ITO 28 (3)(4), MUMBAI vs. VASANT PURSHOTTAM THAKKAR, MUMBAI

Per Prashant Maharishi (AM)

01 This appeal is filed by The Income tax Officer Ward -28(3)(4), Mumbai [ The ld AO ] against the Order dated 20-02-2019 passed by The Ld Commissioner of Income-tax (Appeals)-26, Mumbai [ The Ld CIT (A)] for the assessment year 2009-10. 02 Ld AO has raised following grounds of appeal:-

2 ITA 2515/Mum/2019 & Co 12/Mum/2021 On the facts and in the circumstances of the case and in law, the Ld. CIT (A) has erred in allowing relief to the assessee to the extent impugned in the grounds enumerated below: (l)Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in directing the A.O to re-compute the Indexed Cost of Acquisition as on 01.04.1981 accepted in assessment order at Rs.46,03,50,274/-considering l/7th Share of the assessee on this account and allow carry forward of loss so computed under the head 'Capital Gain‟ to the assessee without considering the merits of the case?" '. (2) Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in not appreciating the fact that the A.O. has rightly taken the share of the assessee at l/77th of the said property Village Kanjur, Bhandup, Kurla based on Consent terms between Plaintiff and Defendants no. 1 to 8, 48 to 50A and 75 to 78 in civil suit no.2757 of 2006 filed by Madhavji Jeyram Kotak and others in Bombay High Court?" (3) Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in not appreciating the fact that assessee failed to furnish copy of purchase agreement in respect of said property at Village Kanjur, Bhandup, Kurla".

03 Assessee filed a cross objection in CO number 12/MUM/2021 raising following grounds wherein challenge was made to reopening of the assessment:- Reopening of assessment is bad in law 1. The reopening of assessment vide notice u/s 148 dated 31/3/2016 was issued from wrong jurisdictional officer. Therefore, the notice issued u/s 148 is bad in law, without jurisdiction and the reassessment is void ab initio. 2. The reasons recorded for issue of notice u/s 148 for assessment year 2009 – 10 has been recorded by

3 ITA 2515/Mum/2019 & Co 12/Mum/2021 wrong jurisdictional officer. Therefore the reasons recorded and notice issued u/s 148 is bad in law and the reassessment is void ab initio. 3. The reopening of the assessment by notice u/s 148 dated 31/3/2016 is without considering the fact that there was no tangible material or basis on which assessment can be reopened, therefore the reopening is bad in law 04 Briefly stated, facts show that assessee is an individual. For assessment year 2009 – 10, Annual Information Return [AIR] information was received that assessee has purchased an immovable property at the cost of ₹ 36 lakhs. Therefore The Income Tax Officer, Ward – 2, Gandhidham, recorded reasons for reopening of assessment on 30/3/2016 as under:- “Reasons For Reopening Of Assessment” Name and address of the assessee Shri Thakkar vasant Purushottam 501, Plot No 38, shambhu apartments sector 44A, Nerul 400706 Navi Mumbai Mumbai Maharashtra 400706 d.vnathani@gmail.com PAN AEDPT9529A Status Individual Assessment Year 2009-10

4 ITA 2515/Mum/2019 & Co 12/Mum/2021 quantum of purchase amount also exceeds the minimum amount not chargeable to tax. 2. In view of the above, I have reason to believe that income chargeable to tax for assessment year 2009 – 10 has escaped assessment within the meaning contained in Section 147 and this is a fit case for issuance of notice u/s 148 of the IT act, 1961. ( V P Colaco) Income tax Officer Ward – 2, Gandhidham Date 30/3/2016”

5 ITA 2515/Mum/2019 & Co 12/Mum/2021 Being sale 17,50,00,000 2,50,00,000 1 consideration received for 41% right, title, share any interest in the property along with six other co- owners The fair market 42,39,30,171 6,05,61,453 2 value of the property as on 1 April 1981 is ₹ 72,840,233/– which is indexed for assessment year 2009 – 10 at ₹ 423,930,171/– for seven co- owners including the assessee Long-term capital 3,55,61,453 3 loss

6 ITA 2515/Mum/2019 & Co 12/Mum/2021 received a sum of Rs 2.5 crores being 1/7th share in the property. Assessee also furnished a copy of the Consent Terms between the plaintiff and the defendant number 1 to 8 and 48 to 50A and 75 to 78 [ Total Defendants 77 ] in a civil suit number 2757 of 2006 filed by Madhavji Jayaram Kotak and others before the Honourable Bombay High Court. Assessee claimed that he has agreed to share the 41% of the shares of defendants number 1, 3 – 8. 05. Learned assessing officer rejected this contention holding that the consent Terms are between 77 defendant parties. Therefore, he held that assessee being a defendant in the suit along with 76 others, assessee is entitled for 1/77th share of the property. For the computation of the capital gain, Ld AO noted that assessee has taken „fair market value‟ of his interest in 41% of the share in the land as on 1/4/1981, but, assessee did not furnish the basis of such valuation, therefore, the reference was made to the learned District Valuation Officer [DVO] on 27/12/2016 to determine the fair market value of the property as on 1/4/1981. Pending receipt of the report of DVO, learned assessing officer took the fair market value as disclosed by the assessee as on 1/4/1981. Based on FMV adopted by assessee, indexed cost of acquisition of the property [ upto AY 2010-11] was determined at ₹ 460,350,274/– , where assessee‟s share of interest in the above property was taken at 1/77th instead of 1/7th. Indexed cost of acquisition was computed at ₹ 5,978,574/–. Accordingly, long-term capital gain was computed by Ld AO at Rs. 1,90,21,426/–considering sale consideration of Rs 2.50 crores, reduced indexed cost of acquisition of ₹ 5,978,574/–. [ Sales consideration of Rs 2,50,00,0000 less Indexed cost of acquisition of Rs 59,78,574/-] . Accordingly assessment order u/s 143 (3) read with Section 147 of The Income Tax Act was passed on 30/12/2016 determining total income at Rs. 1,91,94,897/–.

7 ITA 2515/Mum/2019 & Co 12/Mum/2021 06. Thus, during assessment , only dispute between assessee and ld AO was that whether assessee should get deduction of cost of acquisition considering 1/77th shares [ld AO „s version] or 1/7th [Assessee‟s version]. Ld AO computed cost of acquisition treating assessee‟s shares at 1/77th where as the claim of the assessee is that cost of acquisition with respect to 41 % share in the property is owned by 7 persons including assessee, therefore assessee must be granted deduction of cost of acquisition of 1/7th shares of that cost and not 1/77th as determined by ld AO. 07. Assessee, aggrieved with the order of the learned assessing officer, preferred an appeal before the Commissioner Of Income Tax (Appeals). The contentions of the assessee were that the reopening of the assessment is bad in law as the notice for reopening of assessment u/s 148 of the Act has been issued by a non-jurisdictional assessing officer from Gandhidham where as the jurisdiction of assessee lies at Mumbai. Consequently, notice u/s 143 (2) was also not valid. On the merits of the case, assessee argued that share of the assessee is only 1/7th and not 1/77th as considered by the assessing officer and therefore assessee must be granted deduction of 1/7th of cost acquisition. It was stated that share of the sale consideration of assessee is only Rs 2.50 Crores which is 1/7th shares of the 41 % of the interest in property sold for RS 17.50 Crores. Thus, when sales consideration is taken @ 1/7th, then the cost of acquisition should also be allowed to the assessee at 1/7th thereof. 08. The learned CIT – A dismissed the ground relating to reopening of the assessment as well as the issue of notice u/s 143 (2) stating that those grounds are not pressed during the appellate proceedings. 09. With respect to computation of long-term capital gain on merits of the case, he directed learned AO to consider that the assessee was having 1/7th share of the 41% undivided right, title, share, or any interest in

8 ITA 2515/Mum/2019 & Co 12/Mum/2021 the above property and therefore 1/7th of cost of acquisition should be allowed as deduction to the assessee. Thus, he accepted claim of assessee. He further directed learned AO that accordingly there would be a loss under the head capital gains to allow carry forward of loss so computed. Thus, the appeal of the assessee was partly allowed. 10. The learned assessing officer is aggrieved with the order of the learned CIT – A with respect to the direction to the assessing officer to allow assessee deduction of 1/7th of cost of acquisition of property. He is further aggrieved with direction to allow carry forward of losses so computed, to the appellant. 11. Assessee is also aggrieved with the order of the learned CIT – A with respect to the dismissal of the ground relating to reopening of the assessment and therefore the cross objection is filed. 12. As the cross objection filed by assessee is on jurisdictional issue, the learned authorised representative referred to the paper book filed containing 29 pages. His main argument was that notice u/s 148-dated 31st of March 2016 is issued by The Income Tax Officer based at Gandhidham, Gujarat, who does not have jurisdiction over the assessee. To substantiate his argument, he referred to the permanent account number application [ Change Request] filed by the assessee which is placed at page number 1-6 of the paper book stating that on 15 September 2015, address of the assessee with the existing permanent account number was stated at Navi Mumbai. He further referred to the unique identification authority of India [AADHAR] card where the address of the assessee is at Mumbai. He also referred to the passport issued to the assessee where the address of the assessee is also mentioned at Navi Mumbai. He further stated that on 14/10/2015 a new permanent card was issued to the assessee, where also the address of assessee is mentioned at Navi Mumbai. He therefore submitted that notice u/s 148 of the income tax act issued to the assessee by The

9 ITA 2515/Mum/2019 & Co 12/Mum/2021 Income Tax Officer Gandhidham on 31-03-2016 is bad in law as issued by non jurisdictional A O. He stated that correct address of the assessee is at Navi Mumbai and PAN AEDPT9529A is issued at Navi Mumbai address. Therefore, the officer at Gandhidham did not have any jurisdiction over the assessee. He further referred to letter dated 12/9/2016 addressed to ld AO Gandhidham, wherein para number 8 assessee has submitted that current jurisdiction of the assessee is at Mumbai. In response to that assessee requested LD AO Gandhidham to transfer his case to applicable ward in Mumbai. He further referred to notice issued u/s 143 (2) of the act on 13/10/2016 by ITO Gandhidham wherein assessee was asked to give the correct address and jurisdiction of the assessing officer. He further referred to the letter dated 21/10/2016 where the assessee submitted the complete details with respect to the current jurisdiction of the assessee. Consequently the next notice u/s 142 (1) read with Section 129 of The Income Tax Act was issued on 17/11/2016 by The Income tax Officer – 28 (3) (4) Mumbai. Therefore his argument was that that Income Tax Officer Gandhidham did not have any jurisdiction over the assessee and therefore the notice issued u/s 148 of the income tax act as well as consequent notice u/s 143 (2) of the act are also without jurisdiction and bad in law. 13. To support his proposition he relied upon the decision of the honourable Bombay High Court reported in 404 ITR 63 in case of Lalit Kumar Bardia and the decision of the honourable Gujarat High Court in case of Pankaj Jaisukhlal Shah 425 ITR 70. He further referred to the decision of the coordinate bench in case of ACIT versus Resham Petrotech Ltd (2012) 136 ITD 185 (AHD). Therefore, the crux of his argument was that the basic requirement of Section 147 is that the assessing officer must have reason to believe that any income chargeable to tax has escaped assessment and such belief must be belief of jurisdictional assessing

10 ITA 2515/Mum/2019 & Co 12/Mum/2021 officer and not of any other assessing officer or authority or department. According to him the jurisdiction lies with the assessing officer at Navi Mumbai and not with the assessing officer at Gandhidham Gujarat and therefore no valid notice was issued to the assessee u/s 148 of the Income Tax Act and in absence of the same entire proceedings taken by ld AO becomes void for want of jurisdiction. 14. On the merits of the case, he submitted that that assessee has received sale consideration on account of transfer of the right/title and interest in an ancestral property located at Kula. The assessee has received share in the ancestral property from his ancestor Shri Shivji Raghavji who had 7 successors behind him including the assessee. Shri Shivji Raghvaji had 41% share in the rights title and interest in the property. He expired and property was inherited by the seven successors. Since it is a case of inheritance the cost to the assessee was taken as the fair market value as on 1 April 1981. He further referred to the memorandum of understanding stating that a consideration of ₹ 17.50 crores is payable by purchaser and that the vendor‟s number 1 – 7 are the only legal heirs and legal representative of Mr Shivji Raghavji who had 41% share in the said property. He therefore stated that the 41% share of the total sale consideration of ₹ 17.50 with respect to the seven coowners gives a sale consideration of Rs 2.50 crores to each of the coowner including assessee. Furthermore, fair market value of property as on 1/4/1981 was Rs 7, 28,40,233 which was indexed and divided been between the seven Cowners , the share of the assessee comes to Rs 6,05,61,453 which resulted into a long-term capital loss of ₹ 35,561,453/–. He therefore submitted that the share of the appellant in the above property is only 1/7th share and not 1/77th share as claimed by the learned assessing officer. He further referred to para 7 of the learned CIT – A wherein he has directed the learned assessing officer to consider the assessee‟s share of 1/7th. Therefore according to him even

11 ITA 2515/Mum/2019 & Co 12/Mum/2021 on the merits the addition made by the learned assessing officer does not sustain which has been rightly deleted by the learned CIT – A. 15. The learned departmental representative vehemently objected to the ground taken by assessee about notice issued by a non-jurisdictional officer. He specifically referred to paragraph number 6.1 of the order of the learned CIT – A wherein assessee did not press the grounds relating to reopening of the assessment. He therefore submitted that the assessee could not raise this ground now as assessee has not referred in appeal against the order of the learned CIT – A. 16. He submitted that the information has been received by the income tax Officer at Gandhidham who after taking the proper approval u/s 151 of the income tax act issued notice u/s 148 of the income tax act. The assessee has cooperated during the assessment proceedings and therefore now there is no grievance to the assessee. 17. On the merits of the disallowance of the cost of acquisition to the assessee, he relied upon the order of the learned assessing officer. 18. We have carefully considered the rival contention and perused the orders of the lower authority as well as the paper book filed by the learned authorised representative before us. We have also carefully perused the various judicial precedents cited before us. 19. Clearly, in this case the income tax officer (2), Gandhidham, Gujarat, issued notice u/s 148 of the income tax act on 31/3/2016. While issuing the above notice the learned assessing officer has courted the permanent account number of the assessee as AEDPT9529A. In the 148 notice also the learned assessing officer has mentioned the address of the assessee as “ Shri Thakkar Vasant Purshottam 501, plot number 38, Shambhu Apts 501, Shambhu Apt , Sec 44A , Nerul Navi Mumbai, Mumbai, Maharashtra 400706

12 ITA 2515/Mum/2019 & Co 12/Mum/2021 d.vvnathani@gmail.com 20. Now it is required to be seen that when learned AO Gandhidham issued the notice to the assessee, where the jurisdiction of the assessee lies. The assessee has made a change request on 16 September 2015 in the permanent account number AEDPT9529A wherein at serial number seven of the change in PAN data application he has mentioned the above address. To support that application assessee submitted as a proof of address AADHAR card. The notice issued u/s 148 of the income tax act was at the same address, which was changed by the assessee, and stating the same permanent account number. Therefore, it is very strange that when the notice u/s 147 of the income tax act was issued on 31st of March 2016, learned AO has mentioned correct address, which was changed by the assessee on 15 September 2015. Therefore from the addressee it was apparent that the learned assessing officer who issuing the notice u/s 147 of the act does not have jurisdiction over that assessee. Despite this, the learned ITO ward 2 Gandhidham issued the notice. The assessee also put to the kind attention of the ITO Ward 2 Gandhidham vide letter dated 12 September 2016 that the jurisdiction of the assessee is at Mumbai and therefore his case may be transferred to the respective officer. Consequent to the request of the assessee on 17/11/2016 The Income Tax Officer 28 (3) (4) Navi Mumbai issued notice u/s 142 (1) read with Section 129 of The Income Tax Act. Thus, it is clear that the ITO ward 2 Gandhidham did not have jurisdiction to issue notice u/s 148 of the Act. Hence looking to the facts and circumstances of the case it is apparent that the notice u/s 148 of the act is issued by the non-jurisdictional assessing officer and therefore not sustainable.

13 ITA 2515/Mum/2019 & Co 12/Mum/2021 21. More so for the reason that in the reasons for reopening of the assessment, the learned assessing officer has also mentioned the changed address of the assessee and despite this fact he did not apply his mind that whether he is having a jurisdiction over that assessee or not. We also failed to understand that how the approval u/s 151 of the income tax act was given by the approving authority without verifying whether the learned assessing officer who issued the notice u/s 148 of the income tax act has jurisdiction over the assessee to whom notices issued or not. 22. With respect to the objection of the learned departmental representative that the ground of the appeal against the reopening of the assessment has been dismissed by the learned CIT – A and therefore the assessee now once again cannot agitate the same, is not acceptable in view of the specific cross objection filed by the assessee where the issue has been decided against the assessee by the learned CIT – A. Cross objections are also an appeal according to the provisions of Section 253 (4) of the act. 23. In view of this as the notice u/s 148 of the income tax act is issued by the non jurisdictional officer same is not sustainable in law and therefore same deserves to be quashed and hence so quashed. Accordingly the cross objection of assessee is allowed. 24. Even on the merits of the case we find that the learned CIT – A has correctly held that the learned assessing officer has grossly failed in determining the sale of the appellant for the next cost of acquisition as on 1/4/1981 at 1/77 share of the appellant in 41 percent undivided right titles share and interest in the said property because of the reason that for the purpose of considering the sale consideration the share of the assessee is considered 1/7 and therefore the cost of acquisition should also be granted to the assessee in the same proportion. The view taken by the learned

14 ITA 2515/Mum/2019 & Co 12/Mum/2021 assessing officer of considering the sale consideration of the assessee considering assessee has 1/7 co-owner and granting the cost of acquisition to the assessee considering that assessee is 1/77th co-owner of the impugned property is completely devoid of any logic and contrary to the facts recorded in the assessment order itself. In view of this we do not find any infirmity in the order of the learned CIT – A in granting the cost of acquisition as deduction to the assessee considering 1/7th share in the property. In view of these grounds 1 – 3 of the appeal filed by the learned assessing officer are dismissed. 25. Accordingly, the appeal filed by the learned assessing officer is dismissed and cross objection filed by the assessee is allowed.

Order pronounced on 19/01/2022. Sd/- Sd/- (PAVAN KUMAR GADALE ) (PRASHANT MAHARISHI) JUDICIAL MEMBER ACCOUNTANT MEMBER Mumbai, Dt : 19 /01/2022 Copy to : 1. Appellant 2. Respondent 3. The CIT concerned 4. The CIT(A) By Order 5. The DR, ITAT, Mumbai 6. Guard File /True copy/ Asstt. Registrar, ITAT, Mumbai