MANOJ DWARKADAS PRITMANI vs. ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE 3(3)

C/SCA/17032/2018 ORDER DATED: 11/06/2021 IN THE HIGH COURT OF GUJARAT AT AHMEDABAD R/SPECIAL CIVIL APPLICATION NO. 17032 of 2018 With R/SPECIAL CIVIL APPLICATION NO. 17036 of 2018 ================================================================ MANOJ DWARKADAS PRITMANI Versus ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE 3(3) ================================================================ Appearance: MR SN SOPARKAR, LD SR. ADVOCATE WITH B S SOPARKAR(6851) for the Petitioner(s) No. 1 MRS MAUNA M BHATT(174) for the Respondent(s) No. 1 ================================================================ CORAM: HONOURABLE MR. JUSTICE J.B.PARDIWALA and HONOURABLE MR. JUSTICE ILESH J. VORA

Date : 11/06/2021

COMMON ORAL ORDER (PER : HONOURABLE MR. JUSTICE ILESH J. VORA) 1. As common question of law and fact arise in both the writ applications with respect to same assessee for different assessment years, therefore, both the writ applications were heard together and disposed of by this common judgment and order. 2. By filing these writ applications under Article 226 of the Constitution of India, the writ applicant seeks to challenge the notice dated 30.3.2018 issued by the respondent under Section 148 of the Income Tax Act, 1961 (for short, ‘the Act’) seeking to reopen the applicant’s income tax assessment for the A.Y. 2011-12 and 2012-13. Page 1 of 10

C/SCA/17032/2018 ORDER DATED: 11/06/2021 3. Brief facts of the present case are as under: 3.1 A.Y. 2011-12: The writ applicant being an individual assessee filed his return of income for AY 2011-12 declaring total income of Rs.29,97,410/- and same was processed under Section 143(1) of the Act without scrutiny assessment. 3.2 A.Y. 2012-13: The writ applicant Manoj Dwarkadas being an individual assessee filed his return of income on 31.05.2013 declaring his income at Rs.41,44,090/- and same was proceeded under Section 143(1) of the Act without scrutiny assessment. 3.3 The AO reopened the assessment for the A.Y. 2011-12 and 2012-13 by issuing impugned notice dated 30.3.2018 under Section 148 of the Act. The writ applicant requested the revenue to supply copy of the reasons for reopening of the assessment and therefore, same was supplied on 9.8.2018. The writ applicant vide letter dated 4.10.2018 raised various objections and same came to be rejected by the revenue vide order dated 5.10.2018. 3.4 The reasons recorded for the year 2011-12, which reads as under: “……. This office has received information from the Income Tax officer Ward- 2(4) Kalyan, vide his letter No. KYN/ITO/WD2(4)/ information/SNE/2017-18 dated 14.03.2018, that the assessee has sold land to M/s. Swaminarayan Enterprises during the period FY 2010-11 & 2011-12. Information contains Transactions ledgers from the books of M/s. Swaminarayan Enterprises in name of Manoj Tikmani. Copy of balancesheet for the year ending March, 2011 & copy of notes to accounts.

On perusal of accounts/inforamtion’s, the assessee has received Rs. 60,50,000/- upto 31.03.2010, Rs.2,06,60,000/- received during the F.Y. 2010-11 Page 2 of 10

C/SCA/17032/2018 ORDER DATED: 11/06/2021 through various cheques issued by the transferee, firm & transaction of Rs.63,65,158/- recorded in books of reflecting, the assessee as sundry creditors. On verification of income of the assessee, as narrated in above para-2, transactions for transfer land, made by the assessee is required to be verified, so as to verify genuineness of transaction & actual amount of capital gain earned by the assessee. It is also require to verify the value of land considered is at market/juntry value as on dated or not? On analysis of information as narrated in above paras, the assesssment of the year under consideration, the assessment in the case of assessee is escaped the income in view of the section 147 of the Act, Assessment is required to be reopened u/s. 147 of the Act. The assessee has made transactions for transfer of land to M/s. Swaminarayan Enterprise. The assessee has received/accrued payments of (Rs.2,70,15,158/- + Rs.63,65,158/-) Rs.3,33,80,316/- during the year F.Y. 2011- 11. Out of 112 flats constructed on the said land, 93 flats sold/entered into agreements with registration with sub-registrar of Assurances. In view of the above, I have reason to believe that the income in the case of the assessee is escaped……...” 3.5 The reasons recorded for the year 2012-13, which reads as under: “It has been noticed that in response to the notice u/s. 148 of the Act, you have filed your ITR for relevant AY 2012-13. In this connection, reasons for reopening of the assessment is as follows: 3. The assessee filed its return of Income for A.Y. 2012-13, declaring total income at Rs.41,44,090/-. During the year, the assessee declared business income Rs.29,33,484/-, income from Long Term capital gain Rs.13,25,601/- totaling gross total income of Rs.42,59,085/-. The assessee has claimed deduction under chapter VI-A of Rs.1,15,000/- and declared total income at Rs. 41,44,090/-. Return filed by the assessee is processed u/s. 143(1) of the Act. 4. This office has received information from the Income Tax officer Ward-2(4) Kalyan, vide his letter No. KYN/ITO/WD2(4)/ information/SNE/2017-18 dated 14.03.2018, that the assessee has sold land to M/s. Swaminarayan Enterprises during the period FY 2010-11 & 2011-12. Information contains Transactions ledges from the books of M/s. Swaminarayan Enterprises in name of Manoj Tikmani. Copy of Journal Register for FY 2011-12 & copy of notices to accounts. On perusal of documents/information, the assessee has received (Rs.89,65,972/- + 15,00,000/-) Rs.1,04,65,972/- in FY 2011-12. 5. On verification of income of the assessee, as narrated in above para-2, transactions for transfer land, made by the assessee is required to be verified, so as to verify genuineness of transaction & actual amount of capital gain earned by the assessee. It is also require to verify the value of land considered is at market/juntry value as on dated or not? 6. The assessee has made transactions for transfer of land to M/s. Swaminarayan Enterprise. The assessee has received payments of Rs.89,65,972/- + Rs15,00,000/) Rs.1,04,65,972/ during the FY 2011-12. Out of 112 flats constructed on the said land, 12 flats sold/entered into agreements with registration with sub-registrar of Assurances. In view of the above, I have reason to believe that the income in the case of the assessee is escaped. Page 3 of 10

C/SCA/17032/2018 ORDER DATED: 11/06/2021 7. In view of the above, Transactions made by way of purchase of properties in the financial year 2011-12 relevant to the AY 2012-13, has escaped income more than Rs.1,00,000/- within the meaning of section 147 of the Act. 8. As reasons for reopening are provided, you are requested to file your reply/submission and objections, if any on or before 23/08.2018 in E proceeding facility through your account in e-Filling website of Income Tax Department.”

C/SCA/17032/2018 ORDER DATED: 11/06/2021 (iii) That the reasons recorded are erroneous in as much as the AO failed to understand the transaction related to asset. In this context, it was submitted that the land in question was transferred to M/s. Swaminarayan Enterprise as a part of capital contribution in the partnership firm as per Partnership deed executed vide dated 15.08.2008, the same can be assessed only in the AY 2009-10 and not in 2011-12. Referring to Section 45 of the Act, it was submitted that the preliminary condition for charging under the head capital gain is transferred the capital asset and accordingly on the date of the transfer the transaction is taxable and thus, therefore, when the amount recorded in the books of account of the firm was NIL, there cannot be any consideration taxable in the hands of the assessee. (iv) That there is no independent application of mind on the part of the AO while recording the reasons for reopening and merely placing material provided by the Investigation Wing for recording reasons is impermissible. (v) That the reasons to believe is bad in law as AO recorded his satisfaction only on the basis of the information received from the concerned Department and hence, he assumed jurisdiction only on borrowed satisfaction, which is not permissible in law. (vi) That no income has escaped assessment as the transaction of introduction of land by the assessee as capital asset was between the assessee and the firm. There is no evidence to hold that the assessee has received income greater than what is offered by him for tax, in such circumstances there is no income has escaped Page 5 of 10

C/SCA/17032/2018 ORDER DATED: 11/06/2021 assessment (vii) In support of aforesaid contentions, Shri S.N. Soparkar, the learned Senior Counsel placed reliance on the following decisions : (i) Nisharahemad Vajirkhan Pathan Vs. Income Tax Officer, reported in (2021) 123 taxmann.com 448 (Gujarat) (ii) Hitachi HI REL Power Electronics Vs. Asst Commissioner of Income tax, reported in (2020) 122 taxmann.com 79 (Gujarat) (iii) Amar Jewellers Ltd Vs. Deputy Commissioner of Income tax, reported in (2018) 92 taxman.com 259 (Gujarat) (iv) Narendrakumar Mansukhbhai Patel Vs. Income Tax Officer, reported in (2018) 92 taxmann.com 74 (Gujarat) (v) Sunrise Education Trust Vs. Income Tax Officer, reported in (2018) 92 taxmann.com 74 (Gujarat) (vi) Swati Malove Divetia Vs. Income Tax Officer, reported in (2018) 98 taxmann.com 447 (Gujarat) (vii) Sunil Siddharthbhai & Ors. Vs. Commissioner of Income Tax, Ahmedabad, Gujarat rendered in Civil Appeal Nos. 1841 & 1777 of 1981 decided on 27.09.1985. 6. In view of the aforesaid contentions, Mr. S.N. Soparkar, the learned Senior counsel submitted that the reopening of the assessment for the AY 2011-12 and 2012-13 is without jurisdiction and hence, notices deserve to be quashed and set aside. 7. On the other hand, the learned Standing Counsel Ms. Mauna Bhatt appearing for the revenue has vehemently opposed the writ applications contending that after filing the return of income for the Page 6 of 10

C/SCA/17032/2018 ORDER DATED: 11/06/2021 respective year, the revenue was on receipt of information as referred above in the reasons recorded that the assessee had received the income from the sale of flats constructed by partnership firm. Under such circumstance, the amount received by the assessee from the partnership firm as against the transfer of land as capital contribution is chargeable to tax under the head Capital Gain in the hands of partner. It was urged that no scrutiny assessment being done and only the return of income had been processed under Section 143(1) of the Act, the genuineness of the transaction and claim of long term capital gain could not be made and thus, therefore, the AO has reason to believe that the income chargeable to tax has escaped assessment. 8. In view of the aforesaid contentions, Ms. Mauna Bhatt, learned Standing Counsel for the revenue submits that there being no merits in the writ applications, the same deserve to be dismissed. 9. Having heard the learned counsel for the respective parties and having gone through the materials on record, the only question falls for our consideration is that whether the revenue is justified in reopening the assessment for the year under consideration? 10. A bare perusal of the reasons recorded of the respective year shows that the assessment sought to be reopened by the revenue mainly on the ground that the assessee had received the amount as referred in the reasons recorded, from the partnership firm namely M/s. Swaminarayan Enterprises against the transfer of his land as capital contribution is chargeable to tax under the head Capital Gain in the hands of partners. Page 7 of 10

C/SCA/17032/2018 ORDER DATED: 11/06/2021 11. It appears from the record that the assessee had transferred his land to M/s. Swaminarayan Enterprise as part of capital contribution in the partnership firm as per Partnership Deed duly executed on 15.08.2008. Undisputedly, the land in question was not transferred in the name of Firm. It is a settled law that where immovable property is transferred by a partner to the firm as a capital contribution and registration does not take place by paying stamp duty, the case would be covered under Section 45(3) of the Act. As per Section 45(3) of the Act, whenever a partner contributes any capital asset in the partnership firm, then the value of capital asset recorded in the books of account of the firm is to be considered as the full value consideration for the purpose of computing capital gain. 12. Section 45(3) says that the profits or gains arising from the transfer of capital asset by the person to a firm in which he is or becomes a partner by way of a contribution or otherwise, shall be chargeable to tax as his income of the previous year in which such transfer takes place and for the purposes of Section 48, the amount recorded in the books of account of the firm, as the value of the capital asset shall be deemed to be the full value of the consideration received or accruing as a result of transfer of capital asset. 13. In the present case, we find that no any amount was credited by the firm in the account of the assessee as a consideration for the land in question during the year AY 2009-10. The record further indicates that the full value of consideration of the transfer of said Page 8 of 10

C/SCA/17032/2018 ORDER DATED: 11/06/2021 land being recorded was NIL. Under such circumstances, we are of the view that since the transfer of land as a part of capital contribution the partnership firm took place in the year 2008, the same can be assessed only in the AY 2009-10 and not in the AY 2011-12. Therefore, for the year under consideration no amount of capital gain could be said to have taxable. 14. In view of the provisions of law and facts of the present case, we are of the view that the reasons lack validity and the AO had proceeded on erroneous premise and there was no sufficient material before the AO to take a prima-facie view that income of the assessee for the year under consideration has escaped assessment. 15. A plain reading of the reasons recorded, what emerges is that the information received by the AO is too vague and he proceeded for further verification of the land transactions and income received by the Firm and the assessee from the sale of the constructed flats. Therefore, the reopening of the assessment to carryout roving and fishing enquiry is not permissible in law. 16. In view of the aforesaid discussions and reasons thereof, we have no hesitation to hold that the reasons recorded for the reassessment for the year under consideration could not said to have led to formation of any belief that income had escaped assessment within the meaning of Section 147 of the Act. 17. In the result, both the writ applications are allowed and the impugned notice dated 30.03.2018 in Special Civil Application No. Page 9 of 10

C/SCA/17032/2018 ORDER DATED: 11/06/2021 17032 of 2018 and notice dated 27.03.2018 in Special Civil Application No. 17036 of 2018 are hereby quashed and set aside. There shall be no order as to costs. (J. B. PARDIWALA, J) (ILESH J. VORA,J) P.S. JOSHI Page 10 of 10