Amarjeet Thapar v. Income Tax Ofïcer,Ward 24(1)(1) & Ors

IN THE HIGH COURT OF JUDICATURE AT BOMBAYO.O.C.J. WRIT PETITION NO. 3548 OF 2018 Amarjeet Thapar..Petitioner Versus Income Tax OfÏcer,Ward 24(1)(1) & Ors...Respondents ................... Mr. Mihir Naniwadekar a/w Mr. Rohan Deshpande i/by Alisha Pintofor the Petitioner Mr. Mihir Naniwadekar a/w Mr. Rohan Deshpande i/by Alisha Pintofor the Petitioner Mr. Sham Walve for the RespondentsMr. Sham Walve for the Respondents ................... CORAM : AKIL KURESHI & M.S. SANKLECHA, JJ. DATE : DECEMBER 14, 2018. ORAL JUDGMENT(Per Akil Kureshi, J.):- 1.We have heard learned counsel for the parties for finaldisposal of the petition by consent. 2.Petitioner has challenged a notice of reopening ofassessment dated 28.3.2018. The petition arises in followingbackgrounds:- The petitioner is an individual. For the assessment year2013-14, the petitioner had filed return of income declaringtotal income of Rs. 65,51,360/-. The return was accepted bythe assessing ofÏcer under Section 143(1) of the Income Tax Act, 1961 (“the Act” for short). In order to reopen theassessment, impugned notice came to be issued. Theassessing ofÏcer had recorded reasons for reopening of assessment. The reasons read as under:- The assessee has filed the return of income for A.Y. 2013-2014 on27.07.2013, declaring total income at Rs. 65,51,362/-. The return wasprocessed u/S. 143(1) of the Act and returned income was accepted. 2.On verification of the ITR for A.Y. 2013-14 it is seen that theassessee has worked out LTGC on sale of Flat as under: Sr. No.Particulars1Date of sale27.12.20122Sale ConsiderationRs. 6,42,05,5003Date of purchase / acquisition30.10.19924Cost of acquisition62,63,2275Cost inflation index for F.Y. 2012-138526Year of acquisition19927Cost inflation index for year of acquisition2238Indexed cost of acquisition2,39,29,4599Indexed cost of purchase36,27,4599Capital gain3,66,48,582 Thus, the assessee has shown the year of acquisition as 1992 andbased on this worked out the indexed cost of acquisition at Rs.2,39,29,459/-. 3. During the assessment proceedings for A.Y. 2014-15, theassessee was requested to provide the sources of investments madeduring the year. The assessee had submitted that she had in theprevious year sold one property and through its proceeds madeinvestment during the year. The assessee had given the details of purchase of the said property and submitted the following:- 3. Copy of purchase agreement dated 30.10.1992 forpurchase of house No. D 1 at Mandar Co-operative HousingSociety Ltd., Juhu Mumbai for Rs. 64,00,000/- by Ms.Amarjeet Thapar (Transferee) from Ms. Clare M. Fernandes(Transferor) a. The said house property was acquired by AppropriateAuthority (AA) constituted under the provisions of Chapter XX-C of the Income Tax Act, 1961 in the year 1993. b.The assessee filed writ petition No.289 of 1993 in theHigh Court of Bombay for challenging the said acquisition byAA. c. By order dated 04.06.2017 issued by Division Bench ofthe Bombay High Court the said property was allowed and thesaid acquisition by the AA was set aside and assessee wasdirected to pay a sum of Rs. 56,13,227/- to AA being theamount of AA had paid to transferor on the said acquisition(copy of High Court order dated 04.06.2007 is enclosed). d. The assessee deposited the said sum of Rs.56,13,227/- with the Prothonotary and Senior Master of theBombay High Court as per the order dated 29.06.2007 issuedby Justice S. Radhakrishnan of the Bombay High Court (copyof said order is enclosed) e. Against the order dated 04.06.2007 of the DivisionBench, the ITD preferred a SLP to Supreme Court bearing CCNo. 8872/2008. By an order dated 14.07.2008 issued byJustice S.H. Kapadia and Justice B. Sudershan Reddy ofHon'ble Supreme Court of India, the SLP filed by ITD was dismissed. (copy of the said order is enclosed). d. The assessee deposited the said sum of Rs.56,13,227/- with the Prothonotary and Senior Master of theBombay High Court as per the order dated 29.06.2007 issuedby Justice S. Radhakrishnan of the Bombay High Court (copyof said order is enclosed) e. Against the order dated 04.06.2007 of the DivisionBench, the ITD preferred a SLP to Supreme Court bearing CCNo. 8872/2008. By an order dated 14.07.2008 issued byJustice S.H. Kapadia and Justice B. Sudershan Reddy ofHon'ble Supreme Court of India, the SLP filed by ITD was dismissed. (copy of the said order is enclosed). f.Hence the cost of house property is Rs. 62,63,227/-(Rs. 6,50,500/- advance given as per purchase agreementdated 30.10.1992 + Rs. 56,13,227/- consideration as per orderdated 04.06.2007 of the Bombay High Court. g.The Income Tax Department handed over possessionon 16.11.2009 which was taken by the AA in 1993. h. In order to get the clear title of the property, theassessee registered the deed of transfer dated 26.04.2011and paid the stamp duty of Rs. 30,60,700/- and registrationfees of Rs. 31,500/-. 4.From the above submission, it is seen that the assessee hadreceived possession of the Flat on 16.11.2009 i.e in F.Y. 2009-10 andpaid the consideration of Rs. 56,13,227/- in pursuance to the order ofthe Hon'ble Bombay High Court dated 04.06.2007 in F.Y. 2007-08.The order of the Hon'ble Bombay High Court dated 29.06.2007 inWP No. 289 of 1993 in para No. 2 reads as under:- Paragraph No. 34 of our order dated 4[th] June 2007 standsdeleted and substituted by the following paragraph:- 34. The Income Tax Department shall hand over thepossession of the premises and also execute necessary deedof sale and convey the property and register the sameimmediately on receipt of the said sum of Rs. 56,13227/-. 5. From the plain reading of the above para, it is clear that as perthe order of the Hon'ble High Court, the assessee became the owner-of the property in F.Y. 200708.However, for the purpose ofcomputing the indexed cost of acquisition the assessee has takenF.Y. 1992-93 as year of acquisition, which is erroneous as the property was transferred to the assessee in 2007-08. Therefore, theassessee has wrongly computed the indexed cost of acquisition andthereby wrongly computed the capital gains. As per the order of theHon'ble Bombay High Court the assessee became the owner of theproperty only in F.Y. 2007-08. Therefore, the indexed cost ofacquisition has to be computed after taking the year of acquisition asF.Y. 2007-08. 6.In view of the above the LTCG ought to be worked out asunder: 8.In view of the above facts, I have reason to believe that incomechargeable to tax of Rs. 1,52,49,842/- has escaped assessment within themeaning of Section 147 of the I.T. Act, 1961 in the case of assessee forA.Y. 2013-14. Hence, it is a fit case for initiation of proceedings u/S. 147 ofthe Income Tax Act, 1961 by issuing notice u/S. 148 of the Income Tax Act,1961 3.The petitioner filed objections to the notice ofreopening on 20.9.2018 and 3.10.2018. The said objectionswere, however, rejected by the assessing ofÏcer by an orderdated 10.11.2018. Thereupon, the present petition has beenfiled. 4.Learned counsel for the petitioner submitted that thereasons recorded by the assessing ofÏcer lack validity. Theassessing ofÏcer has also proceeded on incorrect factualpremises. He further submitted that the assessing ofÏcerhas not taken into account settled legal position in relation tothe question of computation of capital gain arising out of saleof immovable property by the assessee. 5.On the other hand, Mr. Walve, the learned counsel forthe department, opposed the petition contending that theoriginal return was accepted without scrutiny. The assessingofÏcer, therefore, after recording proper reasons had issuedthe notice of reopening of assessment. There is no illegalityin the impugned notice. The petition may, therefore, bedismissed. 4.Learned counsel for the petitioner submitted that thereasons recorded by the assessing ofÏcer lack validity. Theassessing ofÏcer has also proceeded on incorrect factualpremises. He further submitted that the assessing ofÏcerhas not taken into account settled legal position in relation tothe question of computation of capital gain arising out of saleof immovable property by the assessee. 5.On the other hand, Mr. Walve, the learned counsel forthe department, opposed the petition contending that theoriginal return was accepted without scrutiny. The assessingofÏcer, therefore, after recording proper reasons had issuedthe notice of reopening of assessment. There is no illegalityin the impugned notice. The petition may, therefore, bedismissed. 6.Having heard the learned counsel for the parties andhaving perused the documents on record, we are consciousthat the return filed by the assessee having been acceptedwithout scrutiny, the assessing ofÏcer would enjoy a greaterlatitude in reopening of the assessment as is held by theSupreme Court in the case of ACIT vs. Rajesh JhaveriStock Brokers Pvt. Ltd., 291ITR500(SC). Nevertheless,it is well settled that even in such a case, the requirementthat the assessing ofÏcer must have reason to believe thatincome chargeable to tax has escaped assessment, must besatisfied. In other words, within the narrow confine, it isalways open for the Court to verify whether in fact, thereasons recorded demonstrate prima facie materialsuggesting the escapement of income chargeable to tax. 7.In this background, we have examined the facts onrecord and the reasons recorded by the assessing ofÏcer. Theentire controversy revolves around the computation ofcapital gain arising out of a sale of residential property of theassessee. The admitted facts are that the previous owner one Mrs. Clare Fernandes had executed an agreement to salethe said property in favour of the petitioner on 30.10.1992for agreed sale consideration of Rs. 64,00,000/-. At the timeof execution of this agreement, the petitioner had paid sumof Rs. 6,50,000/- towards earnest money. The balanceamount of Rs. 57,50,000/- would be paid upon issuance of noobjection certificate by the appropriate authority as referredto in Chapter XX-C of the Income Tax Act, 1961. Theappropriate authority by an order dated 15.1.1993 refused togrant such NOC and ordered deemed purchase of the sameby the Central Government. The petitioner challenged suchorder before the High Court by filing Writ Petition No. 289 of1993. Interim orders were passed in favour of the petitioner. Eventually, this petition came to be disposed of by ajudgment dated 4.6.2007. Operative portion of the judgmentreads as under:- “33.In the circumstances, the impugned order passed by theAppropriate Authority is liable to be quashed and set aside holding itto be in breach of principles of natural justice and bad in law. Theview taken by the Appropriate Authority is palpably erroneous andcannot stand to the scrutiny of law.Appropriate Authority is liable to be quashed and set aside holding itto be in breach of principles of natural justice and bad in law. Theview taken by the Appropriate Authority is palpably erroneous andcannot stand to the scrutiny of law. 34. The Income Tax Department shall hand over the possessionof the premises and also execute necessary Deed of Sale andconvey the property and register the same immediately, on receipt of the said sum of Rs. 56,13,227/-. The petitioners are permitted todeposit the same within a period of four weeks from today. In theevent, the Income Tax Department does not accept the said amount,the petitioners are permitted to deposit the same with theProthonotary and Senior Master of this Court.” 34. The Income Tax Department shall hand over the possessionof the premises and also execute necessary Deed of Sale andconvey the property and register the same immediately, on receipt of the said sum of Rs. 56,13,227/-. The petitioners are permitted todeposit the same within a period of four weeks from today. In theevent, the Income Tax Department does not accept the said amount,the petitioners are permitted to deposit the same with theProthonotary and Senior Master of this Court.” In the judgment dated 4.6.2007, thus, the High Courthad declared the impugned order of the AppropriateAuthority as invalid and ab initio void. Pursuant to thejudgment of the High Court, the sale deed was executed infavour of the petitioner upon the petition depositingremaining sale consideration with the department. 8.The said property was sold by the petitioner on27.12.2012 for a sale consideration of Rs. 6.42 crores. In thereturn filed for the A.Y. 2012-13, therefore, the petitioneroffered capital gain arising out of the sale of this property bytreating the date of acquisition as 30.10.1992 i.e the date ofagreement to sale and accordingly worked out the indexedcost of acquisition. According to the department, as per thereasons recorded, the assessee had wrongly taken the dateof acquisition of the property as 30.10.1992 instead ofcorrect date of 4.6.2007 i.e the date of judgment of the HighCourt. This is the only controversy raised by the assessing ofÏcer in the reasons recorded. 9.In this context, learned counsel for the petitionersubmitted that the agreement to sale did not culminate intoa final sale only because the competent authority underChapter XX-C of the Act refused to grant NOC and insteadordered compulsory acquisition of the property by theCentral Government. This order was declared as ab initiovoid by the Bombay High Court. In that view of the matter,the transfer of the property in question would relate back tothe original date of agreement to sale since, but for theillegal intervention by the Income Tax Authorities, the salewould have taken place as envisaged in the agreement tosale. He submitted that at no stage, the original owner, theproposed seller of the property had raised any dispute aboutthe agreement to sale or the terms thereof. In this context,he has placed heavy reliance on the judgment of theSupreme Court in the case of Sanjeev Lal & Ors. Vs. CITreported in (2015) 5 SCC 775. 10. Mr. Walve, the learned counsel for the department, hadargued that such an issue can always be examined by theassessing ofÏcer during the assessment proceedings andfurther in the present case, the working out of the indexedcost of acquisition would create a problem if the petitioner'scontentions were to be accepted. 11. If the issue is legally concluded, there would be nopoint in allowing the assessing ofÏcer to resort to full fledgedreassessment since the reopening of assessment wouldsuffer from the fundamental defect of the assessing ofÏcer inhaving the material to form a reasonable belief that incomechargeable to tax had escaped assessment. In this context,we would examine the petitioner's contention of the transferof the capital asset in her favour on 30.10.1992. Before wedo that, we may dispose of Mr. Walve's second objection ofdifÏculty in computing the indexed cost of acquisition. Apartfrom such an issue having answer in law, no such objectionwas raised by the assessing ofÏcer in the reasons recorded.In absence of any such reference in the reasons recorded, wecannot allow the assessing ofÏcer to improve upon the reasons in order to support the notice of reassessment. Somuch is all to well settled through series of judgments ofvarious High Courts. A reference in this respect can be madeto the decision of this Court in the case of Hindustan LeverLtd Vs. ACIT reported in 268 ITR 332. reasons in order to support the notice of reassessment. Somuch is all to well settled through series of judgments ofvarious High Courts. A reference in this respect can be madeto the decision of this Court in the case of Hindustan LeverLtd Vs. ACIT reported in 268 ITR 332. 12. We may now take note of the decision of the SupremeCourt in the case of Sanjeev Lal (supra) minutely. It was acase in which the appellant-assessee had inherited aresidential house under a Will which was a self acquiredproperty of his grandfather. The property was bequeathed tothe appellant under a will by his grandfather. He enteredinto an agreement to sell the property on 27.12.2012 andreceived sizable earnest money at that time. Before the saledeed could be executed, one of the relatives challenged thewill before the Civil Court. The Civil Court granted injunctionagainst the execution of sale. This litigation eventuallyresulted in favour of the appellant as the plaintiff died and nosubstitution was carried out. After the injunction wasvacated, the sale deed was executed on 24.9.2004. In themeantime, the appellant had purchased a residential house on 30.4.2003 and claimed exemption from capital gain taxon the amount invested by him in purchase of new asset.The department objected contending that the acquisition ofthe new asset was before the sale of the capital asset by theassessee. In this context, the issue reached the SupremeCourt at the hands of the assessee. The Supreme Courtreferred to the provisions of Section 54 of the Act and Section2(47) which defines a term transfer in relation to capitalassets and observed as under: “22. In the light of the aforestated definition, let us look at the factsof the present case where an agreement to sell in respect of a capitalasset had been executed on 27.12.2002 for transferring theresidential house/original asset in question and a sum of Rs. 15 lakhshad been received by way of earnest money. It is also not in disputethat the sale deed could not be executed because of pendency of thelitigation between Shri Ranjeet Lal on one hand and the appellantson the other as Shri Ranjeet Lal had challenged the validity of the willunder which the property had devolved upon the appellants. By virtueof an order passed in the suit filed by Shri Ranjeet Lal, the appellantswere restrained from dealing with the said residential house and alaw-abiding citizen cannot be expected to violate the direction of acourt by executing a sale deed in favour of a third party while beingrestrained from doing so. In the circumstances, for a justifiablereason, which was not within the control of the appellants, they couldnot execute the sale deed and the sale deed had been registeredonly on 24-9-2004, after the suit filed by Shri Ranjeet Lal, challengingthe validity of the Will, had been dismissed. In the light of theaforestated facts and in view of the definition of the term “transfer”, one can come to a conclusion that some right in respect of the capitalasset in question had been transferred in favour of the vendee andtherefore, some right which the appellants had, in respect of thecapital asset in question, had been extinguished because afterexecution of the agreement to sell it was not open to the appellants tosell the property to someone else in accordance with law. A right inpersonam had been created in favour of the vendee, in whose favourthe agreement to sell had been executed and who had also paidRs.15 lakhs by way of earnest money. No doubt, such contractualright can be surrendered or neutralized by the parties throughsubsequent contract or conduct leading to no transfer of the propertyto the proposed vendee but that is not the case at hand. one can come to a conclusion that some right in respect of the capitalasset in question had been transferred in favour of the vendee andtherefore, some right which the appellants had, in respect of thecapital asset in question, had been extinguished because afterexecution of the agreement to sell it was not open to the appellants tosell the property to someone else in accordance with law. A right inpersonam had been created in favour of the vendee, in whose favourthe agreement to sell had been executed and who had also paidRs.15 lakhs by way of earnest money. No doubt, such contractualright can be surrendered or neutralized by the parties throughsubsequent contract or conduct leading to no transfer of the propertyto the proposed vendee but that is not the case at hand. 23.In addition to the fact that the term “transfer” has been definedunder Section 2(47) of the Act, even if looked at the provisions ofSection 54 of the Act which gives relief to a person who hastransferred his one residential house and is purchasing anotherresidential house either before one year of the transfer or even twoyears after the transfer, the intention of the Legislature is to give himrelief in the matter of payment of tax on the long term capital gain. Ifa person, who gets some excess amount upon transfer of his oldresidential premises and thereafter purchases or constructs a newpremises within the time stipulated under Section 54 of the Act, theLegislature does not want him to be burdened with tax on the longterm capital gain and therefore, relief has been given to him inrespect of paying income tax on the long term capital gain. Theintention of the Legislature or the purpose with which the saidprovision has been incorporated in the Act, is also very clear that theassessee should be given some relief. 24.Though it has been very often said that common sense is astranger and an incompatible partner to the Income Tax Act and it isalso said that equity and tax are strangers to each other, still thisCourt has often observed that purposive interpretation should begiven to the provisions of the Act. In the case of Oxford University Press v. Commissioner of Income Tax [(2001) 3 SCC 359] this Courthas observed that a purposive interpretation of the provisions of theAct should be given while considering a claim for exemption from tax.It has also been said that harmonious construction of the provisionswhich subserve the object and purpose should also be made whileconstruing any of the provisions of the Act and more particularlywhen one is concerned with exemption from payment of tax.Considering the aforestated observations and the principles withregard to the interpretation of Statute pertaining to the tax laws, onecan very well interpret the provisions of Section 54 read with Section2(47) of the Act, i.e. definition of “transfer”, which would enable theappellants to get the benefit under Section 54 of the Act. 25.Consequences of execution of the agreement to sell are alsovery clear and they are to the effect that the appellants could nothave sold the property to someone else. In practical life, there areevents when a person, even after executing an agreement to sell animmovable property in favour of one person, tries to sell the propertyto another. In our opinion, such an act would not be in accordancewith law because once an agreement to sell is executed in favour ofone person, the said person gets a right to get the propertytransferred in his favour by filing a suit for specific performance andtherefore, without hesitation we can say that some right, in respect ofthe said property, belonging to the appellants had been extinguishedand some right had been created in favour of the vendee/transferee,when the agreement to sell had been executed. 26. Thus, a right in respect of the capital asset, viz. the propertyin question had been transferred by the appellants in favour of thevendee/transferee on 27-12-2002. The sale deed could not beexecuted for the reason that the appellants had been prevented fromdealing with the residential house by an order of a competent court,which they could not have violated. 27.In view of the aforestated peculiar facts of the case and looking at the definition of the term ‘transfer” as defined underSection 2(47) of the Act, we are of the view that the appellants wereentitled to relief under Section 54 of the Act in respect of the longterm capital gain which they had earned in pursuance of transfer oftheir residential property being House No. 267, Sector 9-C, situatedin Chandigarh and used for purchase of a new asset/residentialhouse. 13.Though not identical, the facts in the present case aresomewhat similar. As noted, the assessee had entered intoan agreement for purchase of the property in the year 1992.The sale deed could not be executed only because theappropriate authority refused to grant no objection certificateand instead, ordered compulsory acquisition thereof. Thisorder was declared as illegal and ab initio void by the HighCourt. The sale deed was ordered to be executed in favourof the petitioner. There is no reason for us not to accept thepetitioner's contention that the execution of the sale deed byvirtue of the judgment of the High Court would relate back tothe original agreement to sale. The petitioner was, thus,entitled to claim the benefit of cost indexation from the saiddate. The entire basis of the department in the reasonsrecored in order to dispute the petitioner's computation ofthe capital gain, therefore, is rendered invalid. In the result, the impugned notice is set aside. In peculiar facts of thiscase, therefore, we have adopted the logic as was done bythe Supreme Court in case of Sanjeev Lal (supra). Thepetition allowed and disposed of. [ M.S. SANKLECHA, J. ] [ AKIL KURESHI, J ]