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2016 DIGILAW 673 (GUJ)

Swati Saurin Shah v. Income Tax Officer

2016-03-28

G.R.UDHWANI, HARSHA DEVANI

body2016
JUDGMENT : Harsha Devani, J. 1. This petition under Article 226 of the Constitution of India is directed against the notice dated 23.03.2015 issued by the respondent under section 148 of the Income Tax Act, 1961 (hereinafter referred to as "the Act") seeking to reopen the assessment of the petitioner for assessment year 2011-12. 2. The petitioner is an individual and derives income by way of rented property, capital gains and income from other sources and is regularly assessed to income tax. The petitioner filed her return of income for assessment year 2011-12 on 06.09.2011 declaring total income of Rs. 9,00,460/-, which inter alia included long term capital gain on sale of one-half share in Banker's bungalow, Pritamnagar, Ahmedabad. The return of income was selected for scrutiny and the assessment came to be completed under section 143(3) of the Act after calling for and detailed scrutiny of documents, papers, etc., including the details in respect of the sale of one-half share in Banker's bungalow, Pritamnagar, Ahmedabad. During the course of regular assessment proceedings, the respondent issued notices dated 12.08.2013 and 10.09.2013 under section 142(1) of the Act and thereafter, from time to time, called for the details/clarifications relating to long term capital gain shown in respect of the said bungalow. It is the case of the petitioner that in response thereto, she had submitted complete details by a reply dated 08.10.2013 and thereafter, from time to time, as and when called for. The details so provided included a valuation report of the property in question as on 01.04.1981 prepared by a Registered Valuer Shri Induprasad C. Patel, allotment advice in respect of capital gain bond of Rural Electrification Corporation Ltd., the decision of Income Tax Appellate Tribunal, Ahmedabad Bench in the case of Aspi Ginwala v. ACIT, etc. After considering the aforesaid material, the Assessing Officer framed the assessment under section 143(3) of the Act on 15.10.2013 determining the taxable income of the petitioner at Rs. 9,00,460/-. 3. Thereafter, the respondent issued the impugned notice dated 23.03.2015 under section 148 of the Act, proposing to reopen the assessment of the petitioner for assessment year 2011-12. After considering the aforesaid material, the Assessing Officer framed the assessment under section 143(3) of the Act on 15.10.2013 determining the taxable income of the petitioner at Rs. 9,00,460/-. 3. Thereafter, the respondent issued the impugned notice dated 23.03.2015 under section 148 of the Act, proposing to reopen the assessment of the petitioner for assessment year 2011-12. In response to the notice, the petitioner filed a letter dated 25.03.2015 asking the Assessing Officer to treat the original return of income filed on 06.09.2011 as her return of income in response to the impugned notice and also requested for a copy of reasons recorded for reopening the assessment. By a letter dated 30.04.2015, a copy of the reasons recorded on 19.03.2015 came to be furnished to the petitioner. The petitioner, thereafter, submitted her objections thereto by a reply dated 20.05.2015. By an order dated 23.07.2015, the respondent rejected the objections raised by the petitioner. It is the case of the petitioner that during the course of hearing of reassessment, the respondent was once again explained that the reopening of the assessment was illegal and unlawful. However, since the respondent persisted with the proceedings, the petitioner has approached this court by way of the present petition under Article 226 of the Constitution of India. 4. Mr. S.N. Divatia, learned advocate for the petitioner drew the attention of the court to the reasons recorded by the Assessing Officer for reopening the assessment to point out that from the reasons recorded, it is evident that this is a case of change of opinion on both the items proposed to be reassessed. It was submitted that merely because in the case of a co-owner a view is taken, on that borrowed satisfaction, the Assessing Officer seeks to reopen the assessment. According to the learned counsel, merely because the valuation report is not accepted in the case of the co-owner, is not a good ground for reopening the assessment in the case of the petitioner. The impugned notice as well as the reassessment proceedings are, therefore, illegal, unlawful and without jurisdiction on the ground that the same are based upon a mere change of opinion on the part of the respondent. The impugned notice as well as the reassessment proceedings are, therefore, illegal, unlawful and without jurisdiction on the ground that the same are based upon a mere change of opinion on the part of the respondent. It was submitted that since the long term capital gain on the sale of Banker's bungalow was the major income in this year, it was thoroughly verified by the respondent during the original assessment proceedings by calling the requisite details/documents from the petitioner. 4.1 Reliance was also placed upon the decision of the Supreme Court in the case of Assistant Commissioner of Income Tax v. Dhariya Construction Co., [2010] 328 ITR 515 (SC) wherein, the court held that the opinion of the DVO per se is not an information for the purposes of reopening assessment under section 147 of the Income Tax Act, 1961. The Assessing Officer has to apply his mind to the information, if any, collected and must form a belief thereon. Reliance was also placed upon the decision of this court in the case of Vinayak Builders v. BD Garsar (OR) Successor, [2012] 27 taxmann.com 116 (Gujarat) wherein, the court placing reliance upon the above referred decision of the Supreme Court in the case of Assistant Commissioner of Income Tax v. Dhariya Construction Co. (supra), had set aside the impugned notice under section 148 of the Act on the ground that the Assessing Officer could not have reopened the assessment under section 147 of the act on the ground that the DVO had estimated the cost of construction at a higher figure than that shown by the assessee in the absence of any additional material in support thereof. 4.2 Reference was made to the decision of the Supreme Court in the case of Dilip N. Shroff v. Joint Commissioner of Income Tax, Mumbai and another, (2007) 6 SCC 329 , wherein, the court had held that a duty may be enjoined on the assessee to make a correct disclosure of income but if such disclosure is based on the opinion of an expert, who is otherwise also a Registered Valuer having been appointed in terms of a statutory scheme, only because his opinion is not accepted or some other expert gives another opinion, the same by itself may not be sufficient for arriving at a conclusion that the assessee has furnished inaccurate particulars. It was submitted that if for concealment it cannot be an opinion, it also cannot be a ground for reopening the assessment. 4.3 Referring to the reasons recorded, it was submitted that the same clearly show that the valuation as on 01.04.1981 as well as the claim of exemption under section 54EC of the Act were thoroughly examined by the Assessing Officer at the time of original assessment. It was submitted that in respect of claim of exemption of Rs. 81,00,000/- under section 54EC of the Act, the petitioner had furnished a copy of the order of the Income Tax Appellate Tribunal in the case of Aspi Ginwala v. ACIT during the course of original assessment proceedings and that the Assessing Officer allowed the claim of exemption under section 54EC of the Act to the extent of Rs. 81,00,000/-in view of the decision of the Jurisdictional Tribunal, which cannot be said to be erroneous. It was, accordingly, urged that apart from the fact that the reopening is based upon a mere change of opinion, even on merits, the reasons recorded do not have any legs to stand, and hence the impugned notice deserves to be quashed. 5. Opposing the petition, Mrs. Mauna Bhatt, learned Senior Standing Counsel for the respondent submitted that the assessment has been reopened within a period of four years and hence, the scope of the proceedings under section 147 of the Act is wider. Referring to the assessment framed under section 143(3) of the Act, it was pointed out that the Assessing Officer has not formed any opinion in respect of the valuation report and has straightaway allowed the claim. It was submitted that there is no discussion regarding the claim of capital gain in the said order of assessment, which is only reflected in the final computation and hence, it cannot be said that the Assessing Officer has formed any opinion at the time of passing the order under section 143(3) of the Act. 5.1 Reliance was placed upon the decision of the Supreme Court in the case of Raymond Woolen Mills Ltd. v. Income Tax Officer and others, [1999] 236 ITR 34, wherein the case of the revenue was that the assessee was charging to its profit and loss account, fiscal duties paid during the year as well as labour charges, power, fuel, wages, chemicals, etc. However, while valuing its closing stock, the elements of fiscal duty and the other direct manufacturing costs were not included, which resulted in undervaluation of inventories and understatement of profits. This information was obtained by the revenue in a subsequent year's assessment proceedings. The court observed that all that was required to be seen was whether there was prima facie some material on the basis of which the Department could reopen the case. The sufficiency or correctness of the material is not a thing to be considered at that stage. The court was of the view that it could not strike down the reopening of the case in the facts of that case and that it would be open to the assessee to prove that the assumption of facts made in the notice was erroneous. 5.2 Reliance was also placed upon the decision of the Bombay High Court in the case of Siemens Information Systems Limited v. Assistant Commissioner of Income Tax and others, [2012] 343 ITR 188 (Bom.), for the proposition that merely because the case of the assessee was accepted as correct, in the original assessment for the assessment year in question, that would not preclude the Income Tax Officer to reopen the assessment for the earlier year on the basis of a finding of fact made on the basis of fresh material in the course of an assessment for the next assessment year. It was pointed out that in the facts of the present case, in the case of the co-owner, it was found that the valuation report of the Registered Valuer produced by the petitioner was misguiding and hence, the same can be termed to be tangible material for the purpose of reopening the assessment in the case of the petitioner. 5.3 Reliance was also placed upon the decision of the Bombay High Court in the case of Indo European Breweries Ltd. v. Income Tax Officer and others, [2012] 343 ITR 195 (Bom.), wherein the court found that, that was a case where the Assessing Officer had tangible material which had come before him in the course of the assessment proceedings for the assessment year 2008-09 and which would form the subject matter of further investigation once the assessment proceedings for the assessment year 2004-05 were reopened. The court held that the exercise of the power to reopen the assessment, though beyond a period of four years, was, therefore, not in excess of jurisdiction so as to warrant the issuance of a writ of certiorari. 5.4 Reliance was placed upon the decision of the Karnataka High Court in the case of Commissioner of Income Tax v. Faruk Anvar Co., [1993] 199 ITR 433 (Kar.), wherein the court held that it was too late in the day to contend that the order of a superior authority cannot be treated as information. The assessing authority may gain knowledge as to the provisions of law or as to the interpretation of certain facts relevant to the particular assessment year through whatever source and the same is generally treated as information. It was submitted that in the present case, the information was in the form of assessment order passed in the case of the co-owner which order had been upheld by the Commissioner (Appeals), under the circumstances, this being a reopening within a period of four years and such reopening being based upon tangible material, there is no warrant for interference by this court. 5.5 On the merits of the reopening, it was submitted that in the original assessment, the market value has been computed by accepting the report of the Registered Valuer which was misguiding. Moreover, in view of the clear and unambiguous language of section 54EC of the Act, the petitioner was entitled to deduction of only Rs. 50,00,000/- and hence, the income chargeable to tax has escaped assessment, inasmuch as, the assessee has deducted Rs. 81,00,000/- under section 84EC of the Act. It was, accordingly, urged that the petition being devoid of merit, deserves to be dismissed. 6. In the backdrop of the above facts, the validity of the impugned notice under section 148 of the Act whereby the Assessing Officer seeks to reopen the assessment for assessment year 2011-12 is required to be examined. In the present case, during the course of scrutiny assessment under section143(3) of the Act, the Assessing Officer had issued a notices under section 142(1) of the Act, calling upon the petitioner to furnish copies of purchase and sale deeds and documentary evidence in respect of exemptions claimed under section 54EC of the Income Tax Act, viz., bond certificate, payment receipts, etc. and purchase deed and other payment receipts in respect of purchase of residential house, etc. in respect of long term capital gain out of sale of immovable property. The Assessing Officer, by a communication dated 10.09.2013, had also called for REC bonds as well as allotment letter for Rs. 50,00,000/-. The petitioner, by a communication dated 08.10.2013, furnished copies of the Demat Account of REC Bonds for Rs. 50,00,000/- as well as the valuation report of Shri Induprasad C. Patel, Registered Valuer. The petitioner also furnished copies of the allotment advice issued by the Rural Electrification Corporation Ltd. in respect of 500 bonds worth Rs. 50,00,000/- as well as in respect of allotment of 310 bonds. The Assessing Officer, after considering the material on record as well as pursuant to the discussion with the authorised representative of the assessee, framed assessment under section 143(3) of the Act. By the impugned notice under section 148 of the Act. The Assessing Officer seeks to reopen the assessment of the petitioner for assessment year 2011-12 on two grounds. Firstly, that it was noticed that the petitioner had furnished misguiding valuation report of the Registered Valuer for cost of acquisition of immovable property as on 01.04.1981 and that the petitioner had made excess claim for deduction under section 54EC of the Act. That as a result of furnishing of misguided valuation report of Registered Valuer, the cost of acquisition was adopted at Rs. 25,78,300/- as worked out by Registered Valuer as on 01.04.1981. That, accordingly, the taxable long term capital gain of the petitioner was worked out at Rs. Nil. However, in the case of Shri Asit R. Shah, joint owner of the property having one-half share in the property sold, the Assessing Officer had noticed that the sale instance considered by Registered Valuer for the purpose of valuation as on 01.04.1981 as "comparable sale instance", was not an "appropriate comparable sale instance", and that the fair market value worked out as on 01.04.1981 at Rs. 25,78,400/- was excessive and much higher and had adversely effected upon the cost of acquisition and indexed cost of acquisition. That in the case of the co-owner, the fair market value as on 01.04.1981 was worked out at Rs. 3,67,875/- as against the fair market value worked out at Rs. 26,15,591/- by the Registered Valuer and accordingly, the indexed cost was worked out at Rs. That in the case of the co-owner, the fair market value as on 01.04.1981 was worked out at Rs. 3,67,875/- as against the fair market value worked out at Rs. 26,15,591/- by the Registered Valuer and accordingly, the indexed cost was worked out at Rs. 91,65,857/- and revised long term capital gain was taxed accordingly for assessment year 2011-12. That such decision of the Assessing Officer was upheld by the Commissioner of Income Tax (Appeals). That since the facts of Shri Asit R. Shah and the petitioner are identical, long term capital gain worked out in the case of the petitioner being based on misguiding valuation report of Registered Valuer, the long term capital gain assessed in the case of the petitioner is much below the correct value thereof. 7. The second ground for reopening is in respect of the claim of deduction of Rs. 81,00,000/- for purchase of REC Bond under section 54EC of the Act. According to the Assessing Officer, as recorded in the reasons recorded, as per the provisions of section 54EC, the assessee is entitled for deduction of Rs. 50,00,000/- and that the appeal of the Department against the decision of the Tribunal in Aspi Ginwala v. ACIT, Baroda is pending before the High Court of Gujarat and during the pendency of the appeal, the claim of the assessee is to be restricted to Rs. 50 lac. 8. Thus, the assessment is sought to be reopened on two grounds: Firstly, that at the time of scrutiny assessment, the petitioner had produced misguiding valuation report of the Registered Valuer which resulted in under-assessment of long term capital gain; and secondly, that the petitioner had claimed excessive deduction under section 54EC of the Act. 9. From the facts as noted hereinabove, it is evident that at the time of framing assessment under section 143(3) of the Act, the Assessing Officer had called for various details in relation to the long term capital gain as well as deduction claimed by the petitioner under section 54EC of the Act. 9. From the facts as noted hereinabove, it is evident that at the time of framing assessment under section 143(3) of the Act, the Assessing Officer had called for various details in relation to the long term capital gain as well as deduction claimed by the petitioner under section 54EC of the Act. In response thereto, the petitioner had furnished details as called for by the Assessing Officer, including the report of the Registered Valuer as well as the bonds issued by REC Ltd. The Assessing Officer, at the relevant time being convinced with the material produced on record by the petitioner, framed assessment under section 143(3) of the Act and computed the long term capital gain and allowed the claim of deduction under section 54EC of the Act accordingly. Insofar as the claim of deduction under section 54EC of the Act is concerned, the assessee had placed reliance upon the decision of the Tribunal in case of Aspi Ginwala v. ACIT, Baroda (supra) and accordingly, claim of Rs. 81,00,000/- had been allowed. Now, the Assessing Officer seeks to reopen the assessment on both these grounds, viz., on the ground that the report of the Registered Valuer was a misguiding one in the light of the view taken by the Assessing Officer in the case of a co-owner; as well as on the ground that during the pendency of the Department's appeal against the decision of the Tribunal in the case of Aspi Ginawala, the claim under section 54EC of the Act is required to be restricted to RS.50,00,000/-. 10. On a perusal of the record of the case, it appears that the petitioner, in the objections raised against the reopening of the assessment, had raised an objection that the reopening was done on the basis of the objection raised by the audit party. A perusal of the order rejecting the objections reveals that according to the Assessing Officer, the contention of the petitioner that reopening was done on the basis of the objection raised by the audit party, is baseless on the ground that the case of the assessee was reopened on the basis of the information received from the Joint Commissioner of Income Tax, Range-2, Ahmedabad where he had assessed the assessee's co-owner and rejected the valuation report submitted by the co-owner of the same property. The Assessing Officer placed reliance upon the decision of the Supreme Court in the case of Income Tax Officer v. Selected Dalurband Coal Co. (P) Ltd., 217 ITR 597 (SC), wherein, it has been held that a communication received by Assessing Officer in discharge of official duties is information for issuance of a notice under section 148 of the Act. The Assessing Officer has, accordingly, considered the information received from the Joint Commissioner of Income Tax, Range-2, Ahmedabad in the form of an assessment order whereby, he had assessed the assessee's co-owner and rejected the valuation report submitted by the co-owner for the same property as information for the purpose of reopening the assessment. In this regard, it may be noted that in Income Tax Officer v. Selected Dalurband Coal Co. (P) Ltd. (supra), a letter was received from an external source informing the Income Tax Officer regarding under-reporting of coal raising and shortage of surface coal stock by the assessee therein. The court held that whether the facts stated in the letter were true or not was not the concern at that stage. The only question was whether there was relevant material on which a reasonable person could have formed the requisite belief. Reverting to the facts of the present case, the Assessing Officer while framing the assessment in the case of the petitioner under section 143(3) of the Act, had accepted the valuation report and had computed long term capital gain accordingly, whereas in the case of co-owner, the concerned Assessing Officer did not accept the valuation report submitted by him and rejected the land rate at Rs. 700/- per square yard adopted by the Registered Valuer and adopted the land rate at Rs. 250/- per square yard as on 01.04.1981. This view adopted by the Assessing Officer in the case of the co-owner was confirmed by the Commissioner of Income Tax (Appeals). It is on the basis of this assessment order in the case of the co-owner as affirmed by the Commissioner (Appeals), that the Assessing Officer has formed the belief that income chargeable to tax has escaped assessment. 11. On a perusal of the reasons recorded for reopening the assessment, it is amply clear that the only reason for stating that the assessee had submitted an incorrect/misguiding valuation report is that the Assessing Officer in the case of the co-owner did not accept such report. 11. On a perusal of the reasons recorded for reopening the assessment, it is amply clear that the only reason for stating that the assessee had submitted an incorrect/misguiding valuation report is that the Assessing Officer in the case of the co-owner did not accept such report. In the case of the petitioner, the Assessing Officer while framing assessment under section 143(3) of the Act had, after considering the material produced by the petitioner, accepted the valuation report and computed long term capital gain accordingly. Now in view of a contrary opinion of the Assessing Officer in the case of the co-owner, the Assessing Officer seeks to reopen the assessment of the petitioner on the ground that the assessment order passed by another Assessing Officer in the case of the co-owner is tangible material for the purpose of reopening the assessment under section 147. In the opinion of this court, the fact that the Assessing Officer in the case of the petitioner accepted the valuation report, whereas another Assessing Officer, in the case of the co-owner took a different view and did not accept the valuation of the Registered Valuer which resulted in assessment of higher income, would not constitute fresh tangible material to reopen the assessment. The view taken by the Assessing Officer in the case of the co-owner, being just one of two possible views, is merely another opinion on the same set of facts. Clearly, therefore, the reopening of assessment based upon the assessment order made in the case of the co-owner is clearly a change of opinion. Having second thoughts on the same material does not warrant the initiation of a proceeding under section 147 of the Act. 12. Insofar as the second ground for reopening the assessment, namely, deduction under section 54ECof the Act is concerned, it is evident that during the course of proceedings under section 143(3) of the Act, the Assessing Officer had called for details in this regard and the petitioner had produced the certificates issued by the Rural Electrification Corporation Ltd. for a total amount of Rs. 81,00,000/- and had also placed reliance upon the decision of the Tribunal in the case of Aspi Ginwala v. ACIT, Baroda (supra) and the Assessing Officer after being satisfied as regards the claim of the petitioner, had allowed the deduction of Rs. 81,00,000/- under section 54EC of the Act. 81,00,000/- and had also placed reliance upon the decision of the Tribunal in the case of Aspi Ginwala v. ACIT, Baroda (supra) and the Assessing Officer after being satisfied as regards the claim of the petitioner, had allowed the deduction of Rs. 81,00,000/- under section 54EC of the Act. From the reasons recorded, it appears that the ground for reopening is that according to the Assessing Officer the assessee is entitled to deduction of only Rs. 50,00,000/- under section 54EC of the Act and that against the decision of the Tribunal in the above case, an appeal is pending consideration before the High Court. Thus, it appears that the present Assessing Officer now believes that the Assessing Officer who had framed the assessment under section 143(3) of the Act had made a mistake in allowing deduction in excess of Rs. 50,00,000/- and now wants to correct the mistake. From the facts as emerging from the record, it appears that the Assessing Officer while allowing deduction in excess of Rs. 50,00,000/- under section 54EC of the Act has placed reliance upon a decision of the jurisdictional Tribunal, under the circumstances, the view adopted by the Assessing Officer cannot be said to be erroneous. Moreover, assuming that the Assessing Officer made a mistake, section 147 of the Act cannot be availed of for the purpose of correcting a mistake. In effect and substance, therefore, the present Assessing Officer wants to sit in appeal over the decision of his predecessor Assessing Officer, who has examined the claim and allowed the claim of deduction of Rs. 81,00,000/- under section 54EC of the Act, on the ground that the assessee was eligible for deduction only to the extent of Rs. 50,00,000/- for the year under consideration. Thus, the reopening of assessment is not sustainable on either of the two grounds. The assumption of jurisdiction on the part of the Assessing Officer by issuance of the impugned notice under section 148 of the Act is, therefore, without authority of law and consequently, the impugned notice cannot be sustained. 13. As regards the decisions on which the learned counsel for the respondent has placed reliance, for the reasons set out hereinabove, the said decisions would not be applicable to the facts of the present case. 14. For the foregoing reasons, the petition succeeds and is, accordingly, allowed. 13. As regards the decisions on which the learned counsel for the respondent has placed reliance, for the reasons set out hereinabove, the said decisions would not be applicable to the facts of the present case. 14. For the foregoing reasons, the petition succeeds and is, accordingly, allowed. The impugned notice dated 23.03.2015 issued by the respondent under section 148 of the Act is hereby quashed and set aside. Rule is made absolute accordingly with no order as to costs.