ROYAL INFRASTRUCTURE vs. DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE 1(2)(1)

C/SCA/20084/2018 JUDGMENT IN THE HIGH COURT OF GUJARAT AT AHMEDABAD R/SPECIAL CIVIL APPLICATION NO. 20084 of 2018

FOR APPROVAL AND SIGNATURE:

HONOURABLE MS.JUSTICE HARSHA DEVANI

and HONOURABLE MR. JUSTICE BHARGAV D. KARIA

========================================================== 1 Whether Reporters of Local Papers may be allowed to see the judgment ? 2 To be referred to the Reporter or not ? 3 Whether their Lordships wish to see the fair copy of the judgment ? 4 Whether this case involves a substantial question of law as to the interpretation of the Constitution of India or any order made thereunder ? ========================================================== ROYAL INFRASTRUCTURE Versus DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE 1(2)(1) ========================================================== Appearance: MR MANISH J SHAH(1320) for the Petitioner(s) No. 1 MR.VARUN K.PATEL(3802) for the Respondent(s) No. 1 ========================================================== CORAM: HONOURABLE MS.JUSTICE HARSHA DEVANI and HONOURABLE MR. JUSTICE BHARGAV D. KARIA

Date : 29/04/2019

ORAL JUDGMENT (PER : HONOURABLE MS.JUSTICE HARSHA DEVANI) 1. By   this   petition   under   article   226   of   the Page 1 of 8

C/SCA/20084/2018 JUDGMENT Constitution   of   India,   the   petitioner   has challenged the notice dated 26.03.2018 issued by the respondent under section 148 of the Income­ Tax Act, 1961 (hereinafter referred to as “the Act”) proposing to reopen the assessment of the petitioner for the assessment year 2011­12. 2. The   facts   stated   briefly   are   that   the petitioner submitted its return of income for the assessment year 2011­12 on 31.08.2011 computing the   gross   total   income   at   Rs.1,10,66,146/­   and claimed deduction of Rs.79,91,226/­ under section 80IB of the Act resulting into a total income of Rs.30,74,920/­.   The   petitioner   also   filed   an audit   report   under   section   44AB   of   the   Act   in Form No.3CB and Form No.10CCB, being the audit report for claiming deduction under section 80IB of the Act. The return of income was accepted as such, as no scrutiny assessment was carried out in pursuance of the return filed under section 139(1) of the Act. 3. Thereafter,   the   respondent   issued   the impugned   notice   dated   26.03.2018   under   section 148 of the Act for the assessment year 2011­12 stating that income chargeable to tax had escaped assessment and called upon the petitioner to file its return of income. In response to the notice, the   petitioner   addressed   a   letter   dated Page 2 of 8

C/SCA/20084/2018 JUDGMENT 06.04.2018 requesting the respondent to treat the return filed on 31.08.2011 as the return filed in response to the notice under section 148 of the Act. The petitioner, thereafter, received notices dated 20.08.2018 under section 143(2) and 142(1) of the Act. Along with the notice under section 142(1) of the Act, the respondent furnished an annexure   wherein   he   had   reproduced   the   reasons recorded   for   reopening   the   assessment.   In response to the reasons recorded, the petitioner filed   its   objections   vide   letter   dated 24.08.2018.   The   respondent   rejected   such objections   vide   letter   dated   11.12.2018.   Being aggrieved, the petitioner has filed the present petition. 4. Mr.   Manish   Shah,   learned   advocate   for   the petitioner, invited the attention of the court to the reasons recorded for reopening the assessment to submit that in this case the Assessing Officer seeks   to   reopen   the   assessment   for   assessment year 2011­12 on the ground that the petitioner had   sold   flats   to   related   parties   in   the assessment year 2013­14. It was submitted that at the   time   of   filing   the   return   of   income   for assessment year 2011­12, the petitioner was not aware that subsequently any flat/s would be sold to   related   parties   and   hence,   there   was   no failure on the part of the petitioner to disclose Page 3 of 8

C/SCA/20084/2018 JUDGMENT truly and fully all materials facts necessary for its   assessment.   Therefore,   the   assumption   of jurisdiction on the part of the Assessing Officer is   without   authority   of   law,   and   hence,   the impugned notice deserves to be quashed and set aside. 5. On the other hand, Mr. Varun Patel, learned senior   standing   counsel   for   the   respondent, placed reliance upon the averments made in the affidavit­in­reply   filed   on   behalf   of   the respondent, wherein it has been stated that the Assessing   Officer,   on   the   basis   of   information gathered   during   the   assessment   proceedings   for assessment   year   2013­14,   has   observed   that   the petitioner   –   assessee   had   sold   Flat   No.403   to Shri   Gautam   K.   Patel   and   Flat   No.404   to   Smt. Bhavna Gautam Patel, who are husband and wife, and thereby, contravened the mandatory provisions of clause (f)(i) of section 80IB(10) of the Act, which is a condition precedent for availing the benefit   of   deduction   under   the   said   section. Therefore, on the basis of such information, the Assessing   Officer   had   reason   to   believe   that income   chargeable   to   tax   to   the   extent   of Rs.79,91,226/­   had   escaped   assessment.   It   was submitted that therefore, the Assessing Officer was   justified   in   reopening   the   assessment   by issuing the impugned notice under section 148 of Page 4 of 8

C/SCA/20084/2018 JUDGMENT the Act. 6. In   this   case,   the   reason   for   reopening   is that   during   the   course   of   proceedings   for assessment year 2013­14, it was noticed that the assessee had sold Flat No.403 of Tower No.49 to Shri   Gautam   K.   Patel   and   Flat   No.404   of   Tower No.9 to Smt. Bhavna Gautam Patel, who, as per the information gathered, were husband and wife. In view   thereof,   the   Assessing   Officer   has   formed the   belief   that   income   of   Rs.79,91,226/­ chargeable to tax has escaped assessment because the assessee was not entitled to deduction under section 80IB(10) of the Act in view of the fact that   the   requirements   of   clause   (f)(i)   thereof were   not   satisfied.   In   this   case,   though   the impugned notice has been issued beyond a period of four years from the end of relevant assessment year, the proviso to section 147 of the Act would not be attracted as there was no assessment under section 143(3) of the Act. 7. It may be pertinent to note that upon receipt of   the   reasons   recorded,   the   petitioner   raised objections   pointing   out   that   the   flats   under consideration, namely, Flats No.403 and 404, were sold to related parties in assessment year 2013­ 14, which cannot be considered to disallow the claim under section 80IB(10) of the Act in the Page 5 of 8

C/SCA/20084/2018 JUDGMENT earlier   years;   that   at   the   time   when   the petitioner   filed   the   return   of   income   for assessment year 2011­12, it was not aware that flats   would   be   sold   to   related   parties subsequently; as assessment under the Income­tax law   is   independent   and   separate   for   each assessment year, the disallowance cannot be made applicable   to   the   whole   project.   It   was   also contended that the provisions of clauses (e) and (f)   of   section   80IB(10)   of   the   Act   are prospective   in   nature   and   do   not   operate retrospectively. 8. In  the  order  rejecting   the  objections,   the Assessing   Officer   has,   as   usual,   perfunctorily disposed of the objections, without dealing with the   submissions   advanced   by   the   petitioner   in proper   perspective.   As   noted   earlier,   in   this case, the first proviso to section 147 of the Act is not attracted, and hence, the inquiry, at this stage,   is   limited   to   whether   there   are   any reasonable grounds for the Assessing Officer to form the belief that income chargeable to tax has escaped assessment. 9. The   question   that   therefore   arises   for consideration is whether on the reasons recorded for   reopening   the   assessment,   the   Assessing Officer could have formed the belief that income Page 6 of 8

C/SCA/20084/2018 JUDGMENT chargeable   to   tax   has   escaped   assessment.   The facts are not in dispute. The Assessing Officer seeks   to   reopen   the   assessment   for   assessment year 2011­12 for the reason that in the previous year   relevant   to   assessment   year   2013­14,   the petitioner had sold two flats to related persons. Therefore,   on   the   basis   of   an   event   that   took place   in   financial   year   2012­13,   the   Assessing Officer seeks to disallow a deduction that was allowed in assessment year 2011­12. 10. It is well settled that under the Income­tax Act,   1961,   the   assessment   for   each   year   is   a separate   assessment   and   has   to   be   assessed separately.   While   making   the   assessment   for   a particular year, the Assessing Officer has to see whether   the   assessee   is   entitled   to   claim   a deduction   in   that   assessment   year.   Insofar   as assessment   year   2011­12   is   concerned,   the assessee had duly complied with the requirements of section 80IB(10) of the Act and was therefore, entitled   to   the   deduction   claimed   thereunder. However,   now,   the   Assessing   Officer   seeks   to reopen the assessment and disallow such deduction on the ground that in the previous year relevant to   assessment   year   2013­14,   the   petitioner   had sold flats to related persons. In the opinion of this court, if, in the year 2013­14, any event has taken place that disentitles the petitioner Page 7 of 8

C/SCA/20084/2018 JUDGMENT from claiming deduction under section 80IB(10) of the Act, it would relate to that year alone. The assessments   of   the   earlier   years   wherein deduction   had   been   allowed   because   the petitioner/assessee   was,   otherwise,   entitled   to such deduction, cannot be reopened to disallow a claim,   which   was   valid   in   the   year   under consideration.   In   the   aforesaid   premises,   this court is of the considered opinion that on the reasons recorded for reopening the assessment, no reasonable   person   could   have   formed   the   belief that   income   chargeable   to   tax   has   escaped assessment. The impugned notice under section 148 of the Act, therefore cannot be sustained. 11. For   the   foregoing   reasons,   the   petition succeeds   and   is,   accordingly,   allowed.   The impugned   notice   dated   26.03.2018   issued   under section   148   of   the   Act   seeking   to   reopen   the assessment   for   the   assessment   year   2011­12   is hereby   quashed   and   set   aside.   Rule   is   made absolute accordingly with no order as to costs. (HARSHA DEVANI, J) (BHARGAV D. KARIA, J) PRAVIN KARUNAN Page 8 of 8