENT increased indexed cost of asset of petitioners leading to lesser capital gain, and hence, such indexed cost of asset needs to be reduced resulting into higher capital gain which needs to be added to income of assessee. It is submitted that aforesaid reason recorded to reopen assessment is ex facie bad, illegal and erroneous. It is submitted that no reopening of assessment is permissible/possible based solely on report of Valuation Officer. 4.3 It is further submitted that solely on basis of and/or solely relying upon report of DVO, reopening of assessment is not permissible in as much as report of DVO can be said to be estimate and it cannot be used to draw inference that income has escaped assessment. It is submitted that as such there is no independent subjective satisfaction of Assessing Officer to form opinion that income chargeable to tax has escaped assessment; more particularly on ground Page 13 of 25 HC-NIC Page 13 of 25 Created On Sat May 13 10:07:39 IST 2017 C/SCA/20021/2016 CAV JUDGMENT stated in reasons recorded to reopen assessment. In support of his above submissions, Shri Manish J Shah, learned advocate has relied upon decisions of Hon ble Supreme Court in case of ACIT v. Thariya Construction Company, [2010] 328 ITR 515 [SC] and in case of Principal Commissioner of Income-tax-2 vs. J.Upendra Construction (P) Limited, [2015] 377 ITR 383 [Gujarat]. Shri Shah, learned advocate for assesses has also placed reliance upon decision of Division Bench of this Court in case of Aavkar Infrastructure Company v. Deputy Commissioner of Income-tax, Circle-9, reported in [2016] 67 Taxmann.com 39 [Gujarat]. 4.4 It is further submitted by Shri Shah, learned advocate for petitioners that in present case, as such, reference to DVO is possible only in circumstances where in opinion of respondent- A.O, value of asset is lesser reported and not over reported. It is further submitted by learned Page 14 of 25 HC-NIC Page 14 of 25 Created On Sat May 13 10:07:39 IST 2017 C/SCA/20021/2016 CAV JUDGMENT advocate for petitioners that in present set of cases, petitioners have adopted value determined by registered Valuation Officer, and as such, Assessing Officer has not pointed out any error in such report and merely proceeded on value arrived at by DVO. It is further submitted by Shri Shah, learned advocate appearing for petitioners that as held by Division Bench of Bombay High Court in case of Commissioner of Income-tax v. Puja Prints, reported in [2014] 360 ITR 697 [Bombay], reference to DVO can be made only when value adopted by assessee is less than fair market value, and if value of asset shown by assessee is much more than fair market value, reference to Valuation Officer could not be made. It is submitted that therefore also, when reference to DVO itself was not permissible, considering pre- amended Section 55A of Income-tax Act, Assessing Officer ought not to have reopened assessment, relying solely upon valuation of DVO Page 15 of 25 HC-NIC Page 15 of 25 Created On Sat May 13 10:07:39 IST 2017 C/SCA/20021/2016 CAV JUDGMENT and that too without application of independent mind. 4.5 It is further submitted by Shri MJ Shah that as such in present case, even reference to DVO was itself bad in law, as no assessment proceedings were pending before Assessing Officer. It is submitted that as such, reference to DVO was made on basis of instructions/information supplied by Income-tax Officer [I&CI], Surat. It is further submitted by Shri Shah, learned advocate for petitioners that even otherwise, DVO s report, on which reliance is placed by assessing Officer, as such cannot be said to be valid report, as DVO has not discussed anything as to why he has arrived at fair market value at Rs. 65/- per sq.m as on 1st April 1981. It is submitted that solely on basis of rate adopted in other two cases of properties situated in same Town Planning Scheme, DVO has mechanically and without applying any mind to aspect of location of land, etc., has adopted fair market value as on 1st April 1981 at Rs. 65/- per sqm. It is submitted that therefore, Page 16 of 25 HC-NIC Page 16 of 25 Created On Sat May 13 10:07:39 IST 2017 C/SCA/20021/2016 CAV JUDGMENT even fair market value determined by DVO, upon which reliance is placed by assessing officer, cannot be said to be report disclosing true fair market value. It is submitted that in any case, solely on basis of DVO s report and without any further inquiry having been made by Assessing Officer for his subjective satisfaction to determine fair market value as on 1st April 1981, reopening of assessment, solely on basis of such DVO s report, which may be said to be his opinion, is not permissible. Making above submission, it is requested to allow present petitions. 5. Both these petitions are vehemently opposed by learned advocate Mr. Sudhir Mehta appearing on behalf of Revenue. In facts and circumstances of case, impugned notices under Section 148 of Act for reopening of assessment for A.Y. 2011-2012 are absolutely just and proper. It is submitted by Shri Sudhir Mehta, learned advocate for Revenue that in present case, there was information from Page 17 of 25 HC-NIC Page 17 of 25 Created On Sat May 13 10:07:39 IST 2017 C/SCA/20021/2016 CAV JUDGMENT Income-tax Officer [I&CI], Surat that assessee has sold his immovable property ie., non agricultural land in question along with co-owners for sale consideration of Rs. 3,81,73,500/-. That, Income-tax Officer [I&CI], Surat further informed that assessee has taken fair market value as on 1st April, 1981 at Rs. 400/- per sqm. On basis of valuation report dated 24th March 2011 of approved valuer - Shri PK Desai and also suggested to refer matter to departmental Valuation Officer to determine correct value as on 1st April 1981. That, Assessing Officer applied fair market value taken by assessee with sale instances of that area as on 1st April 1981, which were obtained from office of Sub-Registrar and came to conclusion that valuation taken by assessee as on 1st April, 1981 at Rs. 400/- per sqm is on higher side, and hence, matter was referred to DVO for valuation under Section 55A of Act for ascertaining fair market value of property in question [as on 1st April, 1981]. That, Assessing Page 18 of 25 HC-NIC Page 18 of 25 Created On Sat May 13 10:07:39 IST 2017 C/SCA/20021/2016 CAV JUDGMENT Officer initiated Section 147 proceedings, however, same came to be dropped on 15th March 2016, since sale proceeds of land were found to be equivalent to circle rate, and hence, question of deemed capital gain as per provisions of Section 50C of Act does not arise at all. It is submitted that in meanwhile, valuation report from DVO was received in which fair market value of aforesaid property as on 1st April, 1981 was valued at Rs. 65/- per sqm on basis of available data with him and adopted in other cases. It is submitted that on basis of DVO s report, taxable Long Term Capital Gain comes to Rs. 43,39,370/- instead of Rs. 2,19,551/- as disclosed in return of income. It is submitted that therefore, then Assessing Officer has reason to believe that income of Rs. 41,19,819/- which is chargeable to tax has escaped assessment for A.Y. 2011-2012. It is submitted that therefore, impugned notices are absolutely just and legal. 5.1 It is further submitted that DVO has taken Page 19 of 25 HC-NIC Page 19 of 25 Created On Sat May 13 10:07:39 IST 2017 C/SCA/20021/2016 CAV JUDGMENT land rate at Rs. 65/- per sqm as on 1st April, 1981 by considering rate adopted in other two properties of same Town Planning Scheme. It is submitted that therefore, from report, it is clear that petitioners did not disclose/declare true and correct value and thereby have adopted value of land at Rs. 400/- per sqm on basis of approved Valuer, which is on higher side ie., more than 6 times of actual value. It is further submitted that Assessing Officer has valid reason to believe that income chargeable has escaped assessment by not declaring true Capital Gain. It is further submitted that original return was accepted under Section 143(1) of Act, and therefore, Assessing Officer, while accepting return, has no occasion to consider true Capital Gain. Making above submissions, it is requested to dismiss present petitions. 6. Heard learned advocates appearing on behalf of respective parties at length. Page 20 of 25 HC-NIC Page 20 of 25 Created On Sat May 13 10:07:39 IST 2017 C/SCA/20021/2016 CAV JUDGMENT 7. At outset, it is required to be noted that in present case, impugned notices under Section 148 of Act and assessment for A.Y 2011-2012 are sought to be reopened solely on basis of DVO s report. Nothing is on record that thereafter, any further inquiry is held/conducted by Assessing Officer to form opinion that income chargeable to tax has escaped assessment with respect to Capital gain. No further inquiry has been held/conducted to find out fair market value as on 1st April 1981. It is required to be noted that at time of filing of original return, assessee concerned has relied upon report of approved Valuer, considering fair market value of land in question as on 1st April 1981 at Rs. 400/- per sqm. It appears that thereafter, on basis of information given by another officer ie., Income Tax Officer [I&CI] Surat, Assessing Officer made reference to Departmental Valuation Officer and thereafter, solely relying upon DVO s report, assessed fair market Page 21 of 25 HC-NIC Page 21 of 25 Created On Sat May 13 10:07:39 IST 2017 C/SCA/20021/2016 CAV JUDGMENT value of land at Rs. 65/- per sqm., Assessing Officer has sought to reopen assessment for A.Y.2011-2012. Therefore, question posed before this Court for consideration is whether solely relying upon and based upon DVO s report and without holding any further inquiry thereafter with respect to fair market value of land as on 1st April, 1981, is it open for Assessing Officer to reopen assessment ? 7.1 In case of Asstt. CIT v. Dhariya Construction [2010] 328 ITR 515 [SC], opinion of DVO per se is not information for purpose of reopening of assessment under section 147 of Act. Assessing Officer has to apply his mind as to information; if any, collected and thereby form belief thereon. 7.2 similar view has been expressed by Division Bench of this Court in case of Principal Commissioner of Income-tax-2 v. J. Upendra Construction [P] Limited, reported in 377 ITR 383 [Gujarat] as well as in case of Aavkar Page 22 of 25 HC-NIC Page 22 of 25 Created On Sat May 13 10:07:39 IST 2017 C/SCA/20021/2016 CAV JUDGMENT Infrastructure Company vs. Deputy Commissioner of Income-tax Circle-9, reported in [2016] 67 Taxmann.com 39 in which, Division Bench of this court has followed decision of Supreme Court in case of Asstt. CIT v. Dhariya Construction [Supra] and held that solely on basis of DVO s report and without there being any further inquiry by Assessing Officer to form opinion that income chargeable to tax has escaped assessment and/or without applying mind to information in form of DVO s report, Assessing Officer is not justified in reopening assessment. From material available on record; except report of DVO, there was no tangible material available with Assessing Officer to form believe that income chargeable to tax has escaped assessment. 7.3 Even otherwise, it appears from DVO s report that Assessing Officer has erred in relying upon DVO s report to form opinion that income chargeable to tax has escaped assessment. DVO Page 23 of 25 HC-NIC Page 23 of 25 Created On Sat May 13 10:07:39 IST 2017 C/SCA/20021/2016 CAV JUDGMENT has mechanically and on basis of rate in case of other two properties situated in same Town Planning Scheme has determined fair market value of land as on 1st April 1981 at Rs. 65/- per sqm. However, from report, it does not appear that DVO has applied his mind with respect to location etc., of land in question. As observed hereinabove, there is no further application of mind by Assessing Officer on basis of information received by him in form of DVO s report and has mechanically and solely relied upon DVO s report, formed opinion that income chargeable to tax has escaped. Thus, there was no tangible material available with assessing officer to form opinion that income chargeable to tax has escaped assessment. 8. Under circumstances, on aforesaid ground alone, impugned Notices deserve to be quashed and set-aside. Consequently, impugned reopening of assessment for AY 2011-2012 deserves to be quashed and set-aside. Page 24 of 25 HC-NIC Page 24 of 25 Created On Sat May 13 10:07:39 IST 2017 C/SCA/20021/2016 CAV JUDGMENT 9. In view of above and for reasons aforestated, both these petitions succeed. impugned Notices under Section 148 of Income-tax Act, 1961 and reopening of assessment for A.Y 2011-2012 in case of present petitioners are hereby quashed and set-aside. Rule nisi issued in each case is made absolute to aforestated extent. However, there shall be no order as to costs. {M.R Shah, J.} {B.N Karia, J.} Prakash Page 25 of 25 HC-NIC Page 25 of 25 Created On Sat May 13 10:07:39 IST 2017 Munir Ismail Voraji v. Income-tax Officer