VIKAS JAIN,KANPUR vs. ACIT-CC 2(1)(1), KANPUR

PER NIKHIL CHOUDHARY, A.M.:

This is an appeal filed by the assessee against the orders of the ld. CIT(A),
NFAC on 17.05.2024 wherein the ld. CIT(A) has dismissed the appeal of the assessee against the order passed by the ld. Assessing Officer under section 147
r.w.s. 143(3) for the A.Y. 2015-16 on 27.12.2018. The grounds of appeal are as under:-
“01. Because there being no reason to believe, far from there being any material to form reasons to believe, the proceedings initiated right from issue of notice u/s. 148 and the re-assessment framed thereof are all without juri iction bad in law, the order passed be quashed.
02. Because the so-called reasons having been recorded applying Explanation
2(a) to Section 147, of the Act which not being applicable, the very reason to believe being contrary to the mandate of the section, the proceedings- initiated u/s 148, the reassessment framed are all contrary to the provisions of law, be quashed.
03. Because the approval given by the competent authority u/s 151, being mechanical in nature without verification of facts, the notice issued u/s 148
and the reassessment framed thereafter be quashed.
Vikas Jain

A.Y. 2015-16

A.Y. 2015-16

Income Tax Act, where the sale consideration received was less than the value adopted or assessed by the stamp duty authority, the value so adopted or assessed by the stamp duty authority would, for the purposes of section 48 of the Income
Tax Act, be deemed to be the full value of consideration received on transfer of an asset. Accordingly, applying the provisions of section 50C, he held reasons to believe that assessee’s income chargeable to tax of Rs. 1,10,72,650/- had escaped assessment during the assessment year 2015-16 by virtue of the proviso of Explanation 2(a) of section 147. 3. In response to the said notice, the assessee filed objections wherein it was submitted that he was merely the owner of the land and not of the superstructure i.e. the building on the land. He also submitted a copy of the sale deed in which the value of land sold amounted to Rs. 42,12,000/-. It was submitted that he had already filed his return as required under section 139 of the Act and the provisions of section 147 had been invoked without looking into the assessment records.
Since, the notice under section 148 had been issued on the premise that he had not filed his return of income, the reasons recorded were factually incorrect and the issue of the notice was mechanical due to which the notice itself was bad in law.
The ld. AO considered the objections of the assessee, but thereafter held that the same was covered under section 292B of the Act, which held that no return of income, assessment, notice, summons or other proceeding furnished or made or issued or taken would be invalid or deemed to be invalid only because of any mistake, defect or omission in such return of income, assessment, notice, summon or other proceeding if such return of income, assessment, notice, summons or other proceeding was in substance and effect, in conformity with or according to the intent and purposes of the Act. The ld. AO also held that since the objection had been raised by the assessee beyond the 30 days period after the issue of notice under section 148, therefore also, it was not maintainable. It appears from the assessment order that there was some confusion in the replies furnished by the assessee, owing to the fact that the Department refused to receive an unsigned PDF file, but subsequently the same was rectified by the assessee and the reply was Vikas Jain

A.Y. 2015-16

taken on record. However, in view of the fact that the assessee had objected to the value of the property as per the stamp duty value, therefore, in accordance with the provisions of section 50C, the matter was referred to the office of the Valuation
Officer, Kanpur under section 55A of the Income Tax Act. As a result of the valuation, the value of the land was determined at Rs. 63,24,500/- as compared to the value of Rs. 42,12,000/- that was declared by the assessee. The assessee objected to the valuation on the grounds that the property under reference was under this agreement with Reliance Industries Limited for a period of 29 years and 11 months from 7.04.2005 and the term of expiry of lease was 28.02.2035. Accordingly, the property was not a free hold property and therefore, it was not marketable in the open market. In the circumstances, no prudent buyer could purchase it at market rate hence the sale consideration in respect of land value of Rs. 42,12,000/- as evidenced in the sale deed of the property under reference was the only and the actual fair market value of the property and nothing over and above the said value could be treated as fair market value of the property, as the assessee was bound to sell the property to only Reliance Industries Limited and no other buyer could have purchased the property. It was further submitted that the property under reference was being used as a retail outlet for sale of petrol by Reliance Industries Limited and a complete petrol pump was installed on the premises. Thus, Reliance Industries Limited had not only purchased the land, but also the superstructure on the land the machinery installed thereon and the ownership of the superstructure and machinery were that of the partnership firm,
M/s Gayatri Petroleum, of which the assessee was only one of the partners.
Accordingly, it was submitted that the sale of land was not in isolation, it was a composite sale, no person who was not intending to run a petrol pump could have purchased the superstructure and petrol pump machinery, as a result of which the assessee was compelled to sell same to M/s Reliance Industries Limited during the period of lease. Moreover, it was submitted that M/s Reliance Industries Limited was an internationally recognized company and nothing above the sale consideration had been received by the assessee. What had been received had Vikas Jain

A.Y. 2015-16

been duly declared in the return of income and could not be substituted by any other fair market value. It was further submitted that only for execution of the sale deed under reference, Reliance Industries Limited had surrendered the lease hold rights of the property. All these facts had been ignored by the Valuation Officer and therefore, the value determined by the ld. Valuation Officer as the fair market value of the property under reference was incorrect. For this proposition, the assessee relied upon the judgment of the ITAT in the case of Atul Kumar Garg (HUF) vs. ITO reported in 2018 TaxPub (DT) 2859 (Luck-Trib).

A.Y. 2015-16

proceeded to bring the difference of Rs. 21,12,500/- to tax under the provisions of section 50C.
5. Aggrieved with the said addition, the assessee went in appeal to the ld.
CIT(A). Before the ld. CIT(A), it was submitted that the ld. AO had erred in law by invoking provisions of Explanation 2(a) to section 147 without looking into the assessment records, particularly the return of income that had already been filed by the assessee under section 139 of the Act therefore, the notice had been issued without application of mind, it was without juri iction and such assessment initiated on the basis of invalid initiation was a nullity and therefore, liable to be quashed. It was further submitted that the ld. AO had committed a mistake in rejecting the return filed by the assessee on 24.04.2018 in compliance to the notice under section 148 and therefore, the reply filed by the assessee on the portal may be taken as the date of the filing of the return. With regard to the addition on its merits, it was submitted that the ld. AO had erred in law and on facts by making addition of Rs. 21,12,500/- by ignoring the fact that the property being under a lease agreement with M/s Reliance Industries Limited, was not marketable in the open market and the said lease deed had been terminated only for the purposes of purchase of the property by Reliance Industries Limited. Finally, it was submitted that the ld. AO had erred in law by not considering the request of remuneration of partner received from Gayatri Petroleum because on regular assessment, the business profit computed under the provisions of section 40(B) were reduced due to the reason that profit on sale of assets was considered as short term capital gain instead of business income resulting into reduced attributable partners remuneration. The ld. CIT(A) considered all these issues raised by the assessee. On the issue of the wrong invocation of Explanation 2(a) of section 147, the ld. CIT(A) held that it was a mistake covered under section 292B of the Income Tax Act. He relied upon the judgment of the Hon’ble Delhi High Court in the case of Sky Light
Hospitality LLP vs. ACIT (2018) 90 taxman.com 413 (Delhi) wherein the Hon’ble
Delhi High Court had held that the object of section 292B was to ensure that technical pleas could not invalidate the assessment proceedings when no Vikas Jain

A.Y. 2015-16

confusion or prejudice is caused due to non-observance of technical formalities.
Accordingly, he dismissed the arguments of the assessee in this regard. However, he upheld the plea of the assessee to treat the communication dated 24.04.2018 as the date of the filing of the return in response to notice under section 148 since the assessee had responded through the window in the IT Portal where only he and his authorized representative could log in. In considering the addition made by the ld. Assessing Officer, the ld. CIT(A) held that it was common knowledge that the market price of immovable properties was mostly higher than stamp valuation.
Therefore, if somebody wanted to purchase property for a price lower than even stamp valuation, that the seller could always refuse to sell the same. He quoted from the provisions of section 50C of the Income Tax Act and pointed out that in this case, there was no pending litigation on the property; the ld. AO had referred the matter to the Valuation Officer; the Valuation Officer had determined the value of land at Rs. 63,24,500/- as compared to the value declared by the assessee at Rs.
42,12,000/-. This was lesser than the valuation by the stamp duty authority but higher in the value attributed by the assessee. He referred to the judgment of the Hon’ble Gujarat High Court in the case of Rajivbhai Nagjibhai Thesia TA No. 413 of 2016 to point out that once a reference is made under section 50C to the Valuation
Officer for valuation of the capital asset, the ld. AO was obliged to complete the assessment in conformity with the estimate made by the Valuation Officer pursuant to such reference made by him. Accordingly, he held that there was no infirmity in the act of the AO in accepting the value adopted by the Valuation
Officer and he dismissed the appeal in this regard. With regard to reduction of partner’s remuneration by Rs. 7,2,335/- on account of the recasting of the computation of income of the partnership firm M/s Gayatri Petroleum, the ld.
CIT(A) held that the claim was no longer maintainable in view of the Hon’ble
Supreme Court decision in the case of Goetze India (2006) 157 taxman 1 (SC) since the assessee had not filed a revised return to correct the claim. He pointed out that the assessee had an opportunity to reduce the income from remuneration when the AO had called for a new return of income through notice under section 148. Vikas Jain

A.Y. 2015-16

However, the assessee had not availed this chance and since that was the case, the AO could not be faulted for adding back the excess claim. Accordingly, the appeal of the assessee came to be dismissed as above.

A.Y. 2015-16

recorded by the ld. AO further revealed that the ld. AO had recorded wrong figures of income chargeable to tax that had escaped assessment. He submitted that the ld. AO had included the entire difference in sale value as the income escaping assessment, whereas it was only the capital gains on the difference in deemed sale value and actual sale value which could be said to have escaped assessment. Hence, even otherwise, the satisfaction of escapement was inaccurate and based on incorrect appreciation of facts. For this reason, also he prayed that the same may kindly be quashed.

A.Y. 2015-16

market, the stamp duty value or the value determined by the Valuation Officer could not be regarded as the deemed value of consideration in the assessee’s case.
9. On the other hand, Sh. Amit Kumar, Sr. DR (hereinafter referred to as the ld. DR) submitted the objections of the assessee against the issue of notice under section 148 had been duly disposed of by the ld. AO during the assessment proceedings by taking note of the objections and considering the issue on its merits. It was argued that the specific prerequisite conditions for raising objections had not been made by the assessee as considered by the Hon’ble
(SC) because the assessee had not filed a return of income in response to the notice under section 148. Notwithstanding the fact, the ld. AO had considered and disposed the objections by pointing out that an irregularity and procedural /
technical lapse cannot vitiate the assessment proceedings as it was a lapse which could be cured under section 292B. For this proposition, reliance was placed on the decision of the Hon’ble Supreme Court in the case of Sky Light Hospitality LLP vs. ACIT (supra). Reference was also invited to the decision of the Hon’ble Delhi
413 (Delhi) wherein the Hon’ble High Court had held that reasons to believe refer to several facts and information that had come to the knowledge and was available with the ld. AO. At the stage where notice under section 148 of the Act was issued, firm and conclusive findings would not be required as the merits would be examined during the course of assessment proceedings, but as long as there was an honest and reasonable opinion found by the ld. AO and the reasons to believe were not merely reasons to suspect, the Courts should not interject to stop the adjudication process and scrutiny on merits. Absolute certainty was not required at the time of issue of notice and at the same time, the reasons to believe should not be based merely on suspicion, gossip or rumor. Relying upon the same, the ld.
AR argued that there was a, ‘live link’ between the material available on record and the escaped income and because the ld. AO had reason to believe that the assessee had not disclosed fully and truly all the material facts necessary for assessment,
Vikas Jain

A.Y. 2015-16

there had been an escapement of income in the case of the assessee. It was submitted that the basic work of the competent authority was to check whether the incriminating material which is related to the escapement of income from taxation was placed in the file or not and on this ground, there was no lapse by the approving authority. Therefore, such approval could not be termed as mechanical approval as alleged by the assessee. It was also submitted that section 50C was a deeming provision, which was not concerned with the actual consideration received but held that where it was less than the stamp duty value, the latter had to be held to be the full value of consideration. It was also provided that where the assessee disputed the stamp duty value, the matter was to be referred to valuation.
The ld. DR argued that in the present case, the matter had been referred to valuation and the Valuation Officer had determined the value of the sold land at a rate of Rs.63,24,500/-. Compared to this, the value of the land declared by the assessee was only Rs.42,12,000/-. The assessee had not been able to point out any discrepancy in the valuation report and therefore, as per the provisions of the Act, the ld. AO was obliged to make the addition in the hands of the assessee. It was submitted that even before the ld. AO, the assessee could not point out any infirmity in the valuation report submitted by the Valuation Officer and therefore, the ld. CIT(A) had confirmed the said addition. The ld. CIT(A) had noted that there was no pending litigation on the property and the Valuation Officer had determined the value of the land at a much lower rate from the stamp valuation.
Thus, it was argued that any objections which the assessee may have had to the stamp duty value of the land had been duly addressed by the Valuation Officer.
Accordingly, it was prayed that no interference was called for and the addition be confirmed. On the issue of remuneration of Rs. 7,02,335/- received by the assessee from the partnership firm M/s Gayatri Petroleum, first on account of addition under section 50C and then on account of business in the hands of the assessee, it was submitted that the ld. CIT(A) had correctly pointed out that the assessee had an opportunity to reduce his claim of income from remuneration when the ld. AO had called for a new return of income through notice under section 148, but had Vikas Jain

A.Y. 2015-16

chosen not to exercise that option. Therefore, since the assessee had not exercised the option to reduce the remuneration, the ld. AO was justified in making the addition and it did not call for any interference.

A.Y. 2015-16

13
Pvt. Ltd. vs. ACIT, Circle-26(2), New Delhi in ITA No. 135/DEL/2019, the Hon’ble
Delhi Bench of the ITAT has held that section 292B of the Act takes care certain situations and enables the income tax authorities to cure defects in orders, notices etc., but the juri iction to reopen emerges from the reasons recorded in writing under section 148(2) on the strength of, ‘reason to believe’ towards escapement of income. It is those reasons that confer assumption of juri iction of a substantive nature. A fundamental defect in the basis for holding, ‘reason to believe’ cannot be seen as a mere irregularity and thus cannot be cured with the aid of section 292B of the Act. There is a marked distinction between want of basic or inherent juri iction and irregular exercise of juri iction. A defect or irregular exercise of juri iction alone can possibly be cured under section 292B of the Act but when there is a juri ictional defect, that cannot be rectified by invoking the provisions of section 292B of the Act. The ld. AR has also our attention to the order of the Hon’ble Bombay High Court in W.P. No. 2545 of 2010 in the matter of Tata
Sons Limited vs. DCIT, Mumbai wherein the ld. AO had recorded that the sale of shares of TCS Division was nothing but, ‘ business income’ and therefore, profits arising out of sale of these shares in the group companies should be treated as the assessee’s income from business and not profits arising out of sale of investment.
The Hon’ble High Court had held that if the ld. AO had held so then the amount that was treated as escaping assessment also indicated non application of mind.

A.Y. 2015-16

assessment issued in the name of erstwhile private limited company which had been converted to an LLP, would not invalidate the re-assessment proceedings but it was only an irregularity that could be cured under section 292B and decisions of the Hon’ble Supreme Court in the case of Sky Light Hospitality LLP vs. ACIT
(2018) 92 taxman.com 93 and Reymond Wollen Mills Limited vs. ITO, (1999) 236
CTR (SC) 34. Ongoing through these various case laws, we find from the reasons to believe, that have been recorded by the ld. AO, that the ld. AO has referred to,
‘the proviso of Explanation 2(a) to section 147 of the Income Tax Act, 1961’. In fact, there exists no such proviso in the Act. Therefore, the reference is to a non-existent provision. Furthermore, if we are to see the wordings of the reason to believe, it is quite clear that the ld. AO considered the fact that a property had been sold for Rs.
89,65,800/-, the stamp duty value of which was Rs. 2,00,29,450/- and that the provision of section 50C applied to this situation. Therefore, he came to a conclusion that assessee’s “income to the extent of Rs. 1,10,72,650/-” had escaped assessment while, in fact, this amount represented the difference between the consideration and the deemed value of consideration and the actual amount of income that would be deemed to have escaped assessment could only be the capital gains on that amount. Therefore, it is clear that the AO was neither clear about the facts of the case nor the amount of income that had escaped assessment and therefore his reason to believe was founded on incomplete appreciation of the facts and law. Furthermore, these incorrect facts would also have influenced the mind of the approving authority, rendering the said approval incorrect.
Accordingly, since the foundational facts of the reason to believe were not correctly appreciated, the entire reason to believe is vitiated and cannot be the basis for a valid notice u/s 148 of the Income Tax Act. Such a mistake, which goes to very root of the assumption of juri iction cannot be cured by taking the shelter of section 292B of the Act. Accordingly, we hold that the very initiation of the proceedings being flawed, the subsequent order is void ab initio and liable to be quashed as such. Accordingly, grounds no. 1 to 3 of the assessee’s appeal are allowed.
Vikas Jain

A.Y. 2015-16

Order pronounced on 31.12.2025 in the Open Court. [KUL BHARAT] [NIKHIL CHOUDHARY]
VICE PRESIDENT

ACCOUNTANT MEMBER

DATED: 31/12/2025
Sh