1 WP No.924 of 2019 dtd. 14.01.2020 Suchitra IN HIGH COURT OF BOMBAY AT GOA WRIT PETITION NO. 924 OF 2019 1. Rajesh Prakash Timblo, B1/B2, Felicinta Complex, Near Highway, Gogol, Margao-Goa 403601. PAN: AAFPT5576M 2. Vidya Rajesh Timblo, B1/B2, Felicinta Complex, Near Highway, Gogol, Margao-Goa 403601. PAN: ADNPT9431C Petitioners Versus 1. Principal Commissioner of Income Tax, having his office at Aayakar Bhawan, 1st Floor, 5 EDC Complex, Patto Plaza, Panaji-Goa. 2. Assistant Commissioner of Income Tax, Circle 1, Blessing Pioneer complex, Old Market, Opp. District Court, Margao Goa 400 601. .... Respondents 2 WP No.924 of 2019 dtd. 14.01.2020 Mr. Jitendra Jain, Mr. G. Panandikar and Ms. Eesha Dukle, Advocates for Petitioners. Ms. Amira Razaq, Standing Counsel for Respondents. Coram:- M.S. SONAK & SMT. M. S. JAWALKER, JJ. Date:- 14th January, 2020 ORAL JUDGMENT (Per M. S. Sonak, J.) Heard Mr. Jitendra Jain, Mr. G. Panandikar and Ms. Eesha Dukle for Petitioners and Ms. Amira Razaq, learned Standing Counsel for Respondents. 2. Rule. Rule is made returnable forthwith with consent and at request of learned counsel for parties. counsel appearing for respondents waives service. 3. challenge in this petition is to order dated 30.03.2019 by which Principal Commissioner of Income Tax has dismissed petitioner's applications under Section 264 of Income Tax Act, 1961 (I.T. Act) seeking to revise returns for Assessment Year (A.Y.) 2015-16 and consequential orders made thereon. 3 WP No.924 of 2019 dtd. 14.01.2020 4. It is case of petitioners that they are married to each other under Portuguese Civil Code and therefore provisions of Section 5A of I.T. Act are applicable to them. This section provides for apportionment of income earned by spouses governed by Code. It is also case of petitioners that they, on 02.05.2012 purchased immovable property (land) at Seraulim, Goa for consideration of `50 lakhs. For A.Y. 2013-14, they filed income tax returns in ITR Form-4 therein, as against head of Investment , petitioners disclosed amount of `5,35,33,507/-, which amount included investment of `50 lakhs made in Seraulim property. It is case of petitioners that in ITR-4, there was no specific provision in relation to investment in properties. return of income for A.Y. 2013-14 was duly accepted by department under Section 143(1) of I.T. Act. 5. It is further case of petitioners that for A.Y. 2014-15, petitioners filed their returns in ITR Form-1. Since this form allowed disclosure of only income from salary, no details with regard to Seraulim property were indicated. However, in balance sheet for year ending 31.03.2014, amount of `4,03,87,633/- was disclosed, which includes Seraulim property valued at `50 lakhs. Even this return of income was accepted Section 143(1) of I.T. Act. 4 WP No.924 of 2019 dtd. 14.01.2020 6. It is case of petitioners that on 02.04.2014 they converted Seraulim property which were earlier shown under head of Investment into stock in trade for purposes of development. This was done by making book entry in books of account/ledgers. However, petitioners, instead of themselves developing property, vide registered sale deed dated 05.05.2014, sold Seraulim property, which was already converted as stock in trade for consideration of `90 lakhs and necessary entries were made in books of account. 7. petitioners, on 07.06.2016 filed their return of income for A.Y. 2015-16. However, it is case of petitioners that they erroneously and inadvertently computed profits from sale of Seraulim property under head of income from capital gains and arrived at short term capital gain of `20 lakhs after giving effect to provisions of Section 5A of I.T. Act. This return was filed in ITR- 4. However, since no business income was shown, relevant details in ITR-4 relating to balance sheet was reflected as 0 as per Income Tax Software provided by department. This return of income was accepted on 06.07.2016 under Section 143(1) of I.T. Act. 8. It is case of petitioners that they realized that they had committed mistake in filing of returns and therefore, vide 5 WP No.924 of 2019 dtd. 14.01.2020 applications dated 26.06.2017, made within prescribed period of limitation, invoked provisions of Section 264 of I.T. Act and applied for revision of intimation under Section 143(1) of I.T. Act for assessing gain on sale of Seraulim property as business income and not as any short term capital gain. By impugned order dated 30.03.2019, Principal Commissioner has rejected said applications. Hence present petition. 9. Mr. Jitendra Jain, learned counsel for petitioners submits that impugned order proceeds on basis that Seraulim property was not at all reflected in returns for A.Y. 2012-13, 2013- 14, 2014-15 and 2015-16. He submits that this is patently incorrect and amounts to misreading returns and material furnishes therewith. He submits that were such doubt to be expressed in course of personal hearing, petitioners, would have clarified and demonstrated otherwise. He submits that observation that conversion of investment qua Seraulim property to stock in trade being dubious as mere ipse dixit based upon no material on record. He submits that fact that petitioners made inadvertent error in filing of returns for 2015-16, is not at all indicative of any dubious act but, rather, applications under Section 264 were filed precisely to correct such inadvertent error. 6 WP No.924 of 2019 dtd. 14.01.2020 10. Mr. Jain points out that necessary book entry had been made in books of account/ledgers to indicate conversion of investment in Seraulim property as stock in trade. He submits that applying principles set out in Circular dated 29.02.2016, which is to be read along with provisions of Section 45(2) of I.T. Act, there was ample material on record to evidence conversion. He submits that inasmuch as all these relevant aspects have not been taken into consideration and since impugned order proceeds on basis of irrelevant observations, same warrants interference. 11. Ms. Razaq, learned Standing Counsel for respondents defends impugned order on basis of reasoning reflected therein. She submits that issue is not about non-disclosure of Seraulim property but issue is whether there is any material at all produced on record by petitioners to suggest that there was any genuine mistake in filing of returns for A.Y. 2015-16. She submits that there was absolutely no evidence or contemporaneous material produced on record by petitioners in support of alleged conversion of investment into stock in trade. She submits that there are no entries even in books of account/ledgers unilaterally maintained by petitioners to indicate any determination of fair value or any entries to support conversion. She submits that this is clearly case of afterthought and impugned order was quite correctly made. 7 WP No.924 of 2019 dtd. 14.01.2020 12. Ms. Razaq pointed out that this is not at all case of failure of natural justice because petitioners were offered hearing, which offer, petitioners have availed. She points out that even extracts from ledgers now produced along with this petition were neither produced before respondent no.1 at time of hearing nor along with applications under Section 264 of I.T. Act. 13. For all aforesaid reasons, Ms. Razaq submits that impugned order may not be interfered with and this petition may be dismissed. 14. rival contentions now fall for our determination. 15. On perusal of impugned order, we find that respondent no.1 has adverted to returns for A.Y. 2012-13, 2013-14, 2014-15 and 2015-16 and thereafter observed that entry in context of Seraulim property is not evident even under head of Investment . It is not quite clear as to whether this is one of reasons for rejection of petitioner's applications under Section 264 of I.T. Act. If this is one of reasons, then, Mr. Jain, is quite correct in his submission that returns for said assessment years have not been read in their entirety. In any case, petitioners, do have plausible explanation in this regard and were they informed that this is one of 8 WP No.924 of 2019 dtd. 14.01.2020 tentative reasons, then, they were clearly in position to demonstrate that Seraulim property was indeed referred to in returns. In fact, returns for A.Y. 2012-13 are totally irrelevant for present case. 16. other reason discernible from impugned order is reasoning of respondent no.1 that in previous assessment years, Seraulim property was indicated as capital asset and this position continued even for A.Y. 2015-16. Respondent no.1 has also observed that petitioners themselves treated Seraulim property as capital asset and further, they have produced no evidence to support their claim of conversion of this capital asset into stock in trade. 17. In response to Ms. Razaq's contentions that there was no contemporaneous material produced on record by petitioners, Mr. Jain, offered to produce on record balance sheet/profit and loss account for A.Y. 2015-16. Upon production, on behalf of petitioners, it was pointed out that in balance sheet for year ending 31.03.2013 investment in property was valued at `3,48,10,633/-. Similarly, in balance sheet for year ending 31.03.2014 this figure increased to `4,03,87,633/- which, included value of Seraulim property. However, in balance sheet for year ending 31.03.2015, this figure has again come down to 9 WP No.924 of 2019 dtd. 14.01.2020 `3,53,87,633/-. It was pointed out that this, at least, prima facie, indicates that petitioners did convert this capital asset into stock in trade and this position was reflected not only in books of account/ledgers but also in balance sheet. 18. According to us, although, it is true that neither books of account/ledgers nor balance sheets were produced by petitioners along with their applications under Section 264 of I.T. Act or during course of personal hearing thereon, interests of justice would require that petitioners are given opportunity to produce this material before respondent no.1. impugned order, makes reference to certain reasons or circumstances, which, may not be entirely relevant. In any case, impact of such irrelevant circumstances on ultimate decision is also not quite clear from perusal of impugned order. fact that for A.Y. 2015-16, respondents themselves treated Seraulim property as capital asset is really begging point because it is case of petitioners that this was error committed by them on account of which they filed their applications under Section 264 of I.T. Act. 19. aforesaid means that impugned order is based upon certain circumstances, which can be styled as irrelevant. petitioners, though had not placed any contemporaneous material 10 WP No.924 of 2019 dtd. 14.01.2020 before respondent no.1 at time of hearing of their applications under Section 264 of I.T. Act, have, in course of present hearing, placed some material. effect of such material cannot be decided by this Court and it is only appropriate that same is decided by respondent no.1 afresh. impugned order also does not reflect that same was based on alleged failure on part of petitioners to make any fair valuation of Seraulim property at stage of their alleged conversion into stock in trade. No doubt, all these matters might be relevant for determining whether this is case where petitioners had made genuine error, as contended by them, or whether, this is case where petitioners, merely, by way of afterthought, seek to invoke provisions of Section 264 of I.T. Act and thereby avoid paying capital gains tax. 20. Accordingly, we are of opinion that interest of justice would be met if impugned order is set aside and respondent no.1 is directed to once again consider petitioners' applications under Section 264 of I.T. Act and to dispose of same on their own merits and in accordance with law. We grant petitioners liberty to place additional material on record before respondent no.1 and we request respondent no.1 to dispose of petitioners' applications under Section 264 of I.T. Act as expeditiously as possible and in any case within period of four months from today. 11 WP No.924 of 2019 dtd. 14.01.2020 21. We make it clear that none of observations in this order may be treated as conclusive or binding one way or other. issue as to whether petitioners' applications under Section 264 of I.T. Act shall be allowed or not is kept entirely open and respondent no.1 is required to decide same on their own merits and in accordance with law. No doubt, this time, without being influenced by any of observations in impugned order, which, in any case, we have now set aside. 22. We further clarify that all issues i.e. contentions on behalf of petitioners as well as respondents are specifically kept open and burden of satisfying respondent no.1 that this was indeed case of genuine error will lie squarely upon respondents who will be expected to discharge same in accordance with law. 23. impugned order is accordingly set aside. matter is remanded to respondent no.1 to dispose of petitioners' applications under Section 264 of I.T. Act afresh, on their own merits and in accordance with law. We request respondent no.1 to dispose of these applications as expeditiously as possible and in any case within period of four months from today. 24. Rule is made absolute in aforesaid terms. There shall be no orders as to costs. 12 WP No.924 of 2019 dtd. 14.01.2020 25. All concerned to act on basis of authenticated copy of this order. SMT. M. S. JAWALKAR, J. M. S. SONAK, J. ss Rajesh Prakash Timblo / Vidya Rajesh Timblo v. Principal Commissioner of Income-tax, Panaji / Assistant Commissioner of Income-tax, Circle 1, Margao