SHRI NAVINCHANDRA N. PATEL,VADODARA vs. THE ACIT, CIRCLE-1(2), VADODARA

4. That the Hon'ble CIT (Appeals) has erred in law and on fact in confirming the addition made by Ld. AO Rs. 7,05,466/-U/s. 14A r.w.r. 8D of the IT Act.

5. That the Hon'ble CIT (appeals) and learned AO erred in fact and in law in charging interest u/s 234B & C of the Act.

6. That the Hon'ble CIT (Appeals) and the learned AO erred in fact and in law in initiating penalty proceedings u/s 271(1)(c) of the Act.” Shri Navinchandra N Patel Vs. ACIT Asst. Year : 2012-13 - 3–

(i) Addition u/s 45(2) r.w.s. 2(47) of Act - Rs. 9,40,27,625/- (ii) Undisclosed investment u/s 69B of the Act - Rs. 1,62,05,500/- (iii) Disallowance u/s 14A r.w.r. 8D - Rs. 7,05,466/-

4. Aggrieved by the order of the Assessing Officer, the assessee filed appeal before the Ld. CIT(A) who dismissed the appeal of the assessee and confirmed all the additions made by the Assessing Officer.

5. Aggrieved by the order the Ld. CIT(A), the assessee is now in appeal before the Tribunal. Shri Navinchandra N Patel Vs. ACIT Asst. Year : 2012-13 - 4– Issue No.1 – Reopening of assessment u/s 147

7. Ld. DR, on the other hand, supported the orders of the authorities below.

“ANNEXURE Reasons for reopening of the assessment in case of Shri Navin N. Patel, Vadodara for the AY.2012-13 U/s 147 of the Act.

3. Analysis of information collected/received: (i) The assessee had purchased agriculture land block bearing consolidated R.S. No. 57, 41, 83, 91,36, 72 and 73 at Ankodia, Vadodara admeasuring to 1.14.829 square meter (12,36,019 square feet) at a total cost of Rs. 7,77,23,910/- jointly with Shri Krupesh N. Patel (PAN: ADHPP6422B) during financial years 2007-08 and 2008-09. The assessed is having 50% shares in these pieces of Ankhodia land. The said pieces of land were converted into non-agricultural land on 29.11.2008. The assessee had shown this land in his balance sheet under the head fixed assets/investments upto 31.03.2009. During the year under consideration land admeasuring total area of 59,935 square feet were transferred by the assessee through a development agreement on 03.02.2010 @ Rs. 210 per sq.ft. Thus, total sale consideration @ Rs. 210 per sq.ft in respect of 59395 sq.ft of land works out to Rs. 1,24,72,950/- out of that assessee's share each Rs. 6,23,64,275/- being 50% of Rs. 1,24,72,950/-. The assessee has credited to profit and account by sale consideration of Rs. 6236475/-. (ii) From the assets of the balance sheet for AY 2012-13 that there was an agricultural land amounting to Rs. 1,73,25,167/- (including land purchased during the year R.S. no. 665/P/1 for Rs. 15,54,000) under the head investment. However, the balance sheet of the previous year's i.e. A.Y. 2011- 12, the investment in agricultural land were valued at Rs. 3,19,76,667/-. The variations observed in the valuation of agricultural lands (other than land purchased during the year R.S. no. 665/P/1 for Rs. 15,54,000/-). No information was found regarding sale of above said agricultural land. (iii) On perusal of the profit and loss account and balance sheet it is noticed that the assessee had earned exempt income by way of dividend income of Rs. Shri Navinchandra N Patel Vs. ACIT Asst. Year : 2012-13 - 6– 19,88,178/-. However, it is noticed from the computation of income that the assessee has not calculated and disallowance under section 14A of the Act r.w.r. 8D.

Difference amount in A.Y. 2011-12 A.Y.2012-13 Land location Particulars Rs. (Amt. in Rs.) (Amt. in Rs.) R.S. No. 21 3045350 3045350 Nil Ankodia R.S. No. 22/2 1646850 1646850 Nil Block No. 40/2 5038353 849503 4188850 Khanpur Block No. 44 12726409 3228144 9498265 Block No. 52 4913038 2394653 2518385 Samiyala land 1069867 1069867 Nil Miscellaneous Block No. 389 Samiyala land 3536800 3536800 Nil Block no. 399 Total 31976667 15771167 16205500 Further, it is seen that these agricultural lands were not sold during the year under consideration. Therefore, the value of the agriculture land to the extent of Rs. 16205500/- has been understated during the year.

(iii) 0n going through the particulars of assessee’s income, it was observed that the assessee during the financial year 2011-12 relevant to the asst, tear 2012 has earned exempted income of Rs. 19,88,178/- in the form of dividend u/s 10(34) of the Act. On further verification, it was seen that the assessee had not made any disallowance u/s 14A of the Act as prescribed in Rule 8D of the Income-tax Rules, 1962. As per the provisions of section 14A of the Income-tax Act, 1961, no deduction shall be allowed in respect of expenditure incurred by the assessee in respect of income which does not form part of the total income. The method of computing the expenditure relating to exempted income has been prescribed under Rule 8D. Taking into consideration the average value of investments, average total assets in balance sheet, expenditure by way of interest, disallowance u/s 14A of the Act r.w.r 8D amounting to Rs. 706466/- is to be disallowed.

6. Basis of forming reason to believe and details of escapement of income: (i) According to section 2(47)(iv) of the Act, if capital asset is converted into stock-in- trade or treated as stock-in-trade by the owner, such conversion or treatment shall be regarded as transfer. Further, as per sec. 45(2) of the Act, the profits or gains arising from such transfer shall be chargeable to income-tax as his income (capital gain) of the previous year in which such stock-in-trade is sold or otherwise transferred. For the purpose Shri Navinchandra N Patel Vs. ACIT Asst. Year : 2012-13 - 8– of computing the capital gains chargeable to tax as aforesaid, the fair market value of the asset on the date of such conversion or treatment shall be deemed to be the full value of the consideration received or accruing as a result of the transfer of the capital asset. The fair market value of the above non agriculture land on the date of (Conversion i.e. 03.02.2010 and 20.02.2010 relevant to asst, year 2010-11, was taken as at jantri rate, for that land which stands at Rs. 4,500 per square meter (the above referred land was converted to non agriculture land on 29.11.2008 i.e. A.Y, 2009-10). Accordingly, the fair market value of the above referred land works out to Rs. 5167.31 lakhs (114829 square meter X jantri rate of Rs. 4,500 per square meter). As per section 45(2) of the act, the notional short term capital gain arising from transfer by way of conversion of capital asset into stock in trade at fair market value of Rs. 5167.31 lakh after deducting cost of acquisition of Rs. 777.24 lakh works out to Rs. 4390.07 lakh ( Rs. 5167.3.1 lakh less Rs. 777.24 lakh), chargeable to: tax in the year in which stock in trade was sold. Conversationally, the short term capital gain per square feet works out to Rs. 355.17 (Rs. 4390.07 lakh / 1236019 square feet [114829 square meters]). However, the assessee has already offered Rs. 210 per square feet out of the above short term capita] gain of Rs. 355.17 square feet as his business income and brought to tax. Tn view of the above, the actual implication works: out to Rs. 1794.33 lakh (difference: amount of Rs, 145.17 per square feet was required to be levied on 12,36,019 square feet). The proportionate under assessment of income in the hands of the assessee works out to Rs. 807.16 lakh (Rs. 1794.32 lakh /2) on potential basis. Taking into consideration the assessment year-wise summary of proportionate stock (@ 50%) sale of land and chargeability of short term capital in the hands of the assessee, the actual impact on account of short term capital gain of Rs. 43,11,186/- was chargeable to tax in the asst, year under consideration. On verification of the case records, it is seen that the assessee has offered an income of Rs. 248/- under the head income from capital gain (the amount is not earned by way sale of land). Therefore, I have a reason to believe that an amount of Rs. 43,11,1816/- has escaped assessment under the head capital gain. (ii) Scrutiny of records, it was noticed from the assets of the balance sheet for AY 2012- 13 that there was an agricultural land amounting to Rs. 1,73,25,167 (including land purchased during the year R.S. no. 665/P/1 for Rs. 15,54,000) under the head investment. However, the balance sheet of the previous year’s i.e. A.Y. 2011-12, the investment in agricultural land were valued at Rs. 3,19,76,667. Thus, the assessee has understated the value of Shri Navinchandra N Patel Vs. ACIT Asst. Year : 2012-13 - 9– agriculture land to the extent of Rs.1,62,05,500/- Which attracts the provisions, of section 69B of the Act. (iii) The assessee during the financial year 2011-12 relevant to the asst. year 2012-13 has earned exempted income of Rs. 19,88,178/- in the form of dividend u/s 10(34) of the Act. On further verification, it was seen that the assessee had not made any disallowance u/s 14A of the Act as prescribed in Rule 8D of the Income-tax Rules, 1962. As per the provisions of section 14A of the Income-tax Act, 1961, no deduction shall be allowed tin respect of expenditure incurred by the assessee in respect of income which does not form part of the total income. Since the assessee has not made any disallowance u/s 14A of the. Act r.w.r 8D, in view of the above an amount of Rs. 7,06,466/- is to be disallowed.

8. Findings of the AO on true and full disclosure of the material facts; necessary for assessment under Proviso to section 147 : (i) According to. section 2(47)(iv) of the Act, if capital asset is converted into stock-in- trade or treated as stock-in-trade by the owner, such conversion or treatment shall be regarded as transfer. Further, as per sec. 45(2) of the-Act, the profits or gains arising from such transfer shall be chargeable to income- tax as his income (capital gain) of the previous year in which such stock-in- trade is sold or otherwise transferred. For the purpose of computing the capital gains chargeable to tax as aforesaid, the fair market value of the asset on the date of such conversion or treatment shall be deemed to be the full value of the consideration received or accruing as a result of the transfer of the capital asset. The fair market value of the above non agriculture land on the date of conversion i.e. 03.02.2010 and 20.02.2010 relevant to asst, year 2010-11, was taken as at jantri rate for that land which stands at Rs. 4,500 per square meter ( the above referred land was converted to non agriculture land on 29,11.2008 i.e. A.Y. 2009-10). Accordingly, the fair market value of the above referred land works out to Rs. 5167.31 lakhs (114829 square meter X jantri rate of Rs. 4,500 per square meter). As per section 45(2) of the act, the notional short term capital gain arising from transfer by way of conversion of capital asset into stock; in trade at fair market value of Rs. 5167.31 lakh after deducting cost of acquisition of Rs. 7717.24 lakh works out to Rs. Shri Navinchandra N Patel Vs. ACIT Asst. Year : 2012-13 - 10– 4390.07 lakh (Rs. 5167.31 lakh less Rs. 777.24 lakh), chargeable to tax in the year in which stock in trade was sold. Conversationally, the short term capital gain per square feet works out to Rs. 355.17 (Rs. 4390.07 lakh / 1236019 square feet [114829 square meters)). However, the assessee has already offered Rs. 210 per square feet out of the above short term capital gain of Rs. 355.17 square feet as his business income and brought to tax. In view of the above, the actual implication works out to Rs. 1794.33 lakh (difference amount of Rs. 145.17 per square feet was required to be levied on 12,36,019 square feet). The proportionate under assessment of income in the hands of the assessee works out to Rs. 897.16 lakh (Rs. 1794.32 lakh /2) on potential basis. Taking into consideration the assessment year-wise summary of proportionate stock (@ 50%) sale of land and chargeability of short term capital in the hands of the assessee, tire actual impact on account of short term capital gain of Rs. 43,11,186/- was chargeable to tax in the asst, year under consideration. On verification of the case records, it is seen that the assessee has offered an income of Rs. 248/- under the head income from capital gain (the amount is not earned by way sale of land). Therefore, I have a reason to believe that an amount of Rs. 43,11,186/- has escaped assessment under the head capital gain. (ii) Scrutiny of records, it was noticed from the assets of the balance sheet for AY 2012- 13 that there was an agricultural land amounting to Rs. 1.73,25,167 (including land purchased during the year R.S. no. 665/P/l for Rs. 15.54,000) under the head investment. However, the balance sheet of the previous 'year’s i.e. A.Y. 2011-12, the investment in agricultural land were valued at Rs. 3,19,76,667. Thus, the assessee has understated the value of agriculture land to the extent of Rs. 1.62.05.500/- which attracts the provisions of section 69B of the Act. (iii) The assessee during the financial year 2011-12 relevant to the asst, year 2012-13 has earned, exempted income of Rs. 19,88,178/- in the form of dividend u/s 10(34) of the Act. On further verification, it was seen that the assessee had not made any disallowance u/s 14A of the Act as prescribed in Rule 8D of the Income-tax Rules, 1962. As per the provisions of section 14A of the Income-tax Act, 1961, no deduction shall be allowed in respect of expenditure incurred by the assessee in respect of income which does not form part of the total income. Since the assessee has not made any disallowance u/s 14A of the Act r.w.r 8D, in view of the above an amount of Rs. 7,06,466/- is to be disallowed.

9. We have examined the validity of issuing the notice u/s 148 of the Act. From the reasons recorded, we find that the reopening has been made based on analysis of information collected (refer to para no. 3); the Assessing Officer held that no information was formed Shri Navinchandra N Patel Vs. ACIT Asst. Year : 2012-13 - 12– regarding the sale of agricultural land. Further, the Assessing Officer at para No. 5(ii), held that on scrutiny of record, it was noticed from the assets of the balance-sheet……. At para 5.5(iii), the Assessing Officer held that on going through the particulars of assessee’s income, it was observed that…… At para 6(i), the Assessing Officer held that on verification of case records, it is seen that…... At para 6(ii), the Assessing Officer went through the records and held that scrutiny of records, it was noticed from the……. At para no.8 (i), the Assessing Officer held that on verification of case records……. and at para 8(ii), scrutiny of records…….. and para No. 8(iii), on further verification, it was seen that the assessee had not made…. At para 9, the Assessing Officer held that it is true that the assessee has filed a copy of the annual report and audited P&L A/c and balance sheet along with the return of income where various information/ material were disclosed. However, the requisite full and true disclosure of all material facts necessary for assessment has not been made as noted above. It is pertinent to mention here that even though the assessee has produced books of accounts, annual report, audited P&L A/c and balance sheet or other evidences as mentioned above; the requisite material facts as noted above in the reasons for reopening were embedded di such a mariner that material evidence could not be discovered by the AO and could have been discovered with due diligence, accordingly attracting provisions of explanation 1 of section 147 of the Act.

The provisions of Section 147 of the Act r.w. Explanation 1 which is as under: "147. If the Assessing Officer has reason to believe that any income chargeable to tax has escaped assessment for any assessment year, he may, subject to the provisions of sections 148 to 153, assess or reassess such income and also any other income chargeable to tax which has escaped assessment and which comes to his notice subsequently in the course of the proceedings under this section, or re compute the loss or the depreciation allowance or any other allowance, as the case may be, for the assessment year concerned (hereafter in this section and in sections 148 to 153 referred to as the relevant assessment year): Provided that where an assessment under sub-section (3) of section 143 or this section has been made for the relevant assessment year, no action shall be taken under this section after the expiry of four years from the end of the relevant assessment year, unless any income chargeable to tax has escaped assessment for such assessment year by reason of the failure on the part of the assessee to make a return under section 139 or in response to a notice issued under sub-section (1) of section 142 or section 148 or to disclose fully and truly all material facts necessary for his assessment, for that assessment year: Provided further that nothing contained in the first proviso shall apply in a case where any income in relation to any asset (including financial interest in any entity) located outside India, chargeable to tax, has escaped assessment for any assessment year: Shri Navinchandra N Patel Vs. ACIT Asst. Year : 2012-13 - 14– Provided also that the Assessing Officer may assess or reassess such income, other than the income involving matters which are the subject matters of any appeal, reference or revision, which is chargeable to tax and has escaped assessment. Explanation 1.-Production before the Assessing Officer of account books or other evidence from which material evidence could with due diligence have been discovered by the Assessing Officer will not necessarily amount to disclosure within the meaning of the foregoing proviso."

11]….. ….. In our view, the reopening of assessment by impugned notice dated 30.03.2021 is merely on the basis of change of opinion of the Assessing Officer from that held earlier during the course of assessment proceedings and this change of opinion does not constitute justification and/or reason to believe that income chargeable to tax has escaped assessment. 12] Since all these details have been disclosed in the documents filed along with return of income including balancesheet and answers to all queries raised have been provided, admittedly it cannot be stated that there was any failure on the part of petitioner to truly and fully disclose any material facts. Statement in the reasons recorded that there was failure to fully and truly disclose material facts, in Shri Navinchandra N Patel Vs. ACIT Asst. Year : 2012-13 - 17– our view, is only to get over the restrictions provided in proviso to section 147 of the Act. vi. CGS-CIMB Securities (I) P. Ltd. Vs CIT, ITA. No. 573/Mum/2022. “4. It is also trite that the assessment cannot be re-opened on change of opinion as held by various courts including this court as well as the Hon'ble Supreme Court of India.