C/SCA/13881/2017 JUDGMENT IN HIGH COURT OF GUJARAT AT AHMEDABAD SPECIAL CIVIL APPLICATION NO. 13881 of 2017 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 ? SENITAX CHEMICALS LTD.....Petitioner(s) Versus INCOME TAX OFFICER....Respondent(s) Appearance: MR SN DIVATIA, ADVOCATE for Petitioner(s) No. 1 MR KM PARIKH, ADVOCATE for Respondent(s) No. 1 CORAM: HONOURABLE MR.JUSTICE AKIL KURESHI and HONOURABLE MR.JUSTICE BIREN VAISHNAV Date : 03/10/2017 Page 1 of 10 HC-NIC Page 1 of 10 Created On Tue Oct 10 11:01:40 IST 2017 C/SCA/13881/2017 JUDGMENT ORAL JUDGMENT (PER : HONOURABLE MR.JUSTICE AKIL KURESHI) 1. petitioner has challenged notice dated 7.3.2017 issued by respondent Assessing Officer for reopening petitioner's assessment for assessment year 2005 2006. 2. Brief facts are as under. petitioner is company registered under Companies Act. For assessment year 2005 2006, petitioner had filed return of income on 31.10.2005 declaring nil income. return was taken in scrutiny by Assessing Officer. He passed order of assessment under section 143(3) of Act on 31.12.2007 accepting declaration of nil income as also assessee's claim for long term capital loss of Rs.15.80 lacs on sale of land. 3. Assessing Officer issued notice for reopening such assessment under section 148 of Act on 19.8.2010 in which his dispute was with respect to computation of cost of acquisition of land for purpose of computing long term capital gain or loss on sale of such land. assessee Page 2 of 10 HC-NIC Page 2 of 10 Created On Tue Oct 10 11:01:40 IST 2017 C/SCA/13881/2017 JUDGMENT had shown cost of acquisition as on 1.4.1981 at Rs.135.84 per sq. mtr. as against valuation of Rs.80 per sq. mtr. shown by registered valuer. According to Assessing Officer, in reasons recorded, instead of capital loss of Rs.15.80 lacs, assessee had made long term capital gain of Rs.1.11 crores through sale of land. Assessing Officer made assessment accordingly under section 143(3) read with section 147 of Act by passing order on 9.11.2011. 4. assessee filed appeal before Commissioner (Appeals) and strongly disputed validity of reopening of assessment itself. On behalf of assessee, it was urged that entire issue was scrutinized by Assessing Officer during original assessment proceedings and in any case there was no failure on part of assessee to disclose truly and fully all material facts. Notice of reopening therefore, could not have been issued beyond period of four years. 5. On question of additions made by Assessing Officer in reassessment, in appellate proceedings, assessee presented additional materials suggesting that correct cost of acquisition of land should have been Rs.108.27 per sq mtr. According to this valuation, long term capital gain of assessee would be Rs.21.51 lacs, Page 3 of 10 HC-NIC Page 3 of 10 Created On Tue Oct 10 11:01:40 IST 2017 C/SCA/13881/2017 JUDGMENT instead of Rs.14.90 lacs shown in return. 6. Commissioner by order dated 15.11.2012 held that reopening was invalid. He was of opinion that Assessing Officer in reasons recorded had proceeded on basis of materials on record. There was no failure on part of assessee to disclose truly and fully all material facts. According to him, issue was also examined during original assessment proceedings. On both counts, therefore, Commissioner(Appeals) declared reassessment invalid. 7. While doing so, he referred to assessee's further statement before him suggesting that correct cost of acquisition of land would be Rs.108.27 per sq mtr. He referred to materials produced by assessee in this respect and gave following directions : 5.1 Thus, as admitted by AR also, correct cost of acquisition of saleable lans should have been Rs. 108.27 per sq.mtr and long term capital gain in present case should have been Rs. 21,51,968/ in place of long term loss of Rs. 14,90,955/ shown by appellant in its return of income. finding that correct rate of cost of acquisition of saleable land as on 01.04.1981 should have been Rs. 108.27 and hence appellant had adopted in correct cost of acquisition of saleable land for computing long term capital gain during course of original assessment proceedings, has been arrived at only Page 4 of 10 HC-NIC Page 4 of 10 Created On Tue Oct 10 11:01:40 IST 2017 C/SCA/13881/2017 JUDGMENT during course of appellate proceedings on verification of sale deeds and other documents. Hence, AO is directed to reopen assessment for assessment year 2005 06 by issuing notice u/s 148 in pursuance of these findings as per provisions of sec. 150 of IT Act, 1961. 8. This order was challenged by Revenue but not by assessee. Tribunal rejected Revenue's appeal and confirmed decision of CIT(Appeals). Thereupon pursuant to above noted directions of CIT(Appeals), Assessing Officer issued impugned notice. 9. In reasons recorded by Assessing Officer for issuing such notice, directions issued by CIT(Appeals) in said order dated 15.11.2012 have been reproduced. After reproducing direction portion, Assessing Officer in reasons recorded observed as under : In view of above direction U/s. 150 of IT Act, reason of reopening u/s. 147 of IT Act is recorded as under: On verification of case records, it was noticed that assessee company has sold plotted land admeasuring 36843 sq. mt. out of total land of 59388 sq. mt. during year to different parties. assessee has sold 7039 sq. ft of land in earlier years. rest of land admeasuring 15506 sq mt. belongs to Road and Common areas. In order to worked out Capital gain on sale of such plotted land assessee got valuation report of land determining value of land @ 80 per sq mt as on Page 5 of 10 HC-NIC Page 5 of 10 Created On Tue Oct 10 11:01:40 IST 2017 C/SCA/13881/2017 JUDGMENT 01.04.1981 and after indexation of value of land as on. 01.04. l981,the assessee had arrived cost of acquisition. While working cost of acquisition of land assessee has taken rate of land @ 135.84 per sq mt on basis of entire land area and did not exclude part of land admeasuring 15506 sq mt which was not saleable on account of being road and common area. Therefore, cost of saleable land as on 01.04. 1981 should have been worked out as under: Total cost as on 59338 @ Rs. 80 per Rs. 47,51,040 01/04/1981 sq.mt Total saleable 43882 sq mt Land (excluding of 15506 sq mt being road and common area) Cost per sq mt Total cost of 59388 sq Rs. mt Saleable land of 4751040/43882=108. 43882 sq mt 27 sq.mt Rate per sq mt Rs. 108.27 per sq mt. However, instead of taking rate of land per sq mt of Rs. 108.27 assessee has taken rate of land at Rs. 135.84 sq.mt. Therefore assessee has wrongly calculated cost of acquisition for determining capital gain. This means that assessee has inflated cost of acquisition which resultant into suppression of Long Term Capital Gain. working of capital gain on basis of rate of land @ 108.27 per sq.mt is as under 10. Learned counsel Shri Divatia for petitioner submitted that Commissioner(Appeals) had no authority to give any direction once he declared Page 6 of 10 HC-NIC Page 6 of 10 Created On Tue Oct 10 11:01:40 IST 2017 C/SCA/13881/2017 JUDGMENT reassessment proceedings as invalid. He had come to conclusion that there was no failure on part of assessee to disclose truly and fully all material facts and further that during original assessment, entire issue was scrutinized. If that be so, there was no reason for him to make any further observations or give direction for reopening assessment. Tribunal also confirmed decision of CIT(Appeals). Counsel further submitted that in any case, directions issued by Commissioner (Appeals) could at best save limitation in terms of section 150 of Act but would not form basis for reopening assessment which would depend solely on jurisdictional requirements being satisfied. 11. On other hand, learned counsel Shri Parikh for department opposed petition contending that fresh material was brought on record during appellate proceedings. CIT(Appeals) therefore, made suitable observations and gave directions. These directions were not challenged by assessee. In collateral proceedings, he cannot question them. 12. central issue involved in return filed and in subsequent assessment concerns question of long term capital gain of assessee upon sale of land. valuer had adopted Rs.80 per sq. mtr as cost of acquisition Page 7 of 10 HC-NIC Page 7 of 10 Created On Tue Oct 10 11:01:40 IST 2017 C/SCA/13881/2017 JUDGMENT of land on 1.4.1981. In return, assessee instead adopted rate of Rs.135.84 per sq. mtr. and claimed long term capital loss of Rs.15.80 lacs. During first round of reopening of assessment, Assessing Officer had questioned this valuation and computed long term capital gain on basis that cost of acquisition of land as on 1.4.1981 would be Rs.80 per sq. mtr. CIT(Appeals) struck down this assessment on ground that it amounts to invalid exercise of powers of reopening. In reasons recorded, Assessing Officer had not referred to any material which was not disclosed by Assessing Officer. issue was also scrutinized during original assessment proceedings. In opinion of Commissioner(Appeals) however, issue should not rest there because before him assessee had taken stand that correct cost of acquisition should be Rs.108.27 per sq mtr. He had produced documents in support of such stand and also presented revised capital gain arising out of such valuation. It was in this background that CIT (Appeals) gave direction for reopening of assessment. 13. For two reasons, petitioner cannot succeed. Firstly, petitioner never challenged order of CIT(Appeals) which was in part against petitioner. If petitioner was aggrieved by directions issued by CIT(Appeals), it ought to have challenged same before Page 8 of 10 HC-NIC Page 8 of 10 Created On Tue Oct 10 11:01:40 IST 2017 C/SCA/13881/2017 JUDGMENT appropriate forum. petitioner having accepted and acquiesced in order cannot question wisdom or authority of CIT(Appeals) to issue such directions. Equally importantly, stand of CIT(Appeals) in on one hand annulling reassessment on grounds of previously scrutinized claim and no failure on part of assessee to disclose truly and fully material facts and at same time directing reopening of assessment, was not in any manner incongruent. His observations or conclusions for invalidating assessment were based on materials which were before Assessing Officer at time of issuing notice for reopening. His directions were based on materials which came before him during appellate proceedings. By assessee's own account, correct valuation as on 1.4.1981 of land in question would be Rs.108.27 per sq mtr. This would have two elements. One, that original scrutiny would no longer be valid since there was outside alien material which had later on come on record and two, that declaration made by assessee in return filed and during previous assessment proceedings would also be under cloud. effect of directions that appellate authority or Tribunal may issue during assessment proceedings, need not be in all cases confined to saving of limitation in terms of section 150 of Act if directions are specific, as in present case which can go beyond mere saving of Page 9 of 10 HC-NIC Page 9 of 10 Created On Tue Oct 10 11:01:40 IST 2017 C/SCA/13881/2017 JUDGMENT limitation. 14. In result, petition is dismissed. Notice is discharged. (AKIL KURESHI, J.) (BIREN VAISHNAV, J.) raghu Page 10 of 10 HC-NIC Page 10 of 10 Created On Tue Oct 10 11:01:40 IST 2017 Senitax Chemicals Ltd. v. Income-tax Officer