Nirbhaybhai Ramanbhai Patel Vs ITO (Gujarat High Court)
Summary: The Gujarat High Court allowed two connected writ petitions challenging notices under Section 148 and orders under Section 148A(d) dated 27.08.2024 concerning AY 2018-19. Although the petitions arose from a common capital-gains valuation dispute, the Court quashed the proceedings on different grounds. In Special Civil Application No.8342 of 2025, the alleged escaped income was Rs.58,36,138/-, while in Special Civil Application No.8993 of 2025, it was Rs.1,01,35,652/-. The Court also examined and rejected the contention that capital gains arising from the sale of land could not fall within the explanation of “asset” under Section 149(1)(b).
In the lead petition, the original assessee, Kamlaben Ramanbhai Patel, had died on 27.06.2020. A show cause notice under Section 148A(b) was issued on 30.07.2024 concerning the sale of immovable property for Rs.75,00,000/-. The return filed on 31.03.2019 declared total income of Rs.11,67,190/- as long-term capital gains. The Assessing Officer relied on a DVO valuation obtained in a co-owner’s case, which determined the property’s fair market value as on 01.04.2001 at Rs.8,30,000/-, to allege understated capital gains. The petitioner subsequently informed the respondent of the assessee’s death on 03.06.2025 and produced the death certificate; the Revenue did not dispute this. The Court held that the notice issued in the name of a deceased person was invalid and that the proceedings were hit by Section 159(2)(b). It accordingly quashed the impugned notice and order.
In the connected petition, the assessee challenged the adoption of the co-owner’s DVO report without an independent determination of the property’s fair market value in the petitioner’s case. The petitioner had relied on a registered valuer’s report dated 03.09.2017, valuing the entire property at Rs.1,05,82,900/-. The indexed cost of acquisition was calculated at Rs.1,01,69,917/-, and taxable long-term capital gains were calculated at Rs.10,67,548/-. The Revenue instead adopted the DVO valuation of Rs.8,30,000/- and alleged escaped income of Rs.1,01,35,652/-. The assessee relied on Munir Ismail Voraji Vs. Income – tax Officer and Sahyog Corporation Vs. Assistant Commissioner of Income – tax. The Revenue argued that the co-owner had accepted the valuation and paid the tax, and that information received through the risk management strategy justified reassessment.
On the separate limitation-related ground, the petitioner argued that capital gains did not constitute an “asset” within the explanation to Section 149(1)(b), relying on Ashok Commercial Enterprises Vs. Assistant Commissioner of Income Taxation. The Court rejected that argument. It treated the explanation as inclusive and held that land, its sale proceeds deposited in a bank account, and the capital gain derived from those proceeds fell within its scope. The conversion of immovable property into bank deposits did not remove the transaction from the provision, and understating capital gains had a direct nexus with escapement of income.
Nevertheless, the Court found the valuation-based reopening unsustainable. The DVO report dated 08.02.2024 related to the co-owner and relied on two sale instances from Village Tandalja, whereas the petitioner’s land was situated at Village Sevasi. No sale instances from the same village or area were referred to, and no DVO report had been obtained in the petitioner’s own case. The Assessing Officer had brushed aside the registered valuer’s report without examining the methodology or independently recording findings concerning the petitioner’s property. Following Munir Ismail Voraji, which discussed ACIT Vs Dhariya Construction Co. and related Gujarat High Court decisions, the Court held that a DVO report alone could not justify reopening without further inquiry and application of mind. Acceptance by the co-owner did not bind the petitioner. The Assessing Officer could not impose that report without making a reference under Section 55A in the petitioner’s case and thereafter conducting an inquiry and forming an independent opinion. The impugned notice and order dated 27.08.2024 were therefore quashed in the connected petition as well.
Cases Discussed
- Munir Ismail Voraji Vs. Income – tax Officer, [2017] 82 taxmann.com 92 (Gujarat High Court) — Relied upon by the petitioner and followed by the Court. Reopening solely on a DVO report, without further inquiry or independent application of mind by the Assessing Officer, was held unjustified.
- Sahyog Corporation Vs. Assistant Commissioner of Income – tax, [2025] 179 taxmann.com 503 (Gujarat High Court) — Cited by the petitioner in support of the challenge to reopening based on the co-owner’s DVO valuation. The judgment records the reliance but does not separately analyse this precedent.
- Ashok Commercial Enterprises Vs. Assistant Commissioner of Income Taxation, [2023] 154 taxmann.com 144 (Bombay High Court) — Cited by the petitioner for the contention concerning capital gains and “asset” under Section 149. The Court rejected that contention on its interpretation of the statutory explanation; it did not separately analyse the cited decision.
- ACIT Vs Dhariya Construction Co. (Supreme Court) — Discussed in the reproduced extract from Munir Ismail Voraji and applied through that precedent. A DVO’s opinion per se is not information for reopening; the Assessing Officer must apply his mind and form a belief on the information collected.
FULL TEXT OF THE JUDGMENT OF GUJARAT HIGH COURT
1. Since a common issue is involved in the captioned writ petitions, the same are heard and decided analogously by this common judgment and order.
2. In the captioned writ petition being Special Civil Application No.8342 of 2025, the petitioner has assailed the notice dated 27.08.2024 issued under section 148 of the Income Tax Act, 1961 (for short ‘the Act’) as well as the order dated 27.08.2024 passed under section 148A(d) of the Act seeking to reopen the assessment of tax for the Assessment Year (for short ‘A.Y.’) 2018-19 alleging escapement of income of Rs.58,36,138/- whereas, in the writ petition being Special Civil Application No.8993 of 2025, the amount alleged to have escaped is Rs.1,01,35,652/-. The date of the impugned notices and the order is same. Hence, the writ petition being Special Civil Application No.8342 of 2025 is taken up as a lead matter.
BRIEF FACTS:
3. In the captioned Special Civil Application No.8342 of 2025, the assessee in question – Kamlaben Ramanbhai Patel passed away on 27.06.2020. The petitioner is the legal representative of the deceased – assessee, who was issued a show cause notice dated 30.07.2024 under clause (b) of section 148A of the Act calling upon to show as to why the notice under section 148 of the Act should not be issued for the year under consideration. It was alleged that as per the information available on the insight portal in accordance with the risk management strategy formulated by the Board, the assessee has sold an immovable property-land of Rs.75,00,000/- and filed the return of income on 31.03.2019 declaring total income at Rs.11,67,190/- as income from long term capital gains. It was alleged that thus, the assessee has shown less capital gain by an amount of Rs.58,36,138/-, which has escaped income chargeable to tax.
3.1 In the case of one co-owner of the very same land, Shri Naynaben Ramanbhai Patel, the valuation of the said land was referred to the District Valuation Officer (for short ‘DVO’) by the Assessing Officer for ascertaining the cost of acquisition of the said property on 01.04.2001 pursuant to which, the DVO determined the Fair Market Value of the property at Rs.8,30,000/- as on 01.04.2001. Accordingly, taking clue from the DVO’s report of co-owner and by calculating the cost of acquisition of the property in question, it has been alleged that the assessee had declared long term capital gains at Rs.11,67,190/- and thus, there was an escapement of income of an amount of Rs.58,36,138/-. It appears that and as explained by the petitioner in the writ petition, the petitioner could not file a reply to the notice due to miscommunicationas his mother – the deceased assessee had passed away and on consultation of the Chartered Accountant subsequently, the petitioner participated in the proceedings. However, vide order dated 27.08.2024, the respondent passed an order under section 148A(d) of the Act by holding that there was an escapement of income chargeable to tax to the tune of Rs.58,36,138/- which resulted into the issuance of the impugned notice dated 27.08.2024 under section 148 of the Act.
3.2 The petitioner, on 03.06.2025, informed the respondent about the death of the assessee and produced the death certificate. Learned senior standing counsel appearing for the revenue is unable to dispute the same.
4. Thus, so far as the writ petition being Special Civil Application No.8342 of 2025 is concerned, since the impugned notice is issued in the name of dead person, the same is invalid and the subsequent passing of the order as well as the impugned notice is required to be quashed and set aside as it is hit by the provisions of section 159(2)(b) of the Act. Thus, the impugned notice dated 27.08.2024 and order dated 27.08.2024. are quashed and set aside. The writ petition is allowed.
SUBMISSIONS ON BEHALF OF THE ASSESSEE IN SPECIAL CIVIL APPLICATION NO.8993 OF 2025:
5. So far as the writ petition being Special Civil Application No.8993 of 2025 is concerned, learned advocate, Mr.Parimalsinh Parmar appearing for the petitioner has submitted that the reopening of the assessment is required to be quashed and set aside since the Assessing Officer without determining the actual Fair Market Value of the property in case of the present petitioner, has by placing reliance on the report of DVO in the case of co-owner – Naynaben Ramanbhai Patel, runs contrary to the settled legal precedent. It is submitted that the petitioner – assessee while filing the income tax return, has declared the capital gains on the basis of registered Valuer’s report dated 03.09.2017 and declared the value of the subject property. However, the Assessing Officer has disbelieved the registered Valuer’s report by placing reliance on the DVO’s report in case of the co-owner that too, which is determined on the basis of the survey numbers of another village. It is submitted that the DVO in the case of the co-owner has computed the Fair Market Value of the land in question as on 01.04.2001 and has reopened the assessment by alleging that the petitioner has shown less capital gain and the income of Rs.58,36,138/- has escaped the assessment of income chargeable to tax. In support of his submissions, learned advocate, Mr.Parimalsinh Parmar has placed reliance on the decision of this Court in the case of Munir Ismail Voraji Vs. Income – tax Officer, [2017] 82 taxmann.com 92 (Gujarat), in the case of Sahyog Corporation Vs. Assistant Commissioner of Income – tax, [2025] 179 taxmann.com 503 (Gujarat).
5.1 While referring to the provisions of section 149(1) (b)(i) of the Act, it is submitted that the reopening of assessment after three years is permissible only in the case where the escaped income amounts to or likely amount to fifty lakh rupees or more and for attracting the provisions of section 149 of the Act the explanation to sub-section (1) of section 149 of the Act, which explain the word “asset”, will not get attracted to the capital gains and hence, on this count also, the impugned notice as well as the order is required to be quashed and set aside. Reliance is placed on the decision of the Bombay High Court in the case of Ashok Commercial Enterprises Vs. Assistant Commissioner of Income Taxation, [2023] 154 taxmann.com 144 (Bombay). Thus, it is urged that the writ petition may be allowed.
SUBMISSIONS ON BEHALF OF THE REVENUE:
6. Opposing to the foregoing submissions and the present writ petition, learned Senior Standing Counsel, Mr.Rutvij R. Patel appearing for the respondent has urged that the reassessment proceedings may not be interfered at this stage since they are premised on the information, which is received in accordance with the risk management strategy, involving escapement of income in the form of capital gains by the petitioner. It is submitted that in case of the co-owner – Naynaben Ratilal Patel of the very same land in question during the assessment proceedings, the Assessing Officer preferred the determination of the Fair Market Value by the DVO and on receipt of the report of the DVO, the capital gain was computed in case of the co-owner and it was found that the co-owner had shown the capital gains on the basis of the report of the registered Valuer, which was found to be incorrect by the DVO in her case. It is submitted that ultimately, the co-owner accepted the assessment and paid the income tax and hence, the present petitioner – assessee cannot agitate the said issue before this Court on the basis of the DVO’s report in her case. It is submitted that the long term capital gain is required to be calculated taking the cost of acquisition of the property at Rs.8,30,000/- as per the DVO report in the case of co-owner and hence, it was found that the assessee has claimed indexed cost of acquisition on an amount which was determined on the basis of the registered sale Valuer’s report, which was incorrect and hence, there was an escapement of income of Rs.1,01,35,652/- in case of the petitioner of Special Civil Application No.8993 of 2025. Thus, it is urged that on this count, the assessment order may not be interfered.
6.1 As far as the second ground is concerned, learned Senior Standing Counsel, Mr. Rutvij R. Patel while referring to the explanation to the provision of Section 149(1) (b)(i) of the Act, has submitted that the money received by the petitioner from the sale proceedings and deposited in the bank accounts or otherwise would constitute an “asset” within the meaning of section 149(1)(b) of the Act. It is submitted that the definition of “asset” is having a wider scope, which includes any form of income escaping assessment as the income which escapes assessment activity results into asset of the assessee. Thus, it is urged that the writ petition may not be entertained.
ANALYSIS AND OPINION:
7. We have heard the learned advocates appearing for the respective parties at length. We may first deal with the implications of the explanation provided under the provision of section 149(1) (b)(i) of the Act. The relevant provision is extracted as under:
“149.(1) No notice under section 148 shall be issued for the relevant assessment year,—
(a) ———-
(b) if three years, but not more than ten years, have elapsed from the end of the relevant assessment year unless the Assessing Officer has in his possession books of account or other documents or evidence which reveal that the income chargeable to tax, represented in the form of—
(i) an asset;
(ii) expenditure in respect of a transaction or in relation to an event or occasion; or
(iii) an entry or entries in the books of account, which has escaped assessment amounts to or is likely to amount to fifty lakh rupees or more.
XXX
Explanation – for the purpose of clause (b) of this section, “asset” shall include immovable property, being land or building or both, shares and securities, loans and advances, deposits in bank account.”
7.1 It is proposed on behalf of the petitioner that the capital gains, which is calculated after the sale of the assets (in the present case – land) will not be an “asset” as referred in the explanation whereas, the revenue has contended that it would be an “asset” as the sale proceeds has been deposited in the bank account. The petitioner sold the land in question during the year under consideration vide registered sale deed dated 19.05.2017 after determining the Fair Market Value of land at Rs.1,05,82,900/- through a registered valuer vide his report dated 03.09.2017.
8. A close reading of the contents of the Explanation manifests that for attracting the provision of clause (b) of section 149(1) of the Act, “asset” would be in the ‘form’ which include immovable property, being land or building or both, shares and securities, loans and advances, deposits in bank account. The Explanation has to be read in continuation with sentence below Section 149(1) (b) (i) (ii)(iii) of the Act “which has escaped assessment amounts to or is likely to amount to fifty lakh rupees or more”. Thus, any asset which falls within the contours of Explanation which generates income of Rs.50 lakhs or more and has escaped assessment of income chargeable to tax comes within the purview of Section 149 of the Act and is amenable to reassessment. The elaboration of “asset” vide Explanation is inclusive, all-encompasing the elements specified therein. In the present case, indubitably, there has been a sale of the immovable property i.e. land which is included in asset. The sale proceeds have been deposited in the bank account by the petitioner. Thus, the assets in the form of immovable property-land gets converted to the form of deposits in the bank accounts after the amount of its sale is deposited. In the order passed under section 148A(d) of the Act, the language used by the Assessing Officer is that the income chargeable to tax, represented in the form of assets within the meaning of section 149(1) (b)(i) of the Act has escaped assessment. We agree to the opinion of the Assessing Officer. Section 54 of the Act lets individuals avoid paying long-term capital gains tax when they sell a property and reinvest the profit. The amount of so calculated is on the basis of the deduction claimed by the petitioner by determining the cost of acquisition in the return. Showing less capital gain against actual gain has direct nexus with the escapement of income, attracting the provision of Section 149(1)(b) of the Act. The capital gain is shown by treating the land as capital asset. Section 2(14) of the Act defines “capital asset” as property of any kind held by a taxpayer, whether or not it is connected to their business or profession. Thus, the immovable property in the form of land, the amount of sale proceeds deposited in the bank account after its sale and the capital gain derived from such deposit of the sale proceeds fall within the contours of Explanation of “asset”. In other words, the bank deposit of sale proceeds of an immovable property of an asset would be a genus whereas, the capital gain would be specie, which emanates from the deposits of sale proceeds from the assets. Thus, we do not agree with the submissions advanced on behalf of the petitioner.
9. With regard to the first issue raised by the petitioner, we are of the opinion that the reopening of the assessment is required to be interfered with since the reopening is exclusively premised upon the valuation of the DVO’s report, dated 08.02.2024 in the case of the co-owner – Naynaben Ratilal Patel. It is true that the immovable property of the co- owner is forming part and parcel of the property in question, which has been sold by the petitioner. However, such report cannot be blindly accepted by the Assessing Officer to reopen the assessment merely, because the co-owner has accepted the same.
9.1 We find that in the case of the petitioner, the petitioner had determined the Fair Market Value of the land situated at Block No.75 paiki 1, Old Survey No.87/1, Final Plot No.44, TPS- 1 at Mouje: Sevasi, Tal. & Dist.Vadodara. The indexed cost of acquisition is calculated at Rs.1,01,69,917/- on the basis of the registered Valuer’s report dated 03.09.2017 and declared FMV of Rs.1,05,82,900/- for whole subject property and accordingly, long term capital gains taxable at the rate of 20% was calculated at Rs.10,67,548/-. Accordingly, the Assessing Officer calculated the share of assessee in sale consideration by taking the cost of acquisition valued at Rs.8,30,000/- as per the District Valuation Report and alleged that an amount of Rs.1,01,35,652/- has escaped the income chargeable to tax. In the order under section 148A(d) of the Act, the Assessing Officer has reproduced the valuation report of the DVO dated 08.02.2024 valuing the property at Rs.8,30,000/- in the case of co-owner – Naynaben Ratilal Patel.
10.We find that in the writ petition being Special Civil Application No.8993 of 2025, the Assessing Officer has not produced the detailed valuation report determining the valuation of the land in question situated at Mouje: Sevasi, Tal. & Dist. Vadodara, which would indicate the methodology adopted for determining the Fair Market Value(FMV) of the land in question. In the captioned writ petition being Special Civil Application No.8342 of 2025, the Assessing Officer has produced the entire valuation report of the co-owner – Naynaben Ratilal Patel and a perusal of the same, would reveal that the Assessing Officer in the notice issued under section 148 of the Act, has considered the report of the DVO in the case of co-owner and the DVO has considered the two sale instances of 02.01.2001 and 24.10.2000 of the properties/land/plots of Village: Tandalja, Vadodara, by treating it as the adjoining property, and has determined the value of the land at Rs.205 per sq. mtr. as on 01.04.2001, which is fair and reasonable. The adjoining property referred in the sale instances belong to another village. There are no sale instances of the same village/area where the property of the petitioner belongs. 10.1Thus, the registered Valuer’s report dated 03.09.2017 of the petitioner has been brushed aside by the Assessing Officer on the basis of DVO’s report of co-owner prepared on the two sale instances of the plots of Village: Tandalja, Vadodara and the same has been considered by the Assessing Officer without examining or record its finding to determine the Fair Market Value of the land in question. There is no report of DVO in the case of the petitioner.
11. We may, at this stage, refer to the decision of the Coordinate Bench of this Court in the case of Munir Ismail Voraji (Supra), wherein, this Court has held thus:
“7. At the outset, it is required to be noted that in the present case, the impugned notices under Section 148 of the Act and the assessment for A.Y 2011- 2012 are sought to be reopened solely on the basis of DVO’s report. Nothing is on the record that thereafter, any further inquiry is held/conducted by the Assessing Officer to form an opinion that the income chargeable to tax has escaped assessment with respect to the Capital gain. No further inquiry has been held/conducted to find out the fair market value as on 1st April 1981. It is required to be noted that at the time of filing of original return, the assessee concerned has relied upon the report of the approved Valuer, considering the fair market value of the land in question as on 1st April 1981 at Rs.4007-per sqm. It appears that thereafter, on the basis of information given by another officer ie., Income Tax Officer [I&CI] Surat, the Assessing Officer made a reference to the Departmental Valuation Officer and thereafter, solely relying upon DVO’s report, assessed the fair market value of the land at Rs.657- per sqm., the Assessing Officer has sought to reopen the assessment for A.Y.2011- 2012. Therefore, the question posed before this Court for consideration is whether solely relying upon and based upon DVO’s report and without holding any further inquiry thereafter with respect to the fair market value of the land as on 1st April, 1981, is it open for the Assessing Officer to reopen the assessment?
7.1 In the case of Dhariya Construction Co. (supra), the opinion of DVO per se is not an information for the purpose of reopening of the assessment under section 147 of the Act. The Assessing Officer has to apply his mind as to the information; if any, collected and thereby form a belief thereon.
7.2 A similar view has been expressed by the Division Bench of this Court in case of Pr. CIT v. J. Upendra Construction (P) Ltd. (supra) (Gujarat) as well as in the case of Aavkar Infrastructure Co. (supra), in which, the Division Bench of this court has followed the decision of Supreme Court in the case of Dhariya Construction Co. (supra) and held that solely on the basis of DVO’s report and without there being any further inquiry by the Assessing Officer to form an opinion that income chargeable to tax has escaped assessment and/or without applying mind to the information in the form of DVO’s report, the Assessing Officer is not justified in reopening the assessment. From the material available on the record; except the report of DVO, there was no tangible material available with the Assessing Officer to form a believe that the income chargeable to tax has escaped the assessment.
7.3 Even otherwise, it appears from the DVO’s report that the Assessing Officer has erred in relying upon DVO’s report to form an opinion that the income chargeable to tax has escaped assessment. The DVO has mechanically and on the basis of rate in the case of other two properties situated in the same Town Planning Scheme has determined the fair market value of the land as on 1st April 1981 at Rs.65/- per sqm. However, from the report, it does not appear that the DVO has applied his mind with respect to the location etc., of the land in question. As observed hereinabove, there is no further application of mind by the Assessing Officer on the basis of the information received by him in the form of DVO’s report and has mechanically and solely relied upon the DVO’s report, formed an opinion that the income chargeable to tax has escaped. Thus, there was no tangible material available with the assessing officer to form an opinion that the income chargeable to tax has escaped assessment.”
12. Thus, as held by this Court, the assessment cannot be reopened exclusively on the basis of the DVO’s report of without the Assessing Officer having conducted further inquiry and forming an opinion that the income chargeable to tax has escaped assessment with respect to capital gains. The co- ordinate bench has also doubted the fixation of Fair Market Value of land by the DVO on the basis of rate of two properties without their being any application of mind on the location, etc of the land. As previously recorded by us, the DVO of the co- owner has only referred to sale instance of another village. In the present case, the reopening is exclusively premised on the DVO’s report of co-owner which was furnished to the Assessing Officer. The Assessing Officer is required to conduct an inquiry to find out the Fair Market Value as on date, on which, the land was acquired, and he cannot simply adopt the DVO’s report of co-owner even if the co-owner has accepted it. The petitioner has contested the determination of fare market value by the DVO, and the Assessing Officer cannot impose the DVO’s report of co-owner without making reference under Section 55A of the Act for estimation of fair market value of capital asset in case of the petitioner. After such report is obtained, he has to apply his mind and conduct an inquiry and form an opinion that income chargeable to tax has escaped assessment.
13. Hence, the writ petition succeeds. The impugned notice and order dated 27.08.2024 are hereby quashed and set aside.
