Manoj Dwarkadas Pritmani v. Common Oral Order

IN THE HIGH COURT OF GUJARAT AT AHMEDABAD R/SPECIAL CIVIL APPLICATION NO. 17032 of 2018 With R/SPECIAL CIVIL APPLICATION NO. 17036 of 2018 ================================================================MANOJ DWARKADAS PRITMANI Versus ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE 3(3) ================================================================Appearance:MR SN SOPARKAR, LD SR. ADVOCATE WITH B S SOPARKAR(6851) for the Petitioner(s) No. 1 MRS MAUNA M BHATT(174) for the Respondent(s) No. 1 ================================================================ CORAM: HONOURABLE MR. JUSTICE J.B.PARDIWALAandHONOURABLE MR. JUSTICE ILESH J. VORA Date : 11/06/2021 COMMON ORAL ORDER (PER : HONOURABLE MR. JUSTICE ILESH J. VORA) 1.As common question of law and fact arise in both the writapplications with respect to same assessee for different assessmentyears, therefore, both the writ applications were heard together anddisposed of by this common judgment and order. 2.By filing these writ applications under Article 226 of theConstitution of India, the writ applicant seeks to challenge thenotice dated 30.3.2018 issued by the respondent under Section 148of the Income Tax Act, 1961 (for short, ‘the Act’) seeking toreopen the applicant’s income tax assessment for the A.Y. 2011-12and 2012-13. 3.Brief facts of the present case are as under: 3.1A.Y. 2011-12: The writ applicant being an individual assesseefiled his return of income for AY 2011-12 declaring total incomeof Rs.29,97,410/- and same was processed under Section 143(1) ofthe Act without scrutiny assessment.filed his return of income for AY 2011-12 declaring total incomeof Rs.29,97,410/- and same was processed under Section 143(1) ofthe Act without scrutiny assessment. 3.2A.Y. 2012-13: The writ applicant Manoj Dwarkadas being anindividual assessee filed his return of income on 31.05.2013declaring his income at Rs.41,44,090/- and same was proceededunder Section 143(1) of the Act without scrutiny assessment.individual assessee filed his return of income on 31.05.2013declaring his income at Rs.41,44,090/- and same was proceededunder Section 143(1) of the Act without scrutiny assessment. 3.3The AO reopened the assessment for the A.Y. 2011-12 and2012-13 by issuing impugned notice dated 30.3.2018 under Section148 of the Act. The writ applicant requested the revenue to supplycopy of the reasons for reopening of the assessment and therefore,same was supplied on 9.8.2018. The writ applicant vide letter dated4.10.2018 raised various objections and same came to be rejectedby the revenue vide order dated 5.10.2018. 2012-13 by issuing impugned notice dated 30.3.2018 under Section148 of the Act. The writ applicant requested the revenue to supplycopy of the reasons for reopening of the assessment and therefore,same was supplied on 9.8.2018. The writ applicant vide letter dated4.10.2018 raised various objections and same came to be rejectedby the revenue vide order dated 5.10.2018. 3.4 The reasons recorded for the year 2011-12, which reads asunder: “……. This office has received information from the Income Tax officer Ward-2(4) Kalyan, vide his letter No. KYN/ITO/WD2(4)/ information/SNE/2017-18dated 14.03.2018, that the assessee has sold land to M/s. SwaminarayanEnterprises during the period FY 2010-11 & 2011-12. Information containsTransactions ledgers from the books of M/s. Swaminarayan Enterprises in nameof Manoj Tikmani. Copy of balancesheet for the year ending March, 2011 &copy of notes to accounts. 2(4) Kalyan, vide his letter No. KYN/ITO/WD2(4)/ information/SNE/2017-18dated 14.03.2018, that the assessee has sold land to M/s. SwaminarayanEnterprises during the period FY 2010-11 & 2011-12. Information containsTransactions ledgers from the books of M/s. Swaminarayan Enterprises in nameof Manoj Tikmani. Copy of balancesheet for the year ending March, 2011 &copy of notes to accounts. On perusal of accounts/inforamtion’s, the assessee has received Rs.60,50,000/- upto 31.03.2010, Rs.2,06,60,000/- received during the F.Y. 2010-1160,50,000/- upto 31.03.2010, Rs.2,06,60,000/- received during the F.Y. 2010-11 through various cheques issued by the transferee, firm & transaction ofRs.63,65,158/- recorded in books of reflecting, the assessee as sundry creditors. On verification of income of the assessee, as narrated in above para-2,transactions for transfer land, made by the assessee is required to be verified, soas to verify genuineness of transaction & actual amount of capital gain earned bythe assessee. It is also require to verify the value of land considered is atmarket/juntry value as on dated or not? On analysis of information as narrated in above paras, the assesssment ofthe year under consideration, the assessment in the case of assessee is escapedthe income in view of the section 147 of the Act, Assessment is required to bereopened u/s. 147 of the Act. The assessee has made transactions for transfer of land to M/s.Swaminarayan Enterprise. The assessee has received/accrued payments of(Rs.2,70,15,158/- + Rs.63,65,158/-) Rs.3,33,80,316/- during the year F.Y. 2011-11. Out of 112 flats constructed on the said land, 93 flats sold/entered intoagreements with registration with sub-registrar of Assurances. In view of theabove, I have reason to believe that the income in the case of the assessee isescaped……...” 3.5The reasons recorded for the year 2012-13, which reads as under: “It has been noticed that in response to the notice u/s. 148 of the Act,you have filed your ITR for relevant AY 2012-13. In this connection, reasonsfor reopening of the assessment is as follows: 3.The assessee filed its return of Income for A.Y. 2012-13, declaringtotal income at Rs.41,44,090/-. During the year, the assessee declared businessincome Rs.29,33,484/-, income from Long Term capital gain Rs.13,25,601/-totaling gross total income of Rs.42,59,085/-. The assessee has claimeddeduction under chapter VI-A of Rs.1,15,000/- and declared total income at Rs.41,44,090/-. Return filed by the assessee is processed u/s. 143(1) of the Act. 4. This office has received information from the Income Tax officer Ward-2(4)Kalyan, vide his letter No. KYN/ITO/WD2(4)/ information/SNE/2017-18dated 14.03.2018, that the assessee has sold land to M/s. SwaminarayanEnterprises during the period FY 2010-11 & 2011-12. Information containsTransactions ledges from the books of M/s. Swaminarayan Enterprises in nameof Manoj Tikmani. Copy of Journal Register for FY 2011-12 & copy of noticesto accounts. On perusal of documents/information, the assessee has received(Rs.89,65,972/- + 15,00,000/-) Rs.1,04,65,972/- in FY 2011-12. 5.On verification of income of the assessee, as narrated in above para-2,transactions for transfer land, made by the assessee is required to be verified,so as to verify genuineness of transaction & actual amount of capital gainearned by the assessee. It is also require to verify the value of land consideredis at market/juntry value as on dated or not? 6.The assessee has made transactions for transfer of land to M/s.Swaminarayan Enterprise. The assessee has received payments ofRs.89,65,972/- + Rs15,00,000/) Rs.1,04,65,972/ during the FY 2011-12. Out of112 flats constructed on the said land, 12 flats sold/entered into agreementswith registration with sub-registrar of Assurances. In view of the above, I havereason to believe that the income in the case of the assessee is escaped. 7.In view of the above, Transactions made by way of purchase ofproperties in the financial year 2011-12 relevant to the AY 2012-13, hasescaped income more than Rs.1,00,000/- within the meaning of section 147 ofthe Act. 6.The assessee has made transactions for transfer of land to M/s.Swaminarayan Enterprise. The assessee has received payments ofRs.89,65,972/- + Rs15,00,000/) Rs.1,04,65,972/ during the FY 2011-12. Out of112 flats constructed on the said land, 12 flats sold/entered into agreementswith registration with sub-registrar of Assurances. In view of the above, I havereason to believe that the income in the case of the assessee is escaped. 7.In view of the above, Transactions made by way of purchase ofproperties in the financial year 2011-12 relevant to the AY 2012-13, hasescaped income more than Rs.1,00,000/- within the meaning of section 147 ofthe Act. 8.As reasons for reopening are provided, you are requested tofile your reply/submission and objections, if any on or before23/08.2018 in E proceeding facility through your account in e-Fillingwebsite of Income Tax Department.” 4.Being aggrieved by the order of disposal of the objections againstthe notice of reopening of the assessment for both the years, asreferred to above, the writ applicant has come up before this Courtby filing present writ applications.the notice of reopening of the assessment for both the years, asreferred to above, the writ applicant has come up before this Courtby filing present writ applications. 5.Mr. S.N. Soparkar, the learned Senior counsel for the writapplicant raised the following contentions :applicant raised the following contentions : (i)It was submitted that the impugned notice is bad in law and againstthe provisions of the statute more particularly under Section 147 ofthe Act.the provisions of the statute more particularly under Section 147 ofthe Act. (ii)That the reasonable belief as contemplated under Sections 147-148of the Act of an honest and reasonable person bases uponreasonable ground and it should not be based on some suspiciousand vague reasons. Referring to the reasons recorded, it wassubmitted that it is evident that the AO has reopened theassessment to verify the genuineness of the transaction of the land,therefore, the reopening of the assessment to carry out fishing androving enquiry is not permissible and on that count, the impugnednotice required to be set aside.of the Act of an honest and reasonable person bases uponreasonable ground and it should not be based on some suspiciousand vague reasons. Referring to the reasons recorded, it wassubmitted that it is evident that the AO has reopened theassessment to verify the genuineness of the transaction of the land,therefore, the reopening of the assessment to carry out fishing androving enquiry is not permissible and on that count, the impugnednotice required to be set aside. (iii)That the reasons recorded are erroneous in as much as the AOfailed to understand the transaction related to asset. In this context,it was submitted that the land in question was transferred to M/s.Swaminarayan Enterprise as a part of capital contribution in thepartnership firm as per Partnership deed executed vide dated15.08.2008, the same can be assessed only in the AY 2009-10 andnot in 2011-12. Referring to Section 45 of the Act, it was submittedthat the preliminary condition for charging under the head capitalgain is transferred the capital asset and accordingly on the date ofthe transfer the transaction is taxable and thus, therefore, when theamount recorded in the books of account of the firm was NIL, therecannot be any consideration taxable in the hands of the assessee.failed to understand the transaction related to asset. In this context,it was submitted that the land in question was transferred to M/s.Swaminarayan Enterprise as a part of capital contribution in thepartnership firm as per Partnership deed executed vide dated15.08.2008, the same can be assessed only in the AY 2009-10 andnot in 2011-12. Referring to Section 45 of the Act, it was submittedthat the preliminary condition for charging under the head capitalgain is transferred the capital asset and accordingly on the date ofthe transfer the transaction is taxable and thus, therefore, when theamount recorded in the books of account of the firm was NIL, therecannot be any consideration taxable in the hands of the assessee. (iv)That there is no independent application of mind on the part of theAO while recording the reasons for reopening and merely placingmaterial provided by the Investigation Wing for recording reasonsis impermissible.AO while recording the reasons for reopening and merely placingmaterial provided by the Investigation Wing for recording reasonsis impermissible. (v) That the reasons to believe is bad in law as AO recorded hissatisfaction only on the basis of the information received from theconcerned Department and hence, he assumed jurisdiction only onborrowed satisfaction, which is not permissible in law.satisfaction only on the basis of the information received from theconcerned Department and hence, he assumed jurisdiction only onborrowed satisfaction, which is not permissible in law. (vi)That no income has escaped assessment as the transaction ofintroduction of land by the assessee as capital asset was betweenthe assessee and the firm. There is no evidence to hold that theassessee has received income greater than what is offered by himfor tax, in such circumstances there is no income has escapedintroduction of land by the assessee as capital asset was betweenthe assessee and the firm. There is no evidence to hold that theassessee has received income greater than what is offered by himfor tax, in such circumstances there is no income has escaped assessment (vii) In support of aforesaid contentions, Shri S.N. Soparkar, the learnedSenior Counsel placed reliance on the following decisions : (i) Nisharahemad Vajirkhan Pathan Vs. Income Tax Officer, reported in (2021) 123 taxmann.com 448 (Gujarat) (ii) Hitachi HI REL Power Electronics Vs. Asst Commissioner ofIncome tax, reported in (2020) 122 taxmann.com 79 (Gujarat) (iii) Amar Jewellers Ltd Vs. Deputy Commissioner of Income tax,reported in (2018) 92 taxman.com 259 (Gujarat) (iv) Narendrakumar Mansukhbhai Patel Vs. Income Tax Officer,reported in (2018) 92 taxmann.com 74 (Gujarat) (v) Sunrise Education Trust Vs. Income Tax Officer, reported in(2018) 92 taxmann.com 74 (Gujarat) (vi) Swati Malove Divetia Vs. Income Tax Officer, reported in (2018) 98 taxmann.com 447 (Gujarat) (vii) Sunil Siddharthbhai & Ors. Vs. Commissioner of Income Tax,Ahmedabad, Gujarat rendered in Civil Appeal Nos. 1841 & 1777of 1981 decided on 27.09.1985. 6. (i) Nisharahemad Vajirkhan Pathan Vs. Income Tax Officer, reported in (2021) 123 taxmann.com 448 (Gujarat) (ii) Hitachi HI REL Power Electronics Vs. Asst Commissioner ofIncome tax, reported in (2020) 122 taxmann.com 79 (Gujarat) (iii) Amar Jewellers Ltd Vs. Deputy Commissioner of Income tax,reported in (2018) 92 taxman.com 259 (Gujarat) (iv) Narendrakumar Mansukhbhai Patel Vs. Income Tax Officer,reported in (2018) 92 taxmann.com 74 (Gujarat) (v) Sunrise Education Trust Vs. Income Tax Officer, reported in(2018) 92 taxmann.com 74 (Gujarat) (vi) Swati Malove Divetia Vs. Income Tax Officer, reported in (2018) 98 taxmann.com 447 (Gujarat) (vii) Sunil Siddharthbhai & Ors. Vs. Commissioner of Income Tax,Ahmedabad, Gujarat rendered in Civil Appeal Nos. 1841 & 1777of 1981 decided on 27.09.1985. 6. In view of the aforesaid contentions, Mr. S.N. Soparkar, thelearned Senior counsel submitted that the reopening of theassessment for the AY 2011-12 and 2012-13 is without jurisdictionand hence, notices deserve to be quashed and set aside. 7. On the other hand, the learned Standing Counsel Ms. Mauna Bhattappearing for the revenue has vehemently opposed the writapplications contending that after filing the return of income for the respective year, the revenue was on receipt of information asreferred above in the reasons recorded that the assessee hadreceived the income from the sale of flats constructed bypartnership firm. Under such circumstance, the amount received bythe assessee from the partnership firm as against the transfer ofland as capital contribution is chargeable to tax under the headCapital Gain in the hands of partner. It was urged that no scrutinyassessment being done and only the return of income had beenprocessed under Section 143(1) of the Act, the genuineness of thetransaction and claim of long term capital gain could not be madeand thus, therefore, the AO has reason to believe that the incomechargeable to tax has escaped assessment. 8. In view of the aforesaid contentions, Ms. Mauna Bhatt, learnedStanding Counsel for the revenue submits that there being nomerits in the writ applications, the same deserve to be dismissed. 9.Having heard the learned counsel for the respective parties andhaving gone through the materials on record, the only question fallsfor our consideration is that whether the revenue is justified inreopening the assessment for the year under consideration? 10.A bare perusal of the reasons recorded of the respective year showsthat the assessment sought to be reopened by the revenue mainlyon the ground that the assessee had received the amount as referredin the reasons recorded, from the partnership firm namely M/s.Swaminarayan Enterprises against the transfer of his land as capitalcontribution is chargeable to tax under the head Capital Gain in thehands of partners. that the assessment sought to be reopened by the revenue mainlyon the ground that the assessee had received the amount as referredin the reasons recorded, from the partnership firm namely M/s.Swaminarayan Enterprises against the transfer of his land as capitalcontribution is chargeable to tax under the head Capital Gain in thehands of partners. 10.A bare perusal of the reasons recorded of the respective year showsthat the assessment sought to be reopened by the revenue mainlyon the ground that the assessee had received the amount as referredin the reasons recorded, from the partnership firm namely M/s.Swaminarayan Enterprises against the transfer of his land as capitalcontribution is chargeable to tax under the head Capital Gain in thehands of partners. that the assessment sought to be reopened by the revenue mainlyon the ground that the assessee had received the amount as referredin the reasons recorded, from the partnership firm namely M/s.Swaminarayan Enterprises against the transfer of his land as capitalcontribution is chargeable to tax under the head Capital Gain in thehands of partners. 11.It appears from the record that the assessee had transferred his landto M/s. Swaminarayan Enterprise as part of capital contribution inthe partnership firm as per Partnership Deed duly executed on15.08.2008. Undisputedly, the land in question was not transferredin the name of Firm. It is a settled law that where immovableproperty is transferred by a partner to the firm as a capitalcontribution and registration does not take place by paying stampduty, the case would be covered under Section 45(3) of the Act. Asper Section 45(3) of the Act, whenever a partner contributes anycapital asset in the partnership firm, then the value of capital assetrecorded in the books of account of the firm is to be considered asthe full value consideration for the purpose of computing capitalgain. to M/s. Swaminarayan Enterprise as part of capital contribution inthe partnership firm as per Partnership Deed duly executed on15.08.2008. Undisputedly, the land in question was not transferredin the name of Firm. It is a settled law that where immovableproperty is transferred by a partner to the firm as a capitalcontribution and registration does not take place by paying stampduty, the case would be covered under Section 45(3) of the Act. Asper Section 45(3) of the Act, whenever a partner contributes anycapital asset in the partnership firm, then the value of capital assetrecorded in the books of account of the firm is to be considered asthe full value consideration for the purpose of computing capitalgain. 12.Section 45(3) says that the profits or gains arising from the transferof capital asset by the person to a firm in which he is or becomes apartner by way of a contribution or otherwise, shall be chargeableto tax as his income of the previous year in which such transfertakes place and for the purposes of Section 48, the amountrecorded in the books of account of the firm, as the value of thecapital asset shall be deemed to be the full value of theconsideration received or accruing as a result of transfer of capitalasset. of capital asset by the person to a firm in which he is or becomes apartner by way of a contribution or otherwise, shall be chargeableto tax as his income of the previous year in which such transfertakes place and for the purposes of Section 48, the amountrecorded in the books of account of the firm, as the value of thecapital asset shall be deemed to be the full value of theconsideration received or accruing as a result of transfer of capitalasset. 13. In the present case, we find that no any amount was credited bythe firm in the account of the assessee as a consideration for theland in question during the year AY 2009-10. The record furtherindicates that the full value of consideration of the transfer of saidthe firm in the account of the assessee as a consideration for theland in question during the year AY 2009-10. The record furtherindicates that the full value of consideration of the transfer of said 13. In the present case, we find that no any amount was credited bythe firm in the account of the assessee as a consideration for theland in question during the year AY 2009-10. The record furtherindicates that the full value of consideration of the transfer of saidthe firm in the account of the assessee as a consideration for theland in question during the year AY 2009-10. The record furtherindicates that the full value of consideration of the transfer of said land being recorded was NIL. Under such circumstances, we are ofthe view that since the transfer of land as a part of capitalcontribution the partnership firm took place in the year 2008, thesame can be assessed only in the AY 2009-10 and not in the AY2011-12. Therefore, for the year under consideration no amount ofcapital gain could be said to have taxable. 14. In view of the provisions of law and facts of the present case, weare of the view that the reasons lack validity and the AO hadproceeded on erroneous premise and there was no sufficientmaterial before the AO to take a prima-facie view that income ofthe assessee for the year under consideration has escapedassessment. are of the view that the reasons lack validity and the AO hadproceeded on erroneous premise and there was no sufficientmaterial before the AO to take a prima-facie view that income ofthe assessee for the year under consideration has escapedassessment. 15.A plain reading of the reasons recorded, what emerges is that theinformation received by the AO is too vague and he proceeded forfurther verification of the land transactions and income received bythe Firm and the assessee from the sale of the constructed flats.Therefore, the reopening of the assessment to carryout roving andfishing enquiry is not permissible in law.information received by the AO is too vague and he proceeded forfurther verification of the land transactions and income received bythe Firm and the assessee from the sale of the constructed flats.Therefore, the reopening of the assessment to carryout roving andfishing enquiry is not permissible in law. 16.In view of the aforesaid discussions and reasons thereof, we haveno hesitation to hold that the reasons recorded for the reassessmentfor the year under consideration could not said to have led toformation of any belief that income had escaped assessment withinthe meaning of Section 147 of the Act. no hesitation to hold that the reasons recorded for the reassessmentfor the year under consideration could not said to have led toformation of any belief that income had escaped assessment withinthe meaning of Section 147 of the Act. 17.In the result, both the writ applications are allowed and theimpugned notice dated 30.03.2018 in Special Civil Application No.impugned notice dated 30.03.2018 in Special Civil Application No. 17032 of 2018 and notice dated 27.03.2018 in Special CivilApplication No. 17036 of 2018 are hereby quashed and set aside.There shall be no order as to costs. (J. B. PARDIWALA, J) P.S. JOSHI (ILESH J. VORA,J)