Chhaganlal Mulji Dholu v. Joint Commissioner Of Income Tax, Jcit (Osd) Circle ==========================================================Appearance

IN THE HIGH COURT OF GUJARAT AT AHMEDABAD R/SPECIAL CIVIL APPLICATION NO. 3406 of 2022 FOR APPROVAL AND SIGNATURE: HONOURABLE MR. JUSTICE N.V.ANJARIA andHONOURABLE MR. JUSTICE BHARGAV D. KARIA ========================================================== 1Whether Reporters of Local Papers may beallowed to see the judgment ?allowed to see the judgment ? 2To be referred to the Reporter or not ? 3Whether their Lordships wish to see thefair copy of the judgment ? 4Whether this case involves a substantialquestion of law as to the interpretationof the Constitution of India or any ordermade thereunder ? ========================================================== CHHAGANLAL MULJI DHOLU Versus JOINT COMMISSIONER OF INCOME TAX, JCIT (OSD) CIRCLE ==========================================================Appearance: MR SN DIVATIA(1378) for the Petitioner(s) No. 1MRS KALPANAK RAVAL(1046) for the Respondent(s) No. 1 ========================================================== CORAM:HONOURABLE MR. JUSTICE N.V.ANJARIAand HONOURABLE MR. JUSTICE BHARGAV D. KARIA Date : 25/11/2022 CAV JUDGMENT (PER : HONOURABLE MR. JUSTICE N.V.ANJARIA) Heard learned advocate Mr. S.N. Divetia for thepetitioner and learned advocate Mr. Nikunt Raval forthe respondents at length. 2.Filed under Article 226 of the Constitution, inthis Special Civil Application, the challenge isdirected against notice dated 31.03.2021 issued bythe respondent assessing officer to the petitionerunder Section 148 of the Income Tax Act, seeking toreopen the assessment in relation to assessment year2015-16. 2.1 The assessing officer stated that he hadreasons to believe that the income in the hands ofthe petitioner assessee, for the year underconsideration, had escaped assessment within themeaning of section 147 of the Income Tax Act, 1961(hereinafter referred to as the "Act"). 2.2 Also prayed is to set aside the order dated08.12.2021 whereby the respondent rejected theobjections of the petitioner against reopening of theassessment. 3.Stating the attendant facts, the petitioner isan individual who is stated to be deriving incomefrom the property and other sources. He filed hisreturn of income for the assessment year 2015-16 on31.12.2015 declaring the total income of Rs.23,71,220/-. The return was processed under section143(1) of the Act. 3.1Notice under Section 148 of the Act came to beissued to the petitioner on 31.03.2021 whereby theassessing officer proposed to reassess the income.In response to the said notice, the petitioner filedreturn of income on 27.05.2021 declaring total incomeas above. The reasons for reopening the assessmentwere furnished to the petitioner on 14.07.2021. Thepetitioner filed his objections on 15.06.2021, whichwere uploaded on 30.09.2021.On 08.12.2021, thepetitioner received notice under section 142(1) ofthe Act wherein the rejection of the objections cameto be incorporated. 3.2 The completed assessment was sought to reopenedby the respondent on the ground that the petitionerhad entered into a development agreement with landowners of one Gokulesh Infra. In the saidtransaction, the petitioner was paid Rs.43,54,876/-in cash and Rs.44,16,000/- by cheque. 3.3It was stated that the cash component wasunreported in tax return for the assessment year2015-16. The development agreement, without transferof ownership rights, stated the petitioner, wasexecuted in the financial year 2014-15 and partpayment was received by the petitioner, however, fulland final payment against was received in thesubsequent year, that is, financial year 2015-16. 3.2 The completed assessment was sought to reopenedby the respondent on the ground that the petitionerhad entered into a development agreement with landowners of one Gokulesh Infra. In the saidtransaction, the petitioner was paid Rs.43,54,876/-in cash and Rs.44,16,000/- by cheque. 3.3It was stated that the cash component wasunreported in tax return for the assessment year2015-16. The development agreement, without transferof ownership rights, stated the petitioner, wasexecuted in the financial year 2014-15 and partpayment was received by the petitioner, however, fulland final payment against was received in thesubsequent year, that is, financial year 2015-16. 3.4 The petitioner filed return of income for nextassessment year 2016-17 on 30.11.2016 declaring totalincome of Rs. 2,79,00,570/- including long timecapital gain arising out of the said landtransaction. The scrutiny assessment was completedunder section 143(3) on 10.12.2018. 3.5Now the reasons for reopening the case of thepetitioner on 14.07.2021 may be extracted in itsrelevant part, "2.Briefdetailsofinformationcollected/received by the AO: The undersigned is in receipt of informationfrom Jt. CIT(OSD), Central Circle-2, Baroda.The information pertains to a searchassessment proceedings which was carried outon Akshar Group cases, Shri Mehul Patel andShri Rakesh Patel which revealed that manyseized documents pertain to Shri ChhaganlalMurji Dholu, who as per documents seized isamong six land owners who have paid cash on-money to the firm GOKULESH INFRA. There isa development agreement between the landowners and Gokulesh Infra firm. 3.Analysisoftheinformationcollected/received: The information contains evidence of thepurchase/sale of the property at RevenueSurvey No. 28, 29, 31, 32, Gokulesh CityProject, Dabhoi Road, Baroda in the form ofSale Deed. As there is a developmentagreement between Sh. Chaganlal Murji Dholu(one of the land owners) and Gokulesh Infra,Sh. Chaganlal Murji Dholu has receivedunaccounted cahs amounting to Rs.43,54,876/- and received cheque payments on multipleoccasions totaling Rs.44,16,000/-. It ismentionable that the assessee has been paida total of Rs. 87,70,876/- from GokuleshInfra for his land equaling 9.58% of thetotal land meant for the project as per theanalysis of the information received. Thecase component of the property transactionis unreported and needs to be brought totax. 3.5.1 The Assessing Officer recorded, "it is evident that the assessee has soldimmovable property and received a total cashcomponent of Rs.87,70,876/- by the GokuleshInfra, the same is liable to be brought totax. ... On perusal of return filed by theassessee, it is seen that the assessee hasnot disclosed the same in his return.Therefore, it is aptly clear that theassessee has not disclosed the entiretransaction in his Return of income filedfor the A.Y. 2015-16 and has also notoffered the same for taxation." 3.5.2 It was further stated that in view of theabove facts, the assessing officer had reasons tobelieve that Rs. 87,70,876/- was the escapement ofincome within the meaning of Section 147 of the Actand that there was failure on the part of theassessee to disclose all material facts fully andtruly, which made the case fit to issue notice undersection 148 of the Act. 3.6In the objections filed by the petitioner, itwas submitted that no capital gain had escaped tax,and that the information that Rs. 43,54,876/- was received in cash was erroneous and no cash hadchanged hands in the transaction in question. Theassessee stated that the transaction was not that ofsale, but it was in the nature of developmentagreement. It was submitted that the date oftransaction would determine the liability of tax onthe gains. 3.6In the objections filed by the petitioner, itwas submitted that no capital gain had escaped tax,and that the information that Rs. 43,54,876/- was received in cash was erroneous and no cash hadchanged hands in the transaction in question. Theassessee stated that the transaction was not that ofsale, but it was in the nature of developmentagreement. It was submitted that the date oftransaction would determine the liability of tax onthe gains. 3.6.1It was next submitted that when thetransaction was in the nature of developmentagreement, in such situation, the gain was notrequired to be offered to tax in the assessment year2015-16 and that the gain arising out of thetransaction was offered as tax as capital gain inthe assessment year 2016-17. Since the transactionwas of development agreement, the property would passon a future date upon fulfillment of all obligationsagreed upon between the parties, it was sought to bepointed out. It was then contended that for thepurpose of classification of stamp duty also, theagreement was classified as development agreement. 3.6.2Thus the crux of the objections of theassessee to the proposed reopening was that firstlythe transaction was not of the sale, but was anagreement for development. Secondly, the transferdid not take place in the previous year correspondingto the assessment year 2015-16, but the transfer tookplace during previous year 2015-16, that is, relevantto assessment year 2016-17. Thirdly, it was the case that the gain arising out of the transaction wasoffered to tax for the assessment year 2016-17 andthat no tax had thus escaped assessment. 4.Learned advocate for the petitioner assailingnotice under section 148 of the Act as well as thereasons recorded for the purpose, submitted thatassertion by the respondent that the petitioner paidcash on money to firm Gokulesh Infra was factuallyincorrect inasmuch as no such money was paid. Thepetitioner was one of the co-owners who had enteredinto development agreement with the said firm, it wassubmitted. 4.1 Referring to paragraph 3 of the reasonsrecorded in which the respondent had asserted thatthere was evidence in form of sale deed, it wassubmitted that no such sale deed was executed, butthere was a development agreement. It was thensubmitted that the figures in para 3 of the reasonsrecorded were at discrepancy and there was apparentcontradiction in the quantum of escaping income. Itwas submitted that similarly, the amounts were notcorrectly mentioned regarding total cash component inpara 5 of the reasons recorded. 4.1.1 Learned advocate for the petitioner insupport of his submission relied on the decision ofthis Court in Varshaben S. Patel vs. ITO [281 ITR 75)(Guj)] to submit that no material was produced on the basis of which it could be concluded that theproperty transaction was unreported and was notbrought to tax, which may justify the invocation ofsection 147 of the Act. Next relied on was thedecision of the Bombay High Court in Gateway LeasingP. Ltd. Vs. Assistant Commissioner of Income Tax[(2020 117 Taxmann.com 442 (Bom)] to submit that therespondent officer could not have acted on theborrowed belief of the other investigation wingswithout verifying the facts on record.The decision of the Delhi High Court in Pr. CIT v.Meenakshi Overseas (P) Ltd[(2017) 395 ITR 677 (Delhi]was pressed into service to submit that crucial linkbetween the information made available to theassessing officer and the formation of objectivebelief was missing in the case. basis of which it could be concluded that theproperty transaction was unreported and was notbrought to tax, which may justify the invocation ofsection 147 of the Act. Next relied on was thedecision of the Bombay High Court in Gateway LeasingP. Ltd. Vs. Assistant Commissioner of Income Tax[(2020 117 Taxmann.com 442 (Bom)] to submit that therespondent officer could not have acted on theborrowed belief of the other investigation wingswithout verifying the facts on record.The decision of the Delhi High Court in Pr. CIT v.Meenakshi Overseas (P) Ltd[(2017) 395 ITR 677 (Delhi]was pressed into service to submit that crucial linkbetween the information made available to theassessing officer and the formation of objectivebelief was missing in the case. 4.2 On the other hand, learned advocate for therespondent relied on the contents of and contentionscanvassed in the affidavit-in-reply. Re-assertingthe facts involved, it was stated that the petitionershowed the total long term capital gain amounting toRs. 2,44,96,623/- including long term capital gain ofRs.78,07,307/- arising from the sale transaction withGokulesh Infra while filing return of income for theassessment year 2016-17. Subsequently, the scrutinyunder Section 143(3) of the Act was completed andthat the ledger of the payments received fromGokulesh Infra in the books of the petitioner, anamount of Rs.43,57,876/- was found to have been received but not reported in the ledger of GokuleshInfra, submitted the petitioner. It was submittedthat there was tangible information available withthe assessment officer, showing escapement of income.It was submitted that the original income wasprocessed under section 143(1) of the Act only. Itwas submitted that the cash income discovered had notbeen reflected in the original return filed. 4.2.1Learned advocate for the respondentsubmitted that although same transaction was of theassessment year 2016-17, receipt of cash, as per theinformation available was relatable to assessmentyear 2015-16, therefore, reopening was acted uponfor the said year and the cash receipt was shown asper the information available. Learned advocate forthe respondent submitted that there was sufficientprima facie material available with the AssessingOfficer to exercise the powers for re-assessment. 4.2.2Learned advocate for the respondent furtherinferred his submissions by placing reliance intodecision of this court in Heval Navinbhai Patel v.Income Tax Officer, Ward 3(2)(2) [(2021) 126taxmnn.com 82 (Guj)], in which case the individualassessee had sold land for consideration of Rs.5.38crores and had not filed return of income during theyear, a search under section 132 was conducted uponthe particular group to which the assessee had soldthe land. During search, documents were seized, which revealed that the assessee had actuallyreceived Rs. 9.07 crores though the sale deedmentioned the sale consideration of Rs. 5.38 crores.The reopening notice by the assessing officer on thebasis of such facts was held to be justified. 4.2.3 Another decision also of this Court inKiran Ravjibhai Vasani vs. Assistant Commissioner ofIncome Tax[(2018) 94 taxmann.com 354 (Guj)] was alsorelied on, wherein the facts were similar. Theassessee had purchased lands for which a part ofconsideration was in cash, which was not disclosed inbooks of account, the assessee failed to rebutevidence such as cash vouchers, summary of sale deed,etc. and in such facts and circumstances, the Courtheld that the case for reopening for the assessmentwas clearly made out. which revealed that the assessee had actuallyreceived Rs. 9.07 crores though the sale deedmentioned the sale consideration of Rs. 5.38 crores.The reopening notice by the assessing officer on thebasis of such facts was held to be justified. 4.2.3 Another decision also of this Court inKiran Ravjibhai Vasani vs. Assistant Commissioner ofIncome Tax[(2018) 94 taxmann.com 354 (Guj)] was alsorelied on, wherein the facts were similar. Theassessee had purchased lands for which a part ofconsideration was in cash, which was not disclosed inbooks of account, the assessee failed to rebutevidence such as cash vouchers, summary of sale deed,etc. and in such facts and circumstances, the Courtheld that the case for reopening for the assessmentwas clearly made out. 4.2.4 Yet another decision of the Delhi HighCourt in Jatinder Pal Singh v. Deputy Commissioner ofIncome Tax, Central Circle-9 [(2021) 128 Taxmann. 414(Delhi) was referred to in which the assessingofficer was held to be justified in making additionunder Section 69A in respect to cash which wasreceived by the assessee, which as per his case, wasadvanced for sale of agricultural land from the buyerthrough the broker. The said aspect was revealed incourse of search of the premises of the assessee. 5.Having considered the facts involved and thecontentions canvassed, it has to be observed that inresponse to the notice dated 06.08.2018, issued bythe assessing officer under section 142(1) of the Actfor Assessment Year 2016-17, the petitioner assesseesubmitted its response dated 09.08.2018, copy ofwhich was produced by the learned advocate for thepetitioner in the course of hearing, which was takenon record. Therein, it was pointed out to thecompetent authority that the petitioner had offeredlong term capital gain, total Rs. 78,07,307/-. Thesame was in respect of the land covered in the verytransaction in question, being land at Joban Tekri,Plot No. 28,29,31,32, which was jointly owned by theassessee and others and the share of the assessee was9.58%. 5.1 It was stated that out of the said property,45.36% was sold during the year under consideration,details thereof were given as under, Capital gain to the assessee is (D) - (F) = 11040000-3232693 = Rs. 7807307/- 5.1.1Similarly, the details of other propertybeing land at Khatamba, in which the assessee had30% share was also produced and the capital gain wasshown, however, the details thereof is not requiredto be mentioned here as the same was not subjectmatter of the grounds mentioned as reasons forreopening. What is to be noticed that it wasdemonstrated was that the capital gain to the tune ofRs.78,07,307/- was shown and offered to tax by theassessee in the next assessment year 2016-17. 5.2 Given the above undisputed submission of fact,the clear case of the assessee stands to suggest thatthe transfer of land took place during the subsequentyear, that is, 2016-17, since the transaction was innature of development agreement. It was only whenall the obligations of the parties were fulfilledunder the development agreement, the transfer in eyeof law would take place. The gain arising out of thetransfer in the year concerned, that is, assessmentyear 2016-17, was offered to tax. There was noescapement of income not charged to tax. 5.3 The Assessing Officer has to form a reasonablebelief that the income of the assessee in the yearunder consideration has escaped assessment. In thepresent case, the reasons recorded by the assessingofficer show that the alleged escapement of income incash component of the transaction in relation todevelopment agreement was in the assessment year 5.3 The Assessing Officer has to form a reasonablebelief that the income of the assessee in the yearunder consideration has escaped assessment. In thepresent case, the reasons recorded by the assessingofficer show that the alleged escapement of income incash component of the transaction in relation todevelopment agreement was in the assessment year 2015-16. Now the income under the head "capitalgains is liable to be computed in accordance with theprovisions of section 45(7) of the Act. Section 45of the Act mentions about "Capital Gain" that anyprofits or gains arising from the transfer of acapital asset effected in the previous year shall,save as otherwise provided in ......, be chargeableto income-tax under the head "Capital gains", andshall be deemed to be the income of the previous yearin which the transfer took place. 5.4 Reverting to the basic facts in this case,though the allegation is that the cash payment wasmade and it escaped the tax, it was pursuant to adevelopment agreement. Furthermore, there is notangible material on record to even prima facie showthat assessee has received cash from M/s. GokuleshInfra for sale of the property at Revenue Survey No.28, 29, 31, 32, Gokulesh City Project, Dabhoi Road,Baroda. The sale deed was executed during thefinancial year 2015-16, which was relevant toassessment year 2016-17. The transfer could not besaid to have taken place for the purpose of chargingincome under capital gain during the assessment year2015-16. The tax would be leviable in thecorresponding assessment year, that is, 2016-17.There is no gainsaying that the capital gain of thistransaction was brought to tax by taking up incometax returns for limited scrutiny under section 143(3)on 10.12.2018 in Assessment Year 2016-17 as the assessee had offered capital gain chargeable to taxfor the said assessment year. 5.5 The decision of the Supreme Court inCommissioner of Income Tax vs. Balbir Singh Maini[(2018) 12 SCC 354] would bring home the point. Thequestion before the Apex Court was about when thetransfer could be said to have effect under section2(47)(v) of the Income Tax Act when a jointdevelopment agreement was executed. The SupremeCourt considered the definition of transfer undersection 2(47)(v) of the Income Tax Act read withSection 53A of the Transfer of Property Act, whichprovision deal with the doctrine of part performance.The development agreement in that case was notregistered agreement. 5.5.1It was held that even though the licensewas given thereunder, for the purpose of developingthe land into flats and to sell the same under thesaid development agreement, it does not amount, ineye of law, to "transfer" under section 2(47)(v) ofthe Income Tax Act. It was held that license cannotbe said to be in possession of the property withinthe meaning of section 53A of the Transfer ofProperty Act. 5.5.2The Supreme Court observed, "22. The object of Section 2(47)(vi) appearsto be to bring within the tax net a de facto transfer of any immovable property. Theexpression “enabling the enjoyment of” takescolorfromtheearlierexpression“transferring”, so that it is clear that anytransaction which enables the enjoyment ofimmovable property must be enjoyment as apurported owner thereof. The idea is tobring within the tax net, transactions,where, though title may not be transferredin law, there is, in substance, a transferof title in fact." 5.5.3It was observed that under the jointdevelopment agreement in question, the ownercontinued to be owner throughout the agreement and atno stage, the transfer rights were travelled to theother side. The transfer would take place only whenthe sale deed was executed. The Supreme Court inBalbir Singh Maini (supra) also highlighted theprinciple that income tax cannot be levied on ahypothetical income. 5.5.3It was observed that under the jointdevelopment agreement in question, the ownercontinued to be owner throughout the agreement and atno stage, the transfer rights were travelled to theother side. The transfer would take place only whenthe sale deed was executed. The Supreme Court inBalbir Singh Maini (supra) also highlighted theprinciple that income tax cannot be levied on ahypothetical income. 5.6 In the present case, it happened in thesubsequent income year and the capital gain thereofwas offered to tax in the corresponding assessmentyear. The basic conception is that there must havebeen an acquired right to receive income to make itchargeable to tax. It may be that income may accrueto an assessee without actual receipt of the same andif the assessee has acquired right to receive theincome, it can be said to have been accrued to him.On the other hand, in order to attract liability totax, there must be accrual of income in law. 5.7 The decision in CIT vs. Shoorji Vallabhdas andCo. [(1962 46 ITR 144 (SC)]was referred to by theSupreme Court in Balbir Singh Maini (supra) toobserve, "Income tax is a levy on income. No doubt, theIncome Tax Act takes into account two points oftime at which the liability to tax is attracted,viz., the accrual of the income or its receipt;but the substance of the matter is the income.If income does not result at all, there cannotbe a tax, even though in bookkeeping, an entryis made about a ‘hypothetical income’, whichdoes not materialise. Where income has, in fact,been received and is subsequently given up insuch circumstances that it remains the income ofthe recipient, even though given up, the tax maybe payable. Where, however, the income can besaid not to have resulted at all, there isobviously neither accrual nor receipt of income,even though an entry to that effect might, incertain circumstances, have been made in thebooks of account.” 5.8 The Supreme Court in Uttar Pradesh v. AryaverthChawal Udhyog [(2015) 17 SCC 324]observed that thematerial on which the assessing authority based itsopinion must not be arbitrary, irrational orirrelevant but must bring home the appropriaterationale of action taken. It was held that withoutproper material relied on, the "reason to believe"would become arbitrary and bad in law. 5.9 Similar was held by the Supreme Court in GangaSaran and Sons (P.) Ltd. v. ITO [130 ITR 1], "It is well settled as a result of severaldecisions of this Court that two distinctconditions must be satisfied before the IncomeTax Officer can assume jurisdiction to issuenotice under section 147 (a). First, he musthave reason to believe that the income of theassessee has escaped assessment and secondly, hemust have reason to believe that such escapementis by reason of the omission or failure on thepart of the assessee to disclose fully and trulyall material facts necessary for his assessment.If either of these conditions is not fulfilled,the notice issued by the Income Tax Officerwould be without jurisdiction. The importantwords under section 147(a) are "has reason tobelieve" and these words are stronger than thewords "is satisfied". The belief entertained bythe Income Tax Officer must not be arbitrary orirrational. It must be reasonable or in otherwords it must be based on reasons which arerelevant and material. The Court, of course,cannot investigate into the adequacy orsufficiency of the reasons which have weighedwith the Income Tax Officer in coming to thebelief, but the Court can certainly examinewhether the reasons are relevant..... (para 6) 5.9.1The Supreme Court further stated, (para 6) 5.9.1The Supreme Court further stated, "It there is no rational and intelligible nexusbetween the reasons and the belief, so that, onsuch reasons, no one properly instructed onfacts and law could reasonably entertain thebelief, the conclusion would be inescapable thatthe Income Tax Officer could not have reason tobelieve that any part of the income of theassessee had escaped assessment and suchescapement was by reason of the omission orfailure on the part of the assessee to disclosefully and truly all material facts and thenotice issued by him would be liable to hestruck down as invalid." (Para 6) 6.When the amount received by the petitionerassessee by way of cash was pursuant to developmentagreement and the transfer had not taken place in theyear of receipt, when the sale deed was executed inthe subsequent year, the transfer took place at thatpoint of time. The assessee had offered the amountof capital gains to tax in the next correspondingassessment year, that is, 2016-17. 6.1The income by way of capital gain is chargeablein the year of capital assessment even though theconsideration may be realised earlier or later or orthere may not be realisation at all. In the presentcase, as explained above, the execution ofdevelopment agreement with Gokulesh Infra did notgive rise to transfer within the meaning of section2(47)(v) of the Act in the year 2014-15. Therefore,the entire basis of reopening was erroneous of factsand misconceived in law. In such working of facts,the opinion formed by the assessing that he hadreasons to believe about escapement of income in theassessment year 2015-16 was misconceived and withoutfoundation of facts and without foundation in law. 7.In the above view, the present petition deservesto be allowed. Notice dated 31.03.2021 issued by therespondent under section 148 of the Act, is setaside. Also set aside is the order dated 08.12.2021, whereby the respondent rejected the objections of thepetitioner. Rule is made absolute accordingly. (N.V.ANJARIA, J) BIJOY B. PILLAI (BHARGAV D. KARIA, J)