J.B. AMIN AND BROTHERS AURANGABAD vs. THE UNION OF INDIA THROUGH ASSISTANT COMMISSIONER OF INCOME TAX AURANGABAD

JUDGMENT (Per R.M.Borde, J.):

1 Heard.   Rule.   Rule made returnable forthwith and heard finally by consent of learned Counsel for respective parties. 2 The petitioner assessee is praying for issuance of writ of certiorari or any other appropriate writ, order or direction in the nature of writ of certiorari to quash and set aside order dated 04.08.2017, passed by the Assistant Commissioner of Income Tax­ II, Aurangabad, whereby   objection tendered by the assessee for issuance of notice under Section 148 of the Income Tax Act, 1961,

{2} wp1306417.odt is rejected.  The petitioner is also praying to uphold the objection raised by him vide communication dated 11.11.2016 and to drop the   proceedings   initiated   vide   notice   dated   14.09.2016,   under Section 148 of the Income Tax Act. 3 According   to   the   petitioner,   land   CTS   No.4619, admeasuring 3994.06 square meters was purchased by late Shri Balubhai   Amin   at   Rs.1,80,000/­.     The   land   is   situate   at Aurangpura, Aurangabad.  After demise of Balubhai Amin in 1968, the property is inherited and belong to the petitioner i.e. J.B.Amin and Brothers (HUF).  The value of the property has been shown in the   Books   of   Accounts   maintained   by   the   petitioner   as Rs.1,80,000/­.     The   petitioner   alienated   the   land   along   with superstructure standing thereon   for consideration of Rs.18 crores on 27.04.2009. The consideration, in respect of the land, is stated to be Rs.16 crores.   The petitioner filed return of Income for the year   2009­2010   (Assessment   year   2010­2011)   wherein   this transaction was duly disclosed. 4 According   to   the   petitioner,   it   is   permissible   under Section 55(2)(b)(ii) of the Income Tax Act to compute market value of the property, which was assessed at Rs.2,00,63,643/­ as on 01.04.1981, to be cost of acquisition.  The computation of long term gain and indexation was made considering the aforesaid market value as on 01.04.1981. The Respondent Income Tax Department proposed to re­assess income of the petitioner and as such, notice came to be issued on 14.09.2016, under Section 148 of the Act, requiring the petitioner to file return of income.

{3} wp1306417.odt 5 Section 149 of the Income Tax Act provides limitation of six years from the end of assessment year for issuing notice under Section 148 of the Act.  In response to the notice, petitioner –   assessee   presented   return   of   income   on   03.11.2016. The petitioner   thereafter   requested   Respondent   –   Income   Tax Department   to   provide   reasons   recorded   by   them,   as   required under Section 148(2) of the Act believing that income of the present petitioner   has   escaped   assessment. On   03.11.2016,   the Respondent – department informed reasons for believing that the income   of   present   petitioner   has   escaped   assessment.     The petitioner   tendered   an   objection   to   the   proposed   action   since, according to the petitioner, the reason informed by the Respondent for taking proposed action, was not sustainable in law. 6 According to the petitioner, Section 55(2)(b)(ii) of the Act   provides   that   it   is   the  option   of   the   assessee   to  take   into account market value as on 01.04.1981 for computing long term gain or the actual price paid for purchase of the property.   The Respondent, however, was pleased to reject the objection raised by petitioner – assessee by an order dated 04.08.2017 on the ground that the market value estimated by the present petitioner as on 01.04.1981 is incorrect and that only cost of acquisition can be computed   for   capital   gain.     Since   the   Respondent   department proposed to proceed further with the action on new and distinct ground than the reason originally recorded by the Respondent­ department,   the   petitioner   has   approached   this   Court   with   a prayer to quash and set aside the order passed by the Respondent rejecting the objection as well as for setting aside the notice issued under Section 148 of the Act.

{4} wp1306417.odt 7 The notice issued by the Assistant Commissioner of Income Tax, Circle­II, Aurangabad, on 03.11.2016, records that the assessee is a Hindu United Family (HUF) and has presented return of  income  for  the  year   2010­2011  on  31.07.2010  declaring  total income amounting to Rs.3,48,67,770/­.  On perusal of the return of income, it is noticed that the assessee offered long term capital gain   to   the   tune   of   Rs.3,31,97,795/­   on   the   land   sold   for consideration of Rs.16 crores on 27.04.2009. It is noted that on perusal of the books of accounts/balance sheet as on 31.03.2010, it is seen that the opening WDV of the land as on  01.04.2009 is shown   at   Rs.1,80,000/­   in   the   statement   of   fixed   assets.     The Assessee, while filing return of income, shown cost of the land as Rs.2,00,63,640/­ as on 01.04.1981 instead of Rs.1,80,000/­ (book value).   According   to  the  Respondent  –  department,  in  view   of Section 49(1)(iii)(a) of the Income Tax Act, cost of acquisition of the said land shall be deemed to be the cost for which previous owner of   the   property   acquired   it,   as   increased   by   the   cost   of   any improvement of the assets incurred or borne by the previous owner or the assessee, as the case may be.   It is also recorded in the notice that the assessee has wrongly taken cost of acquisition of the said land at Rs.2,00,63,640/­, being the market value based on   valuation   report   prepared   by   M/s   S.B.Shuttari,   Chartered Engineer and Government Registered Valuer and after indexation, the   effective   cost   reduced   from   sale   consideration   was Rs.12,68,02,205/­.  According to the department, the assessee has wrongly   taken   market   value   as   on   01.04.1981   instead   of considering cost of acquisition reflected from its books of accounts. The   department   believed   that   the   income   to   the   extent   of

{5} wp1306417.odt Rs.12,56,63,427/­ has escaped within the meaning of Section 147 of the Income Tax Act. 8 The   petitioner   tendered   an   objection   to   the   notice containing   reasons   communicated   by   the   respondent   – department;   and   called   upon   the   Income   Tax   Department   to withdraw   the   notice.     Respondent   –   Income   Tax   Department, however, under the order passed by the Assistant Commissioner of Income   Tax,   Circle­II,   Aurangabad,   rejected   the   objection   and confirmed the notice. 9 While   rejecting   the   objection,   it   is   recorded   by   the Respondent – department that the valuation report submitted by the assessee, prepared by Registered Valuer   S.B.Shuttari, is not correct   and   lawful.     According   to   the   Department,   there   are guidelines for valuation of immovable properties, issued in the year 2009 by the Directorate of Income Tax, New Delhi, which must be followed by the approved valuer and Income Tax Department.  Even the basis for showing higher valuation, being the report of the approved   valuer,   is   also   not   free   from   flaws   and   lacunae. Respondent – department, therefore, held that the assessee cannot take   umbrage   of   Section   55(2)(b)(ii)   of   the   Act.     According   to Respondent, fair market value shown by the petitioner – assessee, on the basis of report of the valuer, cannot be accepted and the valuation arrived at by the valuer is 100% higher than the actual market rate. 10 Relying upon Section 49 (1) of the Income Tax Act, it is contended by the petitioner that the cost of acquisition of the asset

{6} wp1306417.odt shall be deemed to be the cost for which previous owner of the property   has   acquired   it,       as   increased   by   the   cost   of   any improvement of the assets incurred or borne by the previous owner or the assessee, as the case may be. 11 Clause (ii) of sub section (2)(b) of Section 55 provides that: Section 55 (2) (b) (ii): where the capital asset became property of the assessee by any of the modes specified in sub­section (1) of section 49, and the capital asset became the property of the previous owner before the 1st  day of April 1981, means the cost of the capital asset to the previous owner or the fair market value of the asset on the 1st day of April, 1981, at the option of the assessee. 12 It is contended by learned Counsel appearing for the petitioner that it is the option of the assessee either to compute capital gain based upon market value of the asset as on 01.04.1981 and it may not be essential for the assessee to consider the capital cost incurred by the previous owner or fair market value of the asset. 13 The petitioner contends that recording of reasons is the basic thing and no notice can be entertained founded upon extraneous ground not communicated to the petitioner under the notice or in the disclosure made by the department after receiving notice   by   the   assessee   calling   upon   the   department   to   supply reasons  for   arriving  at  the  conclusion  and  before  directing  the petitioner to file return of income.

{7} wp1306417.odt 14 The   petitioner,   placing   reliance   on   the   judgment   of Division Bench of this Court in the matter of  Hindustan Lever Ltd. Vs. R.B. Wadkar & others, reported in 2004 (3) Mh.L.J. 517, contends that it is necessary for the Assessing Officer to form his opinion and put it on record in black and white.   The reasons recorded should be clear and unambiguous and should not suffer from   any   vagueness.     The   reasons   recorded   must   disclose   his mind.   Reasons are the manifestation of mind of the Assessing Officer.   In paragraph 20 of the judgment, it is observed by the Division Bench of this Court, thus: “20 The   reasons   recorded   by   the   Assessing Officer nowhere state that there was failure on the part of the assessee to disclose fully and truly   all   material   facts   necessary   for   the assessment   of   that   assessment   year.     It   is needless   to   mention   that   the   reasons   are required to be read as they were recorded by the   Assessing   Officer.     No   substitution   or deletion is permissible.   No additions can be made to those reasons.   No inference can be allowed   to   be   drawn   based   on   reasons   not recorded.     It   is   for   the   Assessing   Officer   to disclose  and   open   his  mind  through  reasons recorded by him.  He has to speak through his reasons.  It is for the Assessing Officer to reach to   the   conclusion   as   to   whether   there   was failure on the part of the assessee to disclose fully and truly all material facts necessary for his assessment for the concerned assessment year.  It is for the Assessing Officer to form his opinion.   It is for him to put his opinion on record   in   black   and   white.     The   reasons recorded should be clear and unambiguous and should   not   suffer   from   any   vagueness.     The reasons   recorded   must   disclose   his   mind. Reasons are the manifestation of mind of the

{8} wp1306417.odt Assessing Officer.  The reasons recorded should be   self­explanatory   and   should   not   keep   the assessee   guessing   for   the   reasons.     Reasons provide link between conclusion and evidence. The   reasons   recorded   must   be   based   on evidence.  The Assessing Officer, in the event of challenge to the reasons, must be able to justify the same based on material available on record. He must disclose in the reasons as to which fact   or   material   was   not   disclosed   by   the assessee   fully   and   truly   necessary   for assessment of that assessment year, so as to establish   vital   link   between   the   reasons   and evidence.     That   vital   link   is   the   safeguard against   arbitrary   reopening   of   the   concluded assessment.     The   reasons   recorded   by   the Assessing Officer  cannot be supplemented by filing   affidavit   or   making   oral   submission, otherwise, the reasons which were lacking in the material

particulars

would

get supplemented, by the time the matter reaches to the Court, on the strength of affidavit or oral submissions advanced. 15 Similarly,   in   the   matter   of  Sabharwal   Properties Industries Pvt. Ltd. & others Vs. Income Tax Officer, reported in [2016] 382 ITR 547 Delhi, the Delhi High Court has quashed the of     this   Court   in  the   matter   of   M/s   Pransukhlal   Brothers   Vs.

{9} wp1306417.odt Income Tax Officer – 16(3)(1)  (Writ Petition Lodging No.2124 of 2014, decided on 20th August, 2014).  It is observed that validity of reopening of an assessment can only be tested by the reasons recorded   at   the   time   of   issuing   the   notice   for   reopening   an assessment.   These   grounds   for   reopening   of   assessment   can neither be substituted and/or supplemented.   The reopening of assessment will either stand or fall only upon the reasons recorded before issuing the impugned notice. 17 It appears to be the contention of the department that since the petitioner has demonstrated book value of the property at Rs.1,80,000/­   and   has   assessed   income   for   several   years   by showing   book   value   of   the   property,   as   specified   above,     the conduct   of   the   petitioner,   according   to   Respondent­department, Commissioner of Income Tax, West Bengal II, Calcutta Vs. M/s Naga   Hills   Tea   Co.Ltd.,   reported   in   (1973)   4   SCC   200,     it   is contended by the petitioner,  that if a provision of a Taxing Statute can   be   reasonably   interpreted   in   two   ways,   that   interpretation which is favourable to the assessee has got to be accepted and  is a well accepted view of law.

{10} with a view to prevent abuse, the expression, “reason to believe” has been introduced and the word “opinion” has been deleted by Income­Tax and others, reported in (2015) 377 ITR 1, contends that the sustainability of the reopening notice would be tested only on the basis of reason recorded at the time of issuing the notice. The reasons cannot be added to, deleted from or supplemented. Besides, when a notice for reassessment is challenged, the burden is on the Revenue to establish that the jurisdictional requirement stands satisfied. 21 In the instant matter, according to the petitioner, a new ground   has   been   excavated   by   the   department   for   supporting notice under Section 148 and in fact no such disclosure was made by the Assessing Officer while reason for  his belief was supplied by the Income Tax Department. 22 Learned   Counsel   appearing   for   Respondent­ Department   has   invited   our   attention   to   communication   dated

{11} wp1306417.odt 03.11.2016 where under reasons for reopening of assessment under Section   148   of   the   Income   Tax   Act   were   communicated   to   the petitioner.   It is the contention of the Respondent – department that the objection to the valuation report prepared by S.B.Shuttari, Chartered Engineer and Government Valuer, for the said land @ Rs.2,00,63,640/­ has been recorded in the communication setting out reasons for reopening of assessment under Section 148 of the Income Tax Act by the Assistant Commissioner  of Income Tax. Since there is already a disclosure in respect of disagreement of the department to the valuation report prepared by S.B.Shuttari, Chartered   Engineer   &   Government   Valuer,   it   is   the   reason supporting issuance of notice under Section 147 of the Act and there is no question of any new reason being introduced.   The reason is already recorded in the order disclosing the reasons and as such, objection of the petitioner to the notice, does not deserve to be considered. 23 Learned   Counsel   appearing   for   the   Respondent­ Department is justified in referring to the provisions of Section 55(2)(b)(ii) of  the Act  that, where  the capital asset  became  the property of the assessee by any of the modes specified in sub­ section (1) of Section 49, and the capital asset became the property of the previous owner before 01.04.1981, it would be at the option of the assessee to  compute the cost of  capital asset to previous owner or the fair market value of the asset as on 01.04.1981. 24 According   to   the   petitioner,   the   option   has   been exercised by the assessee and the market value of the property has been   taken   as   a   basis   for   computing   capital   gain   by   applying

{12} wp1306417.odt indexation formula.  The view adopted by the Respondent, that the petitioner shall have to compute capital gain on consideration of book   value   of   the   property   i.e.   cost   to   the   previous   owner   at Rs.1,80,000/­, is opposed to the provisions of law.  The petitioner has   objected   to   the   reasons   for   reopening   assessment   under Section   148   of   the   Income   Tax   Act   supplied   by   the   Assistant Commissioner of Income Tax by pointing out the legal position, as referred to above. 25 While   turning   down   the   objection,   the   Assistant Commissioner   of   Income   Tax   has   also   declined   to   accept   the valuation   made   by   the   assessee   on   the   basis   of   report   of   the Government approved valuer.  It is recorded in the order that even the   basis   for   showing   higher   valuation,   being   the   report   of approved valuer, is also not free from flaws and lacunae.   It is recorded   in   the   order   that   there   are   guidelines   issued   by   the Directorate of Income Tax, New Delhi, for valuation of immovable properties, which must be followed by the approved valuer and the Income Tax Department.  It is further recorded that guidelines of the   year   2009   have  not   been   adhered   to  while  arriving   at   the

conclusion regarding valuation of the property as on 01.04.1981. Since the valuation made by the approved valuer is not acceptable to the Respondent, the capital gain assessed by the assessee, on the   basis   of   valuation   of   the   property   in   the   year   1981,   also becomes unacceptable. 26 The   petitioner   contends   that   ground   of   erroneous valuation has been introduced for the first time in the order and there is no notice to the petitioner in that regard.  It is basically the

{13} wp1306417.odt contention of the petitioner that there is no reference to erroneous valuation by the approved valuer in the Statement of Reasons for reopening   assessment,   provided   by   the   department.     The contention   does   not   appear   to   be   correct.     In   the   penultimate paragraph of the reasons for reopening of assessment supplied by the Respondent on 03.11.2016, it is recorded thus: “In view of the above, the assessee has wrongly taken the cost of acquisition of the said land at Rs.2,00,63,640/­,   being   the   market   value based   on   valuation   report   prepared   by   the S.B.Shuttari,   Chartered   Engineer   Govt. registered   valuer   and   after   indexation   the effective cost reduced from sale consideration was Rs.12,68,02,205/­ giving rise to LTCG of Rs.3,31,97,795/­. “ 27 There is a clearcut mention in the reasons that the assessee has wrongly taken cost of the land, being the market value  based  on the valuation report  of  S.B.Shuttari, Chartered Engineer & Government approved valuer.  It is, thus, not open for the petitioner to contend that the assessee/petitioner was taken by surprise and that the notice has been confirmed or that the order rejecting the objection, raised by the petitioner, records extraneous consideration.   In fact, the reasons recorded in the order while rejecting the objection raised by the petitioner cannot be said to be extraneous   since   the   reference   in   respect   of   the   grounds   does appear in the reasons for reopening assessment, communicated on 03.11.2016. 28 Learned   Counsel   appearing   for   the   Respondent, placing reliance on the judgment in the matter of Majinder Singh

{14} wp1306417.odt Kang Vs. Commissioner of Income­tax, reported in (2012) 344 ITR 358 (Punjab & Haryana), contends that a plain reading of Explanation 3  to   Section 147 clearly depicts that the Assessing Officer has power to make additions even on the ground on which reassessment   notice   might   not   have   been   issued   during reassessment   proceedings,   but   he   arrives   at   a   conclusion   that such other income has escaped assessment which comes to his notice during course of proceedings for reassessment under section

{15} [1991   (191)   ITR   662],   for   initiation   of   action under section 147(a) (as the provision stood at the   relevant   time)   fulfillment   of   the   two requisite conditions in that regard is essential. At   that   stage,   the   final   outcome   of   the proceedings is not relevant.  In other words, at the initiation stage, what is required is “reason to   believe”,   but   not   the   established   fact   of escapement of income.  At the stage of issue of notice, the only question is whether there was relevant material on which a reasonable person could have formed a requisite belief.   Whether the   materials   would   conclusively   prove   the escapement is not the concern at that stage. This is so because the formation of belief by the Assessing   Officer   is   within   the   realm   of subjective   satisfaction   (see   ITO   v.   Selected Dalurband Coal Co. Pvt. Ltd. [1996 (217) ITR 597 (SC)]; Raymond Woollen Mills Ltd. v. ITO [1999 (236) ITR 34 (SC)].” 30 Learned Counsel appearing for the Respondent also contends that it would not be permissible for the petitioner to raise challenge   to   the   order   passed   by   the   Assessing   Officer   under Section 148 of the Act in exercise of jurisdiction under Article 226 of the Constitution when efficacious remedy is available to the assessee   under   the   Act.     In   the   matter   of  Commissioner   of Income Tax & others Vs. Chhabil Dass Agrawal  (Civil Appeal No.6704   of   2013,   decided   by   the   Hon'ble   Supreme   Court   on

{16} wp1306417.odt 08.08.2013,   it   is   observed   in   paragraphs   20   and   21   of   the judgment, thus: “20 In   the   instant   case,   the   Act   provides complete   machinery   for   the   assessment/re­ an appeal is from “Caesar to Caesar's wife” the existence   of   alternative   remedy   would   be   a mirage   and   an   exercise   in   futility.     In   the instant   case,   neither   has   the   assessee­writ petitioner   described   the   available   alternate remedy under the Act as ineffectual and non­ efficacious while invoking the writ jurisdiction of   the   High   Court   nor   has   the   High   Court ascribed   cogent   and   satisfactory   reasons   to have exercised its jurisdiction in the facts of instant case. 21 In the light of the same, we are of the considered opinion that the Writ Court ought not to have entertained the Writ Petition filed by the assessee, wherein he has only questioned the   correctness   or   otherwise   of   the   notices issued under Section 148 of the Act, the re­ assessment

orders

passed

and the consequential demand notices issued thereon.” 31 Similar proposition has been laid down in the matter of Income Tax Officer, Calcutta Vs. M/s Selected Darulband Coal

{17} wp1306417.odt Co., reported in AIR 1995 SC 1934. Our attention is also invited to the   judgment   of   the   Hon'ble   Supreme   Court   in   the   matter   of Raymond   Woollen   Mills   Ltd.   Vs.   Income­Tax   Officer   and others, reported in (1999) 236 CTR SC 34. In paragraph 3 of the judgment, it is recorded thus: “3 In this case, we do not have to give a final decision as to whether there is suppression of material facts by the assessee or not.  We have only to see 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 this stage.   We are of the view that   the   court   cannot   strike   down   the reopening of the case in the facts of this case. It will be open to the assessee to prove that the assumption   of   facts   made   in   the   notice   was erroneous.   The assessee may also prove that no   new   facts   came   to   the   knowledge   of   the Income­Tax   Officer   after   completion   of   the assessment proceeding.  We are not expressing any opinion on the merits of the case.   The questions of fact and law are left open to be investigated   and   decided   by   the   assessing authority.  The appellant will be entitled to take all  the points  before the assessing  authority. The appeals are dismissed.   There will be no order as to costs.” 32 Income Tax, Bangalore & others, reported in (2017) 390 ITR 10 (2016 SCC OnLine SC 1536) and  Ajanta Pharma Ltd., Mumbai Vs. Assistant Commissioner of Income Tax, reported in [2003(5)

{18} wp1306417.odt Mh.L.J. 352]. 33 Even holding the challenge to be maintainable, since it is observed by us that the objection raised by the petitioner is devoid of substance and that there is very much reference to the objection   in   the   communication   indicating   “reasons   for   belief”, issued by Respondent­Department and that no new material or ground   has   been   introduced   in   the   final   order   and   that   the petitioner   has  not   been  taken  to surprise,  we  do   not   find  any reason to cause interference in the instant matter. 34 Writ   Petition   is   devoid   of   substance,   hence   stands dismissed. Rule discharged.  There shall be no order as to costs.

SMT.VIBHA KANKANWADI R.M.BORDE JUDGE

JUDGE adb/wp1306417