THAKORBHAI MAGANBHAI PATEL,VADODARA vs. THE ITO, WARD- 3(1)(1), VADODARA

Initially, the assessment was completed under section 143(3) read with section 147 of the Act on 23.01.2013 accepting the returned income. Subsequently, based on information received from the Investigation Wing, including the assessee’s own statement recorded under section 131 of the Act admitting receipt of cash on sale of land, the Assessing Officer reopened the assessment by issuing notice under section 148 dated 27.03.2015 after obtaining approval from the competent authority. During reassessment proceedings, the Assessing Officer issued several notices under section 142(1) of the Act calling for details regarding the nature of land, distance from municipal limits and the alleged cash receipt of ₹1,05,72,000/-. The assessee objected to the reopening on legal grounds, contending that no income had escaped assessment and that no separate speaking order was passed on objections as mandated by the decision of the Hon’ble Supreme Court in GKN Driveshafts. The assessee also challenged the reopening before the Hon’ble Gujarat High Court, who, vide order dated 21.09.2016 in Special Civil Application (SCA) No. 4756 of 2016, upheld the validity of reopening and directed the Assessing Officer to complete the assessment after considering evidence brought on record. The Gujarat High Court while dismissing the SCA on 21/09/2016, held that there were serious doubts about the authenticity of the certificate that had been used by the assesee Asst.Year –2008-09 - 3–

On merits, the Assessing Officer held that the land sold was situated within 8 kilometers of the Vadodara Municipal Corporation limits based on statements of municipal authorities, certificates obtained during investigation and other material, and therefore constituted a capital asset under section 2(14)(iii) of the Act. The Assessing Officer further held that the sale consideration recorded in the sale deed was only ₹4,98,000/-, while the assessee had admittedly received on-money of ₹1,05,72,000/- in cash, which was not disclosed. Since the assessee failed to substantiate the receipt of such cash with any evidence, the Assessing Officer treated ₹1,05,72,000/- as unexplained receipt taxable as “income from other sources”. The Assessing Officer also treated ₹4,98,000/- as short-term capital gain by assuming cost of acquisition as nil. Accordingly, the reassessment was completed under section 143(3) read with section 147 on 22.11.2016 determining total income at ₹1,11,98,170/- and initiating penalty proceedings under section 271(1)(c) of the Act.

Aggrieved by the reassessment order, the assessee preferred an appeal before the Ld. CIT(A) raising several grounds. The assessee challenged the validity of reopening under section 147 and issuance of notice under section 148, contending that there was no escapement of income and that objections were not disposed of by a separate speaking order. On merits, the assessee contended that the land sold was agricultural land and not a capital asset, that capital gains could not be taxed in A.Y. 2008-09 as substantial consideration was received in subsequent years, that the land was an ancestral property and Thakorbhai Maganbhai Patel vs. ITO Asst.Year –2008-09 - 4–

The assessee is in appeal before us against the order passed by CIT(Appeals) dismissing the appeal of the assessee. The assessee has raised the following Grounds of Appeal before us:

The Ld. CIT (A)-NFAC erred on facts and in law in upholding the reopening of assessment u/s 147 by issuing notice u/s 148 based on inadmissible evidence and inapplicable law qua assessment year under reference.

The Ld. CIT (A)-NFAC erred on facts and in law in upholding the action of Assessing Officer in assuming juri iction to assess income u/s 147 of the Act without appreciating that all the objections on reopening had not been disposed off. 4. The Ld. CIT(A)-NFAC erred on facts and in law in upholding action of Assessing Officer in treating agricultural land exempt u/s 2(14)((iii) to be as capital asset ignoring CBDT Notification No. 9447 dtd 06-01-1994 Asst.Year –2008-09 - 6–

The Ld. CIT(A)-NFAC erred on facts and in law in holding that sale of land was assessable in AY 2008-09 on the strength of date of purchase of stamp paper without appreciating that sale of land took place during AY 2009-10 and when deed got registered on 10-06-2008 on receipt of substantial sale consideration which fell in AY 2009-10

The Ld. CIT(A)-NFAC erred on facts and in law in upholding the action of the Assessing Officer that only Rs. 4,98,000/- is considered to be a sale consideration against Rs. 1,10,70,000/- received by the appellant as per the terms of banakhat on sale of agricultural land.

The Ld. CIT (A)-NFAC erred on facts and in law in upholding action of Assessing Officer that land sold by the appellant was held for less than 36 -months without appreciating that subject land was an ancestral land.

The Ld. CIT (A)-NFAC erred on facts and in law in Rs upholding action of Assessing Officer in assessing declared sale consideration of Rs. 4,98,000/- to be as short term capital gain without granting deduction for the indexed cost of ancestral land without which computation of capital gain is impermissible as held and explained by Hon'ble Supreme Court in the case of CIT vs B C Srinivassa Setty 128 ITR 294 (SC), in alternative to Ground Nos. 1 to 6

The Ld. CIT (A)-NFAC erred on facts and in law in upholding action of the Assessing Officer in assessing Rs. 1,05,72,000/- as unexplained money without appreciating that appellant received said amount in terms of banakhat referred to in the sale deed and in AY 2009-10 from a definite source.

The Ld. CIT (A)-NFAC erred on facts and in law upholding action of the Assessing Officer in assessing Rs. 1,05,72,000/- as unexplained money in the year under consideration without appreciating that appellant received only Rs. 1,55,000/- referred to in at the banakhat and balance in at the time of execution of sale deed and also on surrender of security cheques.”

The learned counsel for the assessee commenced the submissions by placing the basic factual background of the case and the sequence of events leading to the impugned reassessment for A.Y. 2008-09. It was submitted that the land sold by the assessee was ancestral agricultural land situated at village Asst.Year –2008-09 - 7–

The counsel for the assessee placed reliance on judgments to submit that effective conveyance and possession are crucial for determining the year of transfer. Lastly, the counsel submitted that the assessee had inherited the land from his forefathers who held it prior to 01.04.1981, that there was no undisclosed investment in A.Y. 2008-09, and that all alleged investments out of sale proceeds were made only in A.Y. 2009-10. On the cumulative appreciation of facts and law, it was urged that the reopening itself was invalid and, without prejudice, no addition either on account of capital gains or alleged on-money could be sustained in A.Y. 2008-09. 8. In response, the Ld. DR placed reliance on the observations made by the Assessing Officer and Ld. CIT(Appeals) in their respective orders.

We have heard the rival contentions and perused the material on record.

These grounds relate to the challenge to the reopening of assessment on the footing that the mandatory conditions under sections 147, 148, 149 and 151 were not satisfied, that the reopening was based on inadmissible material and inapplicable law, and that the objections of the assessee were not disposed of in accordance with the law laid down in GKN Driveshafts. We note that the reopening of assessment in the present case was subjected to judicial scrutiny by the Hon’ble Gujarat High Court in SCA No. 4756 of 2016 Asst.Year –2008-09 - 10–

The Hon'ble High Court of Gujarat in the assessee’s challenge to initiation of 147 proceedings has categorically observed that there was a serious doubt about the genuineness of the certificate dated 16-01-2013 of the executive engineer produced by the assessee that the land in question was situated beyond 8 km from the outer limit of Vadodara municipal Corporation. The High Court observed that the author of the said certificate has filed an Affidavit stating that he has never issued the said certificate and the documents do not carry his signature. Further, the High Court observed that the Road and Building division has also contended that the copy of the said certificate is not found in their official records. Therefore, from the facts placed on record, it is observed that the assessee had placed reliance on false certificates obtained only to mislead the Tax Authorities. Further, even the conduct of the assessee has all throughout been misleading, wherein in the return of its income for the impugned assessment year, the assessee had shown an incorrect figure of capital gains and it was only in the later statement that the assessee admitted of having received “on-money” with respect to sale of the aforesaid property. The Hon’ble Gujarat High Court also noted that the assessee is seeking to place reliance on falsified certificates in order to demonstrate that the property under consideration is an agricultural land and hence not subject to capital gains tax. In our considered view, the issue of reopening has been dealt in detail by the Ld. CIT(Appeals) in the appellate order, and looking into the facts of the instant case, we find no Thakorbhai Maganbhai Patel vs. ITO Asst.Year –2008-09 - 11–

Respectfully following the judgment of the Hon’ble Juri ictional High Court and in the absence of any contrary binding material brought to our notice, we do not find it appropriate to interfere with the findings of the Ld. CIT(A) on this issue.

Accordingly, Ground Nos. 1, 2 and 3 are dismissed.

This ground raises the substantive issue as to whether the agricultural land sold by the assessee is situated beyond the prescribed municipal limits and, therefore, excluded from the definition of “capital asset” under section 2(14)(iii) of the Act, particularly in light of CBDT Notification No. 9447 dated 06.01.1994 and the law applicable for A.Y. 2008-09. Thakorbhai Maganbhai Patel vs. ITO Asst.Year –2008-09 - 12–

We observe that the Hon'ble High Court of Gujarat has categorically noted that the assessee had submitted falsified statements/certificate in support of the fact that the said piece of land was situated outside the limits of Vadodara Municipal Corporation. Ld. CIT(Appeals), in our view, has correctly observed that the Assessing Officer provided several sources of information to establish that the land sold by the appellant was within the proximity of Vadodara Municipal Corporation (VMC) limits, thereby concluding that the property sold qualified as a capital asset under the relevant provisions. Firstly, the AO referred to a statement dated 10/07/2013 from Shri Soham N. Patel, the Additional Assistant Engineer at the Vadodara Municipal Corporation, which indicated that the distance between the land and the VMC was just 2 kilometers. Additionally, the AO noted that the aerial distance was even less than 2 kilometers, based on details provided in a letter dated 12/07/2023 from the Deputy Municipal Commissioner (A) of Mahanagar Seva Sadan, Vadodara. Furthermore, the Assessing Officer noted that a certificate issued by the Executive Engineer of the R & B Division in Vadodara confirmed that the land was situated about 2.8 kilometers away from the VMC. In addition to these sources, the AO also referred to a remand report dated 09/11/2017, which reiterated that the land was located at a distance of less than 8 kilometers from the VMC, based on a certificate received from the Vadodara Urban Development Authority (VUDA), under No. UDA/Plan-2/1434/207, dated 17/10/2017. Finally, the AO also mentioned that even a Google search revealed that the distance between the village of Hanumanpura and Vadodara was approximately 6 kilometers. Asst.Year –2008-09 - 13–

Considering the totality of facts, the facts as laid out above and the applicable legal position for the relevant assessment year and the importance of this issue which goes to the root of taxability itself, we are of the considered view that the matter requires fresh factual verification. In the interests of justice, we set aside this issue to the file of the Assessing Officer with a direction to carry out a proper physical verification of the land, determine the correct distance from the relevant municipal limits and after affording opportunity of being heard to the assessee pass appropriate orders in accordance with law.

This ground is allowed for statistical purposes.

This ground relates to the assessee’s contention that the sale/transfer of land did not take place in A.Y. 2008-09 but only in A.Y. 2009-10, when the sale deed was registered and substantial consideration was received. We observe that the determination of the year of taxability is closely connected with the findings on the nature of land, applicability of capital gains Asst.Year –2008-09 - 14–

Accordingly, Ground No. 5 is set aside to the file of the Assessing Officer to be decided afresh, consequentially and in accordance with law.

This ground is allowed for statistical purposes.

This ground challenges the action of the authorities below in adopting only ₹4,98,000/- as sale consideration ignoring the amount agreed under the banakhat. We find that the determination of correct sale consideration is dependent upon the findings on the nature of land, applicability of capital gains provisions and the year of transfer. As these foundational issues have been restored to the file of the Assessing Officer, this ground is also restored for fresh adjudication. The Assessing Officer shall decide the issue in accordance with law after considering the entire material and submissions of the assessee. This ground is allowed for statistical purposes.

These grounds pertain to the holding period of the land being ancestral in nature and the computation of capital gains without allowing indexed cost of acquisition. Asst.Year –2008-09 - 15–

We note that the Ld. CIT(A) has already accepted the assessee’s contention that the land was inherited ancestral property and has directed the Assessing Officer to verify the year and cost of acquisition and recompute capital gains accordingly. However, the computation of capital gains itself is contingent upon the final determination of whether the land is a capital asset and the year in which the transfer is held to have taken place. Accordingly, these grounds are also restored to the file of the Assessing Officer to be decided afresh, consequentially, after giving effect to the directions on the issue of distance and character of land.

These grounds are allowed for statistical purposes.

These grounds relate to the addition of ₹1,05,72,000/- as unexplained money in A.Y. 2008-09. We find that the taxability of the said amount is inextricably linked with the determination of the nature of land, applicability of capital gains provisions and the year of transfer. Since these primary issues are being restored for fresh examination, the addition made on account of alleged unexplained money also requires reconsideration. Accordingly, these grounds are set aside to the file of the Assessing Officer to be adjudicated afresh in accordance with law, after deciding the primary issues and after affording adequate opportunity of being heard to the assessee.

These grounds are allowed for statistical purposes.

In the result, the appeal filed by the assessee is allowed for statistical purposes. The matter is set aside to the file of the Assessing Officer with a Thakorbhai Maganbhai Patel vs. ITO Asst.Year –2008-09 - 16–