Fairmacs Shipping And Transport Services Private Limited v. The Deputy Commissioner Of Income-Tax Corporate Circle – 2(1), Room

IN THE HIGH COURT OF JUDICATURE AT MADRASReserved On07.01.2022Pronounced On 22.04.2022CORAM (Through Video Conferencing) Fairmacs Shipping and Transport Services Private Limited,Represented by its Director,Mr.Sunil Shete,New No.31, B.A. Estates, Moore Street,Parrys, Chennai – 600 001..... Petitioner in Both W.Ps. Vs. 1.The Deputy Commissioner of Income-tax Corporate Circle – 2(1), Room.No.511, Wanaparthy Block, 121, M G Road, Nungambakkam, Chennai – 600 034. 2.The Assistant Commissioner of Income-tax, Corporate Circle – 2(1), Wanaparthy Block, 121, M G Road, Nungambakkam, Chennai – 600 034.... Respondents in Both W.Ps. Prayer in W.P.No.350 of 2019:- Writ Petition filed underArticle 226 of the Constitution of India, for issuance of aWrit of Certiorari, to call for the records of the secondrespondent and quash the impugned notice under Section 148 ofthe Act in PAN: dated 17.01.2018 and theconsequential impugned order in PAN: /13-14 dated17.12.2018 issued by the first respondent for the AssessmentYear 2013-2014. Prayer in W.P.No.356 of 2019:- Writ Petition filed underArticle 226 of the Constitution of India, for issuance of aWrit of Certiorari, to call for the records in PAN: AAACF0474Adated 20.12.2018 for the Assessment Year 2013 to 2014 on thefile of the first respondent and quash the same.https://hcservices.ecourts.gov.in/hcservices/ For Petitioner : Mr.R.V.Easwarin both W.Ps. Senior Counsel for Sandeep Bagmal For Respondents: Mrs.Hema Muralikrishnanin both W.Ps. Senior Standing Counsel By this common order, both Writ Petitions arebeing disposed of. 2. The petitioner has challenged in these writ petitionsthe speaking order passed by the respondents on 17.12.2018,overruling the objections to reopening of the assessment underand the consequential assessment order dated 20.12.2018 inW.P.Nos.350 and 356 of 2019 respectively. 3. Earlier the petitioner had challenged the notice dated17.01.2018 issued under Section 148 of the Income Tax Act,1961 in W.P.No.33072 of 2019. Meanwhile, the objection filedby the petitioner were disposed on 22.11.2018.Under thesecircumstances, the said writ petition was disposed on12.12.2018 with the following observations. “6. As rightly pointed out by the learnedstanding counsel for the respondents, theAssessing Officer while rejecting theobjections raised against the re-opening,has only referred to the objection dated18.11.2018 and not the objection dated19.11.2018, wherein, the Assessee hasspecifically raised the question withregard to the applicability of Section 50Cof the IT Act, 1961. Perusal of theimpugned order further indicates that theAssessing Officer except extracting somecase laws and making his generalobservation on the power under Section 147,has not adverted to any of the contentionsraised by the petitioner in their objectionagainst the reasons for re-opening, moreparticularly,withregardtotheapplicability of Section 50C of the IT Act,1961 to the facts and circumstances of thepresent case. Needless to state that theAssessing Officer while considering theobjections raised against re-opening has tonecessarily deal with each of theobjections raised and express his decisionon those objections. A mere statement ofhttps://hcservices.ecourts.gov.in/hcservices/power vested on the authority under Section 147 is not enough to presume that he hasapplied his mind to the objections. At thesame time, this Court makes it very clearthat it is not expressing any view on themerits of the above contentions raised bythe learned Senior Counsel for thepetitioner, as this Court is inclined toset aside the order dated 22.11.2018 andremit the matter back to the AssessingOfficer to pass fresh orders, byconsidering all the objections raised bythepetitioner,throughtheircommunicationsdated09.11.2018and18.11.2018. 147 is not enough to presume that he hasapplied his mind to the objections. At thesame time, this Court makes it very clearthat it is not expressing any view on themerits of the above contentions raised bythe learned Senior Counsel for thepetitioner, as this Court is inclined toset aside the order dated 22.11.2018 andremit the matter back to the AssessingOfficer to pass fresh orders, byconsidering all the objections raised bythepetitioner,throughtheircommunicationsdated09.11.2018and18.11.2018. 7. Accordingly, this writ petition isallowed and the impugned order is setaside. Consequently, the matter is remittedback to the first respondent/AssessingOfficer to pass fresh orders afterconsidering the objections raised by thepetitioner against the re-opening of theassessment on merits and in accordance withlaw. No costs. Consequently, connectedmiscellaneous petition is closed.” 4. The dispute pertains to assessment year 2013 to 2014[Previous year 2012 to 2013]. The petitioner purchased about150 acres of land for being sold to Zuari Cements Limited forsetting up their Cement grinding unit at Solapur, Maharashtra.According to the petitioner, the petitioner had received a sumof Rs.7,08,39,862/- towards land development income and it hadexpended about Rs.2,98,97,537/- for development of the land.It is the further case of the petitioner that the land inquestion was purchased from several owners and was convertedfor use by Zuari Cements Limited after obtaining necessarypermission from the appropriate authority under the localenactment in force in Maharashtra. 5. It is the further case of the petitioner that duringprevious year 2012 to 2013, a portion of the land was sold toZuari Cements Limited for a sum of RS.97,37,500/-. It is thefurther case of the petitioner that assessment was alsoaccepted and the scrutiny assessment under Section 143(3) ofthe Income Tax Act, 1961 was also passed on 27.03.2016. 6. It is the case of the petitioner that the respondentsthereafter issued notice dated 17.01.2008 under Section 148 ofthe Income Tax Act to reopen the assessment completed on27.03.2016. It is submitted that though the aforesaid noticewas issued within a period of four years [before 31.03.2018],the entire exercise was carried out by the respondents forreopening the assessment was without jurisdiction, as therehttps://hcservices.ecourts.gov.in/hcservices/was true and full disclosure by the petitioner while filing the returns under Section 139 of the Income Tax Act, 1961 andthat the Assessing Officer while passing the scrutinyassessment order dated 27.03.2016 had considered the fact thatthe petitioner had sold the land to the said Company namely,Zuari Cement Limited and had received a sum ofRs.7,08,39,862/- towards land development. 7. In this connection, a specific reference was made toconsider the reply filed by the petitioner before theassessment was completed under Section 143(3) of the IncomeTax Act, wherein the issue relating to disallowance ofTDS for land development expenses was considered by theAssessing Officer and while passing the assessment order dated27.03.2016. A reference was made to paragraph 8, in particularparagraph 8.2 which reads as under: “8.2.On March 7[th], 2016, theAuthorised Representative of the assesseesubmitted details of party wise LandDevelopment Expenses. From the break-up ofthe land development expenses, out of 1.04acres it is seen that the land developmentexpenses is Rs. 0.92 crores and the stampduty is Rs.0.1 Crore and TDS borne by theCompany is Rs.2,48,615/-. The AR was askedas to why the TDS was borne by the Company.The AR stated that the parties did notagree to accept “8.2.On March 7[th], 2016, theAuthorised Representative of the assesseesubmitted details of party wise LandDevelopment Expenses. From the break-up ofthe land development expenses, out of 1.04acres it is seen that the land developmentexpenses is Rs. 0.92 crores and the stampduty is Rs.0.1 Crore and TDS borne by theCompany is Rs.2,48,615/-. The AR was askedas to why the TDS was borne by the Company.The AR stated that the parties did notagree to accept the consideration net of TDS and hence theCompany had deducted TDS on the net amount.On verification of the MOU, it is seen thatthere is no agreement between the Companyand the parties that the TDS should beborne by the Company. This is not arisenout of any binding contractual obligation.Therefore, this expenditure does not relateto business and hence the amount ofRs.2,48,615/- is disallowed. Additionally,TDS is no an allowable item of expenditureu/s 40(a)(ii).” 8. Appearing on behalf of the petitioner, the learnedSenior Counsel submits that the exercise taken by therespondents while issuing the impugned notice under Section148 of the Income Tax Act, 1961 on 17.01.2018 is withoutjurisdiction as it is motivated on account of the change ofopinion and contrary to the decision of the Delhi Court madein the case of CIT Vs. Kelvinator of India Limited reported in[2002] 256 ITR 1 (Del), as affirmed by the Hon'ble SupremeCourt in [2010] 320 ITR 561 (SC). 9. Explaining the background of the case, the learnedSenior Counsel would also submit that the petitioner ishttps://hcservices.ecourts.gov.in/hcservices/primarily engaged in clearing and forwarding operation and had an occasion to enter into an agreement with Zuari CementLimited which lead to the purchase of lands and sold to ZuariCement Limited for a sum of Rs.97,37,500/-. 10. It is submitted that the reasons given for reopeningthe assessment of the petitioner is based on the informationreceived from ITO (I & CI) – 2, Pune with approval of DIT (I &CI), Pune. As per the report, it was noted that an enquiry wasconducted in the case of Shri.Dattatray Ramkrushna Shete, Puneand was based on the AIR information with respect to sale ofproperty by TIO (I & CI) – 2, Pune. It is mentioned thatShri.Dattatray Ramkrushna Shete, Director of M/s.FairmacsShipping and Transport Services Pvt. Ltd., has sold propertyfor Rs.97,37,500/- on 23.07.2012. During the course ofverification, it was noted that the given transaction issigned by him in the capacity director of the company. Onperusal of the financials of the company, the said transactionhas been duly considered in the income of the above mentionedcompany. As per the financials, the assessee received a sum ofRs.97,37,500/- as sales consideration from the sale ofimmovable property to the Zuari Cement on 23.07.2012. 11. However, the market value of the property wasRs.3,21,61,000/-. As market value of the given property soldwas more than the amount on which property has been sold bythe assessee, the provisions of Section 50C of the Income TaxAct, 1961 was made applicable. It is submitted thatit cannot be countenanced, in the light of the disclosure madebefore the scrutiny assessment was completed by the AssessmentOfficer while passing the order on 27.03.2016. The case of thepetitioner is that the land sold by the petitioner was anagricultural land and the same are not capital assets withinthe meaning of Section 2(14) of the Income Tax Act, 1961. 11. However, the market value of the property wasRs.3,21,61,000/-. As market value of the given property soldwas more than the amount on which property has been sold bythe assessee, the provisions of Section 50C of the Income TaxAct, 1961 was made applicable. It is submitted thatit cannot be countenanced, in the light of the disclosure madebefore the scrutiny assessment was completed by the AssessmentOfficer while passing the order on 27.03.2016. The case of thepetitioner is that the land sold by the petitioner was anagricultural land and the same are not capital assets withinthe meaning of Section 2(14) of the Income Tax Act, 1961. 12. The learned counsel for the respondent submits thatas far as the challenge to the communication dated 17.12.2018is concerned, it was passed pursuant to the order dated12.12.2018 in W.P.No.33072 of 2018 and it is submitted thatthe said writ petition was rendered infructuous in the lightof the subsequent development i.e., passing of the assessmentorder dated 20.12.2018. It is therefore submitted that inW.P.No.350 of 2019 challenging the communication dated17.12.2018 overruling the objection of the petitioner issued under Section 148 of theIncome Tax Act, 1956 has become infructuous and is thereforeliable to be dismissed. 13. As far as the challenge to the impugned assessmentorder under Section 143(3) r/w Section 147 of the Income TaxAct, 1956 vide order dated 20.12.2018 in W.P.No.356 of 2019 isconcerned, it is submitted by the learned counsel for therespondent submits that the petitioner has an alternate remedyhttps://hcservices.ecourts.gov.in/hcservices/before the Appellate Authority under Section 246A of the Act and therefore, the Writ Petition is liable to be dismissed. Itis further submitted that the petitioner had wronglytreated the land purchased for being sold to Zuari CementLimited as business asset to wrongly claim business expenses. 14. It is further submitted that the original scrutinyassessment made under Section 143(3) of the Income Tax Act bythe respondent on 27.03.2016 proceeded on the assumption thatthe petitioner had acquired the properties from variouspersons as a business asset for being sold to Zuari CementLimited and therefore, the scope of enquiry at that point oftime pursuant to the notice under Section 142(1) of the Actwas confined to the extent of business expenditure that can be allowed,where there was no TDS by the petitioner. 15. It is therefore submitted that the entire scrutinyassessment was predicated on the premises that the property inquestion were acquired as business assets and sold as businessassets and therefore, there was no reasons for the Departmentto suspect that the assets were to be treated as capitalassets. It is further submitted that none of the documentsrelating to the transactions were furnished by the petitioner. 16. The learned counsel for the respondent furthersubmits that the transaction in question pertains to theassessment year 2013 to 2014 [previous year 2012 to 2013] andprecedes an agreement dated 30.07.2011 where the petitionerhad undertaken to aggregate 75 to 100 acres of land and tosell the same. It is submitted that the Articles of Memorandumof Association of the petitioner at the time of agreement didnot contemplate sale of land as the business was confined onlyto clearing and forwarding as in the Memorandum of Associationas it stood. It is therefore submitted that the Memorandum ofAssociation of the petitioner was amended only post facto forreal estate business. 17. It is further submitted that even otherwise under thelaw in force in Maharashtra, the Agricultural lands cannot bepurchased and sold by the Company. However, the transactionshave been booked in the name of the petitioner/Company, eventhough the transactions are in the name of the Director of theCompany namely Dattatreya Ramkrishna shete. 17. It is further submitted that even otherwise under thelaw in force in Maharashtra, the Agricultural lands cannot bepurchased and sold by the Company. However, the transactionshave been booked in the name of the petitioner/Company, eventhough the transactions are in the name of the Director of theCompany namely Dattatreya Ramkrishna shete. 18. The learned counsel for the respondent also submitsthat the registration of total extent of 133.62 Acres [54.09Hectares] under the 24 different sale deeds have spanned tothe period of about 3 years starting from the year 2012 andended in the year 2015 and therefore, the claim of thepetitioner that the petitioner incurred the entire expensesduring the relevant assessment year cannot be countenanced. https://hcservices.ecourts.gov.in/hcservices/ 19. The reasons for reopening of the assessment was onaccount of information received from ITO [I & CI] - II, Pune.The learned counsel for the respondent has drawn the attentionto the reasons for reopening the assessment dated 20.04.2018which reads as follows: received from ITO (I & CI) – 2, Pune withapproval of the DIT (I & CI), Pune. As perthe report, it is noted that an enquiry wasconducted in the case of Shri.DattatrayRamkrushna Shete, Pune based on the AIRinformation with respect to sale ofproperty by ITO (I & CI) – 2, Pune. It ismentioned that Shri.Dattatray RamkrushnaShete, Director of M/s.Fairmacs Shippingand Transport Services Pvt Ltd has soldproperty for Rs.97,37,500/- on 23.07.2012.During the course of verification, it isnoted that the given transaction is signedby him in the capacity director of thecompany. On perusal of the financials ofthe company, the said transaction has beenduly considered in the income of the abovementioned company. As per the financials,the assessee considered Rs.97,37,500/- assales consideration on account of sale ofimmovable property to the Zuari Cement on23.07.2012. However, the market value ofthe property was Rs.3,21,61,000/-. In thiscase, as market value of the given propertysold was more than the amount on which theproperty has been sold by the assessee, theprovisions of Sec.50C of the Income TaxAct, 1961 is applicable. 20. By way of rejoinder, learned Senior Counsel for thepetitioner submits that the total consideration received fromthe transaction is Rs.7,08,39,852/- and that the petitionerwas following mercantile system of accounting and booked thereceivables and expenses during the relevant assessment yearas was explained at the time of scrutiny assessment videcommunication dated 26.02.2016. It is submitted that from andout of the total consideration of Rs.7,08,39,852/-, thepetitioner had incurred a sum of Rs.2,98,97,357/- as landdevelopment expenses and amount paid to the individual sellersof the land is detailed below: https://hcservices.ecourts.gov.in/hcservices/ 21. A sum of Rs.97,37,500/- which is the subject matterof the present dispute and the reasons for reopening of theassessment is confined to sale of 7.79 Hectares = 19.24 Acresout of the total of 133.65 Acres conveyed to Zuari CementsLimited. https://hcservices.ecourts.gov.in/hcservices/ 21. A sum of Rs.97,37,500/- which is the subject matterof the present dispute and the reasons for reopening of theassessment is confined to sale of 7.79 Hectares = 19.24 Acresout of the total of 133.65 Acres conveyed to Zuari CementsLimited. 22. The learned Senior Counsel also submits that when thescrutiny assessment was made, the Department had also nottreated the asset as a capital asset to bring it within thepurview of Chapter IV E of the Income Tax Act, 1961 and thecomputation attached to the scrutiny assessment dated27.03.2016 also did not contain any long term or short termcapital gain for the petitioner. It is therefore submittedthat the entire reopening of the assessment and theconsequential order passed on 17.12.2018 overruling theobjection of the petitioner against reopening of theassessment vide notice dated 22.01.2018 and the impugnedassessment dated 20.12.2018 are liable to be quashed, as thereis no case made out for reopening of the assessment underSection 148 of the Income Tax Act, 1961, even though theassessment has been reopened within 4 years from the date oforiginal scrutiny assessment on 27.03.2016. 23. The learned Senior Counsel also submitted that thesubmission of the learned counsel for the respondent that thedocuments are fabricated cannot be countenanced, assuch a finding has been arrived for the first time in theimpugned assessment order dated 20.12.2018 and therefore,there is manifest violation of principles of natural justice. 24. I have considered the arguments advanced by thelearned Senior Counsel for the petitioners and the learnedSenior Standing Counsel for the respondents. 25. The facts on record indicate that the petitionercompany had entered into an agreement for sale of land toMrs.Zuari Cement Limited for setting up a cement plant inSolapur, Maharashtra. One of the copy of the sale deed, dated23.07.2012, which has been enclosed along with the typed setof documents shows that the lands were purchased in the nameof Mr.Dattatreya Ramkrishna Shete, the Director of thepetitioner company whose occupation has been declared asAgriculturist in the sale deed. The petitioner company couldnot directly purchase the agricultural lands and therefore,the lands were perhaps purchased in the name of the individualMr.Dattatreya Ramkrishna Shete, the Director of the petitionerhttps://hcservices.ecourts.gov.in/hcservices/company. 26. Different parcels of lands were purchased by the saidDirector as an Agriculturist and thereafter sold/transferredto Zuari Cements Limited. It is not clear that how the fundsof the petitioner could have been used to finance the purchaseby its Director. The sale is also by the said Director in hisindividual capacity as an Agriculturist on 30.07.2011 to ZuariCements Limited. However, the income from the land developmentcost has been shown as Rs.7,08,39,862/- during the previousyear. Further, a sum of Rs.2,98,97,357/- has been shown asexpenses incurred towards land development charges. Further,the land sold during the relevant year was only forRs.97,37,500/-. There is no clarity on this aspect. 27. The guideline value of the property sold during theperiod in dispute was Rs.3,21,61,000/-. Therefore, Section50C of the Income Tax Act was invoked, as if the land was acapital asset of the petitioner company. The Department wantedto include an amount of Rs.2,24,23,500/- [Rs.3,21,61,000 –Rs.97,37,500] as income having escaped assessment during 2013to 2014, it is however not clear which the entire parcel ofland was sold or only an extent of land was sold during theprevious year for Assessment Year 2013-2014. It is also notclear how the land can be treated as a capital asset of thepetitioner company when the land was neither purchased norsold by the petitioner Company. 27. The guideline value of the property sold during theperiod in dispute was Rs.3,21,61,000/-. Therefore, Section50C of the Income Tax Act was invoked, as if the land was acapital asset of the petitioner company. The Department wantedto include an amount of Rs.2,24,23,500/- [Rs.3,21,61,000 –Rs.97,37,500] as income having escaped assessment during 2013to 2014, it is however not clear which the entire parcel ofland was sold or only an extent of land was sold during theprevious year for Assessment Year 2013-2014. It is also notclear how the land can be treated as a capital asset of thepetitioner company when the land was neither purchased norsold by the petitioner Company. 28. These aspects are not forthcoming clearly either inthe reply of the petitioner or in the orders passed by therespondent earlier on 22.11.2018 which was earlier quashed byan order dated 12.12.2018 or in the impugned orders dated17.12.2018 disposing objection of the petitioner againstreopening of the assessment under Section 148 of the IncomeTax Act, 1961 and the consequential assessment order passed on20.12.2018 impugned in this writ petition. 29. Under these circumstances, while upholding theimpugned order, dated 17.12.2018, impugned in W.P.No.350 of2019 overruling the objection against re-opening theassessment, I am inclined to set aside the consequentialassessment order dated 20.12.2018, passed by the firstrespondent and remit the case back to the first respondent topass a de novo orders on merits and in accordance withlaw within a period of six months from the date of receipt ofa copy of this order. Needless to state, the petitioner shallbe heard before such orders are passed. 30. In the result, W.P.No.350 of 2019 is dismissed andW.P.No.359 of 2019 is disposed of in terms of the aboveobservations. No costs. Consequently, connected miscellaneouspetitions are closed. Assistant Registrar(CS VI) //True Copy// https://hcservices.ecourts.gov.in/hcservices/ Sub Assistant Registrar rgm/pgp To 1.The Deputy Commissioner of Income-tax Corporate Circle – 2(1), Room.No.511, Wanaparthy Block, 121, M G Road, Nungambakkam, Chennai – 600 034. Corporate Circle – 2(1), Room.No.511, Wanaparthy Block, 121, M G Road, Nungambakkam, Chennai – 600 034. 2.The Assistant Commissioner of Income-tax, Corporate Circle – 2(1), Wanaparthy Block, 121, M G Road, Nungambakkam, Chennai – 600 034. Corporate Circle – 2(1), Wanaparthy Block, 121, M G Road, Nungambakkam, Chennai – 600 034. +1 cc to M/s.Sandeep Bagmal, Advocate Sr.NO.27851+1 cc to Mrs.Hema Muralikrishnan, Advocate Sr.NO. 27868+1 cc to Mrs.Hema Muralikrishnan, Advocate Sr.NO. 27868 W.P.Nos.350 and 356 of 2019and W.M.P.Nos.351, 354 and 359 of 2019 sj(CO) A.SK(04/05/2022)