C/SCA/19957/2016 JUDGMENT IN HIGH COURT OF GUJARAT AT AHMEDABAD SPECIAL CIVIL APPLICATION NO. 19957 of 2016 FOR APPROVAL AND SIGNATURE: HONOURABLE MR.JUSTICE AKIL KURESHI and HONOURABLE MR.JUSTICE BIREN VAISHNAV 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? c VITHALBHAI G. PRAJAPATI Petitioner(s) Versus INCOME TAX OFFICER Respondent(s) Appearance: MR MANISH J SHAH, ADVOCATE for Petitioner(s) No. 1 MR NITIN K MEHTA, ADVOCATE for Respondent(s) No. 1 CORAM: HONOURABLE MR.JUSTICE AKIL KURESHI and HONOURABLE MR.JUSTICE BIREN VAISHNAV Date : 28/08/2017 ORAL JUDGMENT (PER : HONOURABLE MR.JUSTICE AKIL KURESHI) Page 1 of 11 HC-NIC Page 1 of 11 Created On Fri Sep 01 09:57:57 IST 2017 C/SCA/19957/2016 JUDGMENT 1. petitioner has challenged notice dated 15.03.2016 issued by respondent-Assessing Officer to reopen petitioner's assessment for assessment year 2009-10. 2. Facts are as under: Petitioner-Vitthal Prajapati is 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 sale consideration of Rs. 5.50 crores. Takhiben claiming that she had no taxable income did not file return of income for relevant assessment year 2009-10. other four sons did file their respective returns and disclosed this sale transaction. 3. Assessing Officer issued notice dated 31.03.2012 to Takhiben conveying to her that he had reason to believe that income chargeable to tax in her case for assessment year 2009-10 had escaped assessment and that she should, therefore, file return within 30 days from date of receipt of notice. Takhiben, in compliance of said notice filed return along with communication dated 11.05.2012. In such return, she claimed that she had no other income. She disclosed sale deed of 23.04.2008 out of which, she had received sale consideration of Rs. 1.10 crores. She took date of Page 2 of 11 HC-NIC Page 2 of 11 Created On Fri Sep 01 09:57:57 IST 2017 C/SCA/19957/2016 JUDGMENT acquisition of property as 01.04.1981 for purchase value of Rs. 18.91 lacs (rounded off). She indexed such value till date of sale to Rs. 1,10,05,806/- and claimed loss of Rs. 5806/- in return. During course of assessment, Assessing Officer looked further into this transaction as is apparent from documents exchanged between Assessing Officer and Takhiben. For example, on 18.06.2012, Takhiben wrote to Assessing Officer that property having been sold for Rs. 5.50 crores by five joint owners, other owners had filed return of income in whose cases, assessments were carried out and completed. Along with this letter, she had also annexed documents pertaining to such assessments of co-owners. Perusal of these documents would show that sale considerations were subject-matter of scrutiny assessments after which final orders of assessment were passed accepting declarations made by respective assesses. 4. It appears that after issuance of notice to Takhiben for filing return of income for said assessment year 2009-10, Assessing Officer did not complete assessment and in due course of time, such assessment became time barred. Neither petitioner nor department has produced reasons recorded by Assessing Officer for issuing said notice dated 31.03.2012 nor department has disputed petitioner's averments that no final order of assessment was passed by Assessing Officer pursuant to such notice in case of Takhiben. Page 3 of 11 HC-NIC Page 3 of 11 Created On Fri Sep 01 09:57:57 IST 2017 C/SCA/19957/2016 JUDGMENT 5. It appears that in case of other co-owners i.e. four sons of Takhiben, assessment orders under section 153A read with section 143(3) of Act came to be passed on 26.03.2015, in which, question of correct valuation of said land was focal point. Assessing Officer relied on valuation reports and came to conclusion that fair market value of land on 01.04.1981 was highly inflated. factum of these assessment orders were brought to notice of present respondent as Assessing Officer of Takhiben. He thereupon issued impugned notice dated 15.03.2016 seeking to reopen assessment of Takhiben for assessment year 2009-10 for which purpose, he had recorded following reasons: On verification of information available with thi office, it is observed that above mentioned assessee had jointly sold (5 co-owners 1/5 share of assessee) plot of land, bearing Final Plot No. 84/2, in Thaltej to Dhara Builders of Ahmedabad on 23.04.2008. As per valuation officer report dated 24.03.2015 vide No. 6(10)/VO-II/2014-15943, fair market value of plot of land estimated at Rs. 2,41,800/- at rate of Rs. 31.58 sq.meters as against Rs. 94,55,160/- at rate of Rs. 1,235/- per sq.meters estimated by assessee on basis of report of their Valuer Nihir Dave and Associates. On verification of record of this office, it is seen that assessee has not filed return of income for A.Y. 2009- 10. Hence, transaction made during F.Y. 2008-09 is required to be taxed. In view of above, sales consideration of Rs. 1,10,00,000/- received by above named assessee is required to be taxed as same is chargeable to long term capital gain. Page 4 of 11 HC-NIC Page 4 of 11 Created On Fri Sep 01 09:57:57 IST 2017 C/SCA/19957/2016 JUDGMENT I have, therefore, reasons to believe that income/gain chargeable to Tax has escaped assessment to extent of Rs. 1,07,58,200/- (Rs. 1,10,00,000) (-) Rs. 2,41,800/-) for A.Y. 2009-10 under head income from capital gain. above income/gain chargeable to tax has escaped assessment by reason of failure on part of above named assessee trust who failed to disclose fully and truly all material fact necessary for assessment for A.Y. 2009-10 within meaning of explanation 2(a) of section 147 of IT Act 1961. 6. petitioner, as heir of Takhiben, raised objections to notice for reopening under his communication dated 29.08.2016. Such objections were rejected by Assessing Officer by order dated 30.09.2016, upon which, this petition came to be filed. 7. Learned counsel for petitioner raised following contentions: i. Assessing Officer having issued notice for re- assessment on 31.01.2012 pursuant to which petitioner had filed return of income, did not pass final order of assessment since in scrutiny assessment of co-owners, declaration of loss during sale of land was accepted. ii. Takhiben had, during course of assessment, brought all materials before Assessing Officer specifying that declaration made by Takhiben in return was correct. No final order of assessment came to be passed. It was, thereafter, not open for Assessing Officer to undertake same exercise all over again. Page 5 of 11 HC-NIC Page 5 of 11 Created On Fri Sep 01 09:57:57 IST 2017 C/SCA/19957/2016 JUDGMENT iii. reasons recorded by Assessing Officer proceeded on basis that Takhiben had filed no return which was factually incorrect. He, therefore, proceeded on entirely wrong premise and his reasons therefore, lacked validity. iv. It is also contended that action of reopening of assessment was not authorized by Commissioner of Income Tax as is required under law. v. It was contended that fresh orders of assessment in case of co-owners under section 153A read with section 143(3) of Act were challenged by assessees before Commissioner (Appeals) who has allowed appeals. 8. On other hand, learned counsel Mr. Nitin Mehta for department contended that Assessing Officer has recorded proper reasons. Merely because inadvertently he has referred to assessee not having filed return would not be fatal to notice. reasons recorded do not proceed on this premise. foundation of reason is that assessee has inflated cost of acquisition of land to avoid capital gain. This came to notice of Assessing Officer only recently when assessement orders in case of co-owners were brought to his notice. He also made available departmental file to show that Commissioner had applied his mind and had sanctioned issuance of notice for reopening. He further submitted Page 6 of 11 HC-NIC Page 6 of 11 Created On Fri Sep 01 09:57:57 IST 2017 C/SCA/19957/2016 JUDGMENT that department has not accepted order of Appellate Commissioner deleting additions made by Assessing Officer in case of co-owners. 9. facts, though somewhat complex, are not highly disputed. To summarize facts, petitioner had originally filed return of income which was filed in response to notice by Assessing Officer dated 31.03.2012. only declaration in return was of sale of immovable property through which, she had received sale consideration of Rs. 1.10 crores. During assessment pursuant to such notice this was focal point of Assessing Officer. For whatever reasons, Assessing Officer did not complete assessment and, time for completion of assessment lapsed. Much later, Assessing Officer issued fresh notice of reopening on ground that assessee had showed fair market value of plot of land at Rs. 94,55,160/- which was based on valuer's report whereas according to Assessing Officer, fair market value of land was Rs. 2,41,800/-. In his opinion therefore, income to extent of Rs. 1,07,58,200/-, i.e. difference between sale consideration of Rs. 1.10 crores and cost of acquisition of land at Rs. 2,41,800/-, has escaped assessment. 10. We are conscious that return filed by assessee pursuant to notice dated 31.03.2012 did not culminate into final order of assessment. We are also conscious that presently, Assessing Officer desires to rely on assessments in case Page 7 of 11 HC-NIC Page 7 of 11 Created On Fri Sep 01 09:57:57 IST 2017 C/SCA/19957/2016 JUDGMENT of co-owners which were completed in terms of section 153A read with section 143 of Act. His contention therefore that he has material which did not form part of original assessment proceedings would ordinarily require further scrutiny. However, for multiple reasons, we cannot sustain present notice. Our reasons are as follows: i. As would be demonstrated hereafter, Assessing Officer has exhibited total non-application of mind while recording reasons and issuing impugned notice. As is well settled, recording of reasons is mandatory requirement before Assessing Officer can issue notice for reopening and that notice must succeed or fail on basis of reasons so recorded and Assessing Officer cannot supply such reasons from any material or grounds outside of reasons recorded by him. ii. In background of such legal position, we may peruse reasons more minutely. One of grounds pressed in service by Assessing Officer is that, according to him, assessee had not filed return of income for said assessment year 2009-10. During period relevant to said assessment year, assessee had received 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 Assessing Officer that assessee had not filed return is false. record conclusively establishes that notice for filing return was issued on 31.03.2012, in response to which, assessee filed Page 8 of 11 HC-NIC Page 8 of 11 Created On Fri Sep 01 09:57:57 IST 2017 C/SCA/19957/2016 JUDGMENT return declaring said sale of land through which she had received consideration of Rs. 1.10 crores. This was, in fact, only worthwhile receipt of assessee during relevant period. During assessment proceedings, assessee had brought on record assessment orders in case of co- owners of land where identical valuation and declarations were accepted by Assessing Officer. 11. If it was possible to disassociate reason recorded by Assessing Officer from such inadvertent reference to assessee not having filed return of income, we would have still examined contention of counsel for Revenue that such error should not be fatal to notice for reopening. However, this is not so in present case. Assessing Officer proceeded on basis that assessee had not filed return of income. He therefore, had no basis for presuming as to what was declaration made by assessee in such return. He had no iota of information to believe that assessee had claimed cost of acquisition of property at particular rate which was, according to Assessing Officer, not quite accurate. This was main ground on which, Assessing Officer now wishes to reopen assessment. It is, therefore, not possible to sever inaccurate recording of Assessing Officer in reasons recorded that assessee had never filed return of income. 12. matter does not end here. Assessing Officer, in Page 9 of 11 HC-NIC Page 9 of 11 Created On Fri Sep 01 09:57:57 IST 2017 C/SCA/19957/2016 JUDGMENT very first paragraph of reasons, has referred to fair market value of plot of land which was, according to department's valuer, was estimated at Rs. 2,41,800/- as against Rs. 94,55,160/- estimated by assessee. reasons recorded do not refer to it as on which estimation of fair market value of land is taken. If his reference was, as would be presumed on basis of later portion of his recording of reasons, to crucial date of 01.04.1981 he has not said so in reasons. More importantly, if fair market value, according to him was Rs. 2,41,800/- for plot of land while computing possible value of income having escaped assessment, he gives no benefit of indexation of such cost of acquisition from 01.04.1981 till date of sale of land. 13. At all stages thus, Assessing Officer exhibited absolute non-application of mind to facts and materials on record. notice for reopening of assessment was, therefore, based on reasons which were product of such non- application of mind. Notice must therefore be quashed. 14. Before closing, we may clarify that record would suggest that Commissioner had given sanction for notice of reopening. department not having exhibited view of Commissioner's appeal in case of co-owners in connection with assessment orders under section 153A of Act, we have not based our conclusion on this factor. Page 10 of 11 HC-NIC Page 10 of 11 Created On Fri Sep 01 09:57:57 IST 2017 C/SCA/19957/2016 JUDGMENT 15. In result, impugned notice dated 15.03.2016 is quashed. Petition is allowed and disposed of. (AKIL KURESHI, J.) (BIREN VAISHNAV, J.) Jyoti Page 11 of 11 HC-NIC Page 11 of 11 Created On Fri Sep 01 09:57:57 IST 2017 Vithalbhai G. Prajapati v. Income-tax Officer