Manujendra Shah Vs CIT (Delhi High Court)
Delhi High Court held that reopening of assessment liable to be quashed as PCIT simply rubber-stamped the attempt of AO to reopen the assessment without inquiring about various basic issues involved in the matter like applicability of section 50C, cost of acquisition and claim of deduction u/s 54EC.
Facts- Vide the present writ petition, the petitioner has mainly contested the reassessment proceedings stating that the same is triggered without due application of mind by the Assessing Officer. Further, it is also contested that the authority granting approval has not applied its mind as to whether AO had sufficient material available with him to form a belief that income which was otherwise chargeable to tax had escaped assessment.
Based on the reasons recorded by AO, it emerges that the consideration received against sale of land by the petitioner against various parcels of land sold by the petitioner was less than the prescribed circle rate.
The record discloses that the petitioner had calculated his capital gains while filing ROI by taking the circle rate concerning the six parcels of land sold by him and then arrived at the cumulative value, which, as indicated above amounted to Rs. 20,26,60,280/-. The AO seems to have missed this crucial aspect and adverted to the fact that provisions of Section 50C of the Act would be applicable in the instant case.
It is alleged that AO has pegged the cost of acquisition at Rs. 21,05,552/- instead of Rs. 17,77,74,387/- and AO has missed adjusting the deduction claimed u/s 54EC.
Conclusion- Held that in the present case several issues arose, which the PCIT had to examine: (i) Whether Section 50C of the Income Tax Act, 1961 [in short, “Act”] is, at all, applicable in the present case? (ii) Whether the cost of acquisition arrived at by the AO, while calculating that capital gains, as disclosed by the petitioner, was correctly scaled down? We may also note that the AO, while putting a probative value with regard to the capital gains in the reasons recorded by him, somehow has also missed adjusting the deduction claimed by the petitioner under Section 54EC of the Act. As noted hereinabove, the petitioner had claimed deduction of Rs.1 crore in this regard.
Accordingly, held that there has been complete non-application of mind by the AO, both with regard to the provision which was applicable in the instant case and also insofar as his failure to secure the material that was available with the DCIT in arriving at the market value of the land as on 01.04.1981, which, as noticed above, forms the basis of the cost of acquisition.
The PCIT i.e., the authority granting approval for reopening the reassessment proceedings, did not do better. PCIT, in fact, rubber-stamped the attempt of the AO to reopen the assessment.
FULL TEXT OF THE JUDGMENT/ORDER OF DELHI HIGH COURT
1. This writ petition concerns Assessment Year (AY) 2011-12.
2. Notice in this petition was issued on 27.11.2018 by a coordinate bench of this court.
2.1 At the stage of issuance of notice in the writ petition, an interim direction was passed to the effect that the respondent/revenue would not pass a final reassessment order during the pendency of the writ petition.
3. Since then, pleadings in the writ action have been completed.
4. Rakesh Gupta, learned for the petitioner, says that the reassessment proceedings have been triggered without due application of mind by the Assessing Officer (AO).
5. It is Mr Gupta’s submission that even the authority granting approval has not applied its mind as to whether the AO had sufficient material available with him to form a belief that income which was otherwise chargeable to tax had escaped assessment.
6. The record shows that the petitioner had filed his Return of Income (ROI) for the aforementioned AY i.e., AY 2011-12 on 29.06.2012.
6.1 The ROI was processed under Section 143(1) of the Income Tax Act, 1961 [in short, “the Act”].
7. The petitioner was served a notice dated 24.01.2014 under Section 133(6) of the Act. To this notice, the petitioner filed his response on 05.02.2014.
8. Thereafter, the petitioner was issued a non-statutory letter dated 10.06.2018 by the Assistant Commissioner of Income Tax (ACIT) seeking details of lands sold. The petitioner was also directed to furnish the documents with regard to the sale.
8.1 This notice was replied to by the petitioner via communication dated 23.06.2014.
9. The afore-mentioned correspondence led to the ACIT serving the notice dated 29.03.2018 under Section 148 of the Act on the petitioner.
10. The petitioner filed a reply on 11.04.2018 to the notice issued under Section 148 of the Act.
11. Thereafter, correspondence was once again exchanged between the petitioner and the ACIT on 15.05.2018 when the ACIT issued a letter to the petitioner, to which response was filed on 25.05.2018.
12. Ultimately, the petitioner was furnished reasons for re-opening the assessment via letter dated 02.07.2018.
12.1 This led to the petitioner filing his objections. The objections which the petitioner filed are dated 17.07.2018.
12.1 The petitioner, inter alia, raised the ground that the ACIT had no material available with him which could have formed the basis for reopening the assessment.
13 The record shows that the objections were disposed of by the AO on 24.09.2018. It is the petitioner’s case that the order disposing of the objections was served upon him on 03.10.2018.
14. The petitioner appears to have filed a supplementary objection, which is dated 12.10.2018. These objections were, however, filed with the ACIT, on 15.10.2018.
15. The petitioner was issued two (2) separate notices of even date i.e., 15.10.2018, under Section 143(2) and 142(1) of the Act.
16. It is at this stage that the petitioner decided to move to Court by way of the present writ action.
17. The main pivot of Dr. Gupta’s submission is the reasons recorded by the AO. Therefore, for easy reference, the reasons recorded by the AO, as furnished to the petitioner, are extracted hereafter:
“Reasons for initiating the proceedings u/s 147 of the I.T. Act, 1961 in case of Sh. Manujendra Singh for A.Y. 2011-12.”
1. This is the case of an individual having income from house property, capital gains and other sources for the captioned year. For the year under consideration the assessee had filed his return of income on 29.06.2022 declaring taxable income of Rs. 2,70,21,140/-. Subsequently, the return was processed u/s 143(1) of the Act on 29.04.2013 at returned income. As per the records available with this office, no scrutiny assessment has been found to be completed in this case for A.Y. 2011-12.
2. Initially, in the instant case, an information has been received from the ITO, Ward-5(3), New Delhi vide letter no. ITO/Ward-5(3)/File No. 17/2013-14/675 dated 20.02.2014 wherein it was stated that above noted assessee had sold the immovable property to M/s Krit Yug infrabuild Pvt. Ltd at consideration of Rs. 92,00,00/- whereas the market value as per the sale deed was Rs. 3,42,89,000/-. The AO has suggested that the necessary action as per the provision of Sec. 50C of the Act may be taken in hands of the assessee.
On making enquiry by the ACIT, Cir. 31(1), New Delhi [pre-restructuring] for A.Y. 2011-12, the assessee had submitted that following explanation with respect to the above stated transaction:
“….the circle rate is higher than market rate because the land is uneven as this is a hilly land so very small portion of the land is usable….”.
Further, the assessee has enclosed a list containing details of lands sold during the financial year 2010-11, which is hereunder:
