Ms Tarla Krishnakumar Shah v. Income Tax Officer & Ors

dik IN THE HIGH COURT OF JUDICATURE AT BOMBAY O.O.C.J. WRIT PETITION NO. 3649 OF 2018 Ms Tarla Krishnakumar Shah...Petitioner. vsIncome Tax Officer & Ors....Respondents. ..... Mr Madhuar Agrawal a/w Mr Upendra Lokegaonkar I/b Mint & Confreres for the PetitionerMr N.C.Mohanty for Respondent Nos.1 and 2. ..... CORAM : AKIL KURESHI & B.P.COLABAWALLA, JJ.FEBRUARY 07, 2019. P.C. : The Petitioner has challenged a notice of reopening of theassessment issued by Respondent No.1 – Assessing Officer (“A.O.” forshort) on 30[th] October, 2018. 2Brief facts are as under; The Petitioner is an agriculturist. For the AssessmentYear (“A.Y.” for short) 2014-15, the Petitioner had not filed any returnof income claiming that she had no taxable income. The A.O. issued anotice under Section 148 of the Income Tax Act, 1961 (“IT Act” forshort) seeking to assess the Petitioner's income for the said A.Y. In order to do so, he had recorded the following reasons - “The assessee has not filed the return of Income for A.Y. 2014-15. Pg 1 of 11 2.In this case, information has been received from the Addl. Director ofIncome Tax ( I & CI), Unit -2, Mumbai vide letter No.Adl.DIT ( I&CI),Unit-2/F.Trans/SP/2016-17 dated 24.02.2017 stating that the assessor hassold immovable property situated at Village Acole, Taluka Nalasopara forconsideration of Rs.3,51,00,000/- and sale deed was registered on24/12/2013. As seen in Index II, the Market Value of the property as perStamp Duty Authorities is taken Rs.40,62,50,000/- which attracts section50C of the I.T.Act, 1961.Income Tax ( I & CI), Unit -2, Mumbai vide letter No.Adl.DIT ( I&CI),Unit-2/F.Trans/SP/2016-17 dated 24.02.2017 stating that the assessor hassold immovable property situated at Village Acole, Taluka Nalasopara forconsideration of Rs.3,51,00,000/- and sale deed was registered on24/12/2013. As seen in Index II, the Market Value of the property as perStamp Duty Authorities is taken Rs.40,62,50,000/- which attracts section50C of the I.T.Act, 1961. 3.In view of the above, I have reason to believe that income to the tune ofRs.40,62,50,000/- has escaped assessment for the assessment year 2014-15in view of the provisions of section 147 of the I.T.Act, 1961. Necessaryapproval from the Jt. CIT – 22(3), Mumbai is necessary under theprovisions of section 151(2) of the I.T.Act, 1961. A proposal in theprescribed proforma is enclosed herewith.” Rs.40,62,50,000/- has escaped assessment for the assessment year 2014-15in view of the provisions of section 147 of the I.T.Act, 1961. Necessaryapproval from the Jt. CIT – 22(3), Mumbai is necessary under theprovisions of section 151(2) of the I.T.Act, 1961. A proposal in theprescribed proforma is enclosed herewith.” 3Upon being supplied the reasons, the Petitioner raised theobjections to the notice of reopening of the assessment under letterdated 12/09/2018. These objections were, however, rejected by theA.O. by an order dated 26[th] November, 2018. Thereupon this Petitionhas been filed. 4Inviting our attention to the reasons recorded, the counselfor the Petitioner pointed out that the ground for reopening of theassessment cited by the A.O. was the registered sale-deed in relationto the immovable property (hereinafter referred to as “saidproperty”) executed on 24/12/2013 with a disclosed saleconsideration of Rs.3.51 Crores. According to the A.O. as per the Pg 2 of 11 15.wp.3649.2018.db.doc 3Upon being supplied the reasons, the Petitioner raised theobjections to the notice of reopening of the assessment under letterdated 12/09/2018. These objections were, however, rejected by theA.O. by an order dated 26[th] November, 2018. Thereupon this Petitionhas been filed. 4Inviting our attention to the reasons recorded, the counselfor the Petitioner pointed out that the ground for reopening of theassessment cited by the A.O. was the registered sale-deed in relationto the immovable property (hereinafter referred to as “saidproperty”) executed on 24/12/2013 with a disclosed saleconsideration of Rs.3.51 Crores. According to the A.O. as per the Pg 2 of 11 15.wp.3649.2018.db.doc Stamp Duty Authorities, the market value of the said property wasRs.40.62 Crores (rounded off) . In terms of Section 50C of the Act,the difference between the market value and the declared saleconsideration would be the assessee's Long Term Capital Gain. Thecounsel for the Petitioner however pointed out that the Petitioner wasthe owner of 20 % of the said property. There were litigations andencroachments concerning the property. The Petitioner had executedan agreement-for-sale of the said property on 31/08/2007 with oneM/s Hard Roak Construction Company Pvt. Ltd. (hereinafter referredto as “said company”) at which time the Petitioner had received fullconsideration of Rs.3.80 Crores. In the return filed for the year 2008-09, when the agreement was executed the Petitioner had not offeredsuch sale consideration to tax, claiming that there was no transfer ofthe property. The A.O., however, passed the order of assessmentholding that looking to the terms of the agreement, the transfer of theland was completed and that the assessee was liable to pay capitalgain tax during the said year. The counsel submitted that thePetitioner had not filed appeal against such an order of theassessment. The A.O. now cannot go back on this position and claimthat the transfer of the land was complete only upon execution of thesale-deed. He, therefore, submitted that the reasons recorded by theA.O. lack validity. Pg 3 of 11 5On the other hand, learned counsel for the departmentopposed the petition contending that the A.O. has recorded the properreasons. The Petitioner had not filed the return of income for the saidA.Y. 2014-15. He relied on the decision of the Supreme Court in thecase of Assistant CIT Vs Rajesh Jhaveri Stock Brokers (P) Ltd.(291 ITR 500 ) to contend that in such a situation the A.O. has widelatitude to reopen the assessment. At this stage, the Court would notbe concerned with the sufficiency of the reasons for reopening theassessment. 6We have perused the documents and record minutely. On31/08/2007 the Petitioner had executed an agreement to sell for 20 %share in the said property, for a consideration of Rs.3.80 Crores infavour of the said company. The agreement itself stated that thePetitioner had received such consideration at the time of execution ofthe agreement. The agreement also listed several disputesconcerning the said property, pending before the Civil Courts atvarious stages. The agreement further recorded as under- “3.Payment of Purchase Price of Consideration. 3.1The Purchaser has paid the aforesaid purchase price or consideration moneyof Rs.3,80,00,000/- (Rupees Three Crores Eighty Lakhs only) to theVendor on or before the execution of this agreement the receipt whereof theof Rs.3,80,00,000/- (Rupees Three Crores Eighty Lakhs only) to theVendor on or before the execution of this agreement the receipt whereof the Pg 4 of 11 Vendor does hereby confirm, admit and acknowledge, and from the samedoes hereby release and discharge the Purchaser forever. The Vendorconfirms that she has received the entire purchase price payable by thePurchaser and consequently the agreement herein shall not be revoked orcancelled by her under any circumstances. 3.2 “3.Payment of Purchase Price of Consideration. 3.1The Purchaser has paid the aforesaid purchase price or consideration moneyof Rs.3,80,00,000/- (Rupees Three Crores Eighty Lakhs only) to theVendor on or before the execution of this agreement the receipt whereof theof Rs.3,80,00,000/- (Rupees Three Crores Eighty Lakhs only) to theVendor on or before the execution of this agreement the receipt whereof the Pg 4 of 11 Vendor does hereby confirm, admit and acknowledge, and from the samedoes hereby release and discharge the Purchaser forever. The Vendorconfirms that she has received the entire purchase price payable by thePurchaser and consequently the agreement herein shall not be revoked orcancelled by her under any circumstances. 3.2 The Purchaser confirms that it was agreed to purchase and acquire theVendor's share right title and interest in the said Property subject to theaforesaid litigations and claims set out in clauses 2.1 and 2.2 above, at thePurchaser's own costs risk and consequences. The Purchaser alone shall beresponsible and liable for settlement of all the aforesaid disputes and theacquisition of the shares of the other co-owners and the Vendor shall no beliable or responsible for resolving or settling the same. The Vendor hasprovided the Purchaser inspection of photocopies of all documentsexecuted by her and pleadings of all proceedings to which she is a party, andthe Purchaser has agreed to purchase the said Property on “as is where is”basis with all defects and pending proceedings, and the Purchaser shall nothold the Vendor liable or responsible in that behalf. 3.3It is clearly agreed by and between the parties that in the event that the saidproperty or any part thereof is found to be subject to be subject to anyreservation or to any acquisition or requisition proceedings, the Purchasershall not hold the Vendor liable or responsible for clearing the same.property or any part thereof is found to be subject to be subject to anyreservation or to any acquisition or requisition proceedings, the Purchasershall not hold the Vendor liable or responsible for clearing the same. 3.4The Vendor shall, simultaneously with the execution of this agreement,execute a comprehensive irrevocable Power of Attorney in favour of thePurchaser and its nominees, authorising them to do the various acts deedsmatters and things in respect of the said Property as the Vendor himselfcould do as the co-owner of the said Property and another Power ofAttorney in favour of Purchaser and its nominee or nominees authorisingthem inter alia to withdraw and settle the pending cases.execute a comprehensive irrevocable Power of Attorney in favour of thePurchaser and its nominees, authorising them to do the various acts deedsmatters and things in respect of the said Property as the Vendor himselfcould do as the co-owner of the said Property and another Power ofAttorney in favour of Purchaser and its nominee or nominees authorisingthem inter alia to withdraw and settle the pending cases. 4. The stamp duty and registration charges payable on this agreement and/or thesaid consent terms and/or the said conveyance shall be borne and paid by thePurchaser alone and the Vendor shall not be liable or responsible for the same.said consent terms and/or the said conveyance shall be borne and paid by thePurchaser alone and the Vendor shall not be liable or responsible for the same. 5. Neither party shall be entitled to terminate this agreement except on account ofan express breach of the terms and conditions of this agreement. Each of thean express breach of the terms and conditions of this agreement. Each of the Pg 5 of 11 parties hereto shall be entitled to seek specific performance of the agreementagainst the other. 4. The stamp duty and registration charges payable on this agreement and/or thesaid consent terms and/or the said conveyance shall be borne and paid by thePurchaser alone and the Vendor shall not be liable or responsible for the same.said consent terms and/or the said conveyance shall be borne and paid by thePurchaser alone and the Vendor shall not be liable or responsible for the same. 5. Neither party shall be entitled to terminate this agreement except on account ofan express breach of the terms and conditions of this agreement. Each of thean express breach of the terms and conditions of this agreement. Each of the Pg 5 of 11 parties hereto shall be entitled to seek specific performance of the agreementagainst the other. 6. The Vendor has made it clear to the Purchaser that the Vendor is not inpossession of the said Property or any part thereof and it will be upto thePurchaser to negotiate with those found in possession thereof and obtainpossession of the said Property from them.possession of the said Property or any part thereof and it will be upto thePurchaser to negotiate with those found in possession thereof and obtainpossession of the said Property from them. In the event of any dispute arising between the parties hereto with regard to,relating to or arising out of this Agreement for Sale or the construction,interpretation or implementation of any provisions hereof, the same shall bereferred to the arbitration of a sole arbitrator if the parties agree upon theappointment of the sole arbitrator, failing which the dispute shall be referred toarbitration in accordance with the provisions of Arbitration & Conciliation Act,1996 or any statutory re-enactment or modification thereof. The arbitration shalltake place in Mumbai.” 7In the return filed for the A.Y. 2008-09, as noted, thePetitioner did not offer such receipt of Rs.3.80 Crores stating thereason that there was no transfer of the immovable property, andtherefore, the capital gain cannot be stated to have accrued. It wasthe A.O. who took the contrary stand. After giving an opportunity tothe Petitioner to make representation, he passed the order of theassessment on 31/03/2008 in which he held that the assessee hadsold her rights in the property to the purchaser and the assessee hadno liability in respect of the said property since the purchaser hadtaken over the liabilities and purchased the property on “as is whereis” basis. The relevant portion of the order of A.O. reads as under - Pg 6 of 11 15.wp.3649.2018.db.doc 7In the return filed for the A.Y. 2008-09, as noted, thePetitioner did not offer such receipt of Rs.3.80 Crores stating thereason that there was no transfer of the immovable property, andtherefore, the capital gain cannot be stated to have accrued. It wasthe A.O. who took the contrary stand. After giving an opportunity tothe Petitioner to make representation, he passed the order of theassessment on 31/03/2008 in which he held that the assessee hadsold her rights in the property to the purchaser and the assessee hadno liability in respect of the said property since the purchaser hadtaken over the liabilities and purchased the property on “as is whereis” basis. The relevant portion of the order of A.O. reads as under - Pg 6 of 11 15.wp.3649.2018.db.doc “(7)The submission made by the assessee is duly considered. As per section2(47) of the Act, transfer in relation to a capital asset, includes, the sale,exchange or relinquishment of the asset or the extinguishment of any rightstherein. As per the agreement for sale dated 31/8/2007 the assessee has soldher 20 % share, right title and interest the property of a total consideration ofRs.3,80,00,000/- on “as is where is” basis. In the agreement the pendinglitigations in respect of the property is mentioned and the purchaser has beenalso made aware of it in clear terms. Further as per the terms and conditionsincluded in the payment of purchase price or consideration as stated in para 3of the agreement, it clearly shows that the assessee has relinquished her rightin the property on execution of the agreement. The clauses as stated in para3 of the agreement is reproduced as under:2(47) of the Act, transfer in relation to a capital asset, includes, the sale,exchange or relinquishment of the asset or the extinguishment of any rightstherein. As per the agreement for sale dated 31/8/2007 the assessee has soldher 20 % share, right title and interest the property of a total consideration ofRs.3,80,00,000/- on “as is where is” basis. In the agreement the pendinglitigations in respect of the property is mentioned and the purchaser has beenalso made aware of it in clear terms. Further as per the terms and conditionsincluded in the payment of purchase price or consideration as stated in para 3of the agreement, it clearly shows that the assessee has relinquished her rightin the property on execution of the agreement. The clauses as stated in para3 of the agreement is reproduced as under: “3.1The purchaser has paid the aforesaid purchase price or considerationof Rs.3,80,00,000/- (Rupees Three Crores Eighty Lakhs only) to theVendor on or before the execution of this agreement the receiptwhereof the Vendor does hereby confirm, admit and acknowledge,and from the same does hereby release and discharge the Purchaserforever. The Vendor confirm that she has received the entirepurchase price payable by the Purchaser and consequently theagreement herein shall not be revoked or cancelled by her underany circumstances. of Rs.3,80,00,000/- (Rupees Three Crores Eighty Lakhs only) to theVendor on or before the execution of this agreement the receiptwhereof the Vendor does hereby confirm, admit and acknowledge,and from the same does hereby release and discharge the Purchaserforever. The Vendor confirm that she has received the entirepurchase price payable by the Purchaser and consequently theagreement herein shall not be revoked or cancelled by her underany circumstances. 3.2The Purchaser confirms that it has agreed to purchase and acquirethe Vendor's share right title and interest in the said property subjectto the aforesaid litigations and claims set out in clauses 2.1 and 2.2above, at the Purchaser's owns costs risk and consequences. ThePurchaser alone shall be responsible and liable for settlement of allthe aforesaid disputes and the acquisition of the shares of the otherco-owners and the vendor shall not be liable or responsible forresolving or settling the same. The Vendor has provided thePurchaser inspection of photocopies of all documents executedby her and pleadings of all proceedings to which she is a party,and the Purchaser has agreed to purchase the said Property on“as is where is” basis with all defects and pending proceedings,the Vendor's share right title and interest in the said property subjectto the aforesaid litigations and claims set out in clauses 2.1 and 2.2above, at the Purchaser's owns costs risk and consequences. ThePurchaser alone shall be responsible and liable for settlement of allthe aforesaid disputes and the acquisition of the shares of the otherco-owners and the vendor shall not be liable or responsible forresolving or settling the same. The Vendor has provided thePurchaser inspection of photocopies of all documents executedby her and pleadings of all proceedings to which she is a party,and the Purchaser has agreed to purchase the said Property on“as is where is” basis with all defects and pending proceedings, Pg 7 of 11 and the Purchaser shall not hold the Vendor liable or responsiblein that behalf. 3.3It is clearly agreed by and between the parties that in the event thatthe said Property or any part thereof is found to be subject to anyreservation or to any acquisition or requisition proceedings, thePurchaser shall not hold the Vendor liable or responsible for clearingthe said Property or any part thereof is found to be subject to anyreservation or to any acquisition or requisition proceedings, thePurchaser shall not hold the Vendor liable or responsible for clearing the same. 3.4The Vendor shall, simultaneously, with the execution of thisagreement, execute a comprehensive irrevocable Power of Attorneyin favour of the Purchaser and its nominees, authorizing them to dothe various acts deeds matters and things in respect of the saidProperty, and another Power of Attorney in favour of Purchaser andits nominee or nominees authorizing them inter alia to withdraw andsettle the pending cases.agreement, execute a comprehensive irrevocable Power of Attorneyin favour of the Purchaser and its nominees, authorizing them to dothe various acts deeds matters and things in respect of the saidProperty, and another Power of Attorney in favour of Purchaser andits nominee or nominees authorizing them inter alia to withdraw andsettle the pending cases. the same. 3.4The Vendor shall, simultaneously, with the execution of thisagreement, execute a comprehensive irrevocable Power of Attorneyin favour of the Purchaser and its nominees, authorizing them to dothe various acts deeds matters and things in respect of the saidProperty, and another Power of Attorney in favour of Purchaser andits nominee or nominees authorizing them inter alia to withdraw andsettle the pending cases.agreement, execute a comprehensive irrevocable Power of Attorneyin favour of the Purchaser and its nominees, authorizing them to dothe various acts deeds matters and things in respect of the saidProperty, and another Power of Attorney in favour of Purchaser andits nominee or nominees authorizing them inter alia to withdraw andsettle the pending cases. 8A plain reading of the terms and conditions as reproduced above clearly showsthat the assessee has sold her rights to the property to the purchaser and hasalso given the purchaser a power of attorney to deal with the property in thecapacity of having the rights of owner of the property. The assessee has noliability with respect to the said property since the purchaser has taken over allthe liabilities and has purchased the property on “as is where is” basis. Theassessee has also handed over the possession of the property to the purchaser.It is further seen that the assessee has been utilized the consideration receivedto give gifts amounting to Rs.40 Lakhs and loans amounting to Rs.1.30Crores. The assessee has even paid advance tax of Rs.34,60,860/- treating thetransaction as capital gains. Thus the assessee's argument that capital gains isnot taxable since conveyance has not taken place, does not hold good.” that the assessee has sold her rights to the property to the purchaser and hasalso given the purchaser a power of attorney to deal with the property in thecapacity of having the rights of owner of the property. The assessee has noliability with respect to the said property since the purchaser has taken over allthe liabilities and has purchased the property on “as is where is” basis. Theassessee has also handed over the possession of the property to the purchaser.It is further seen that the assessee has been utilized the consideration receivedto give gifts amounting to Rs.40 Lakhs and loans amounting to Rs.1.30Crores. The assessee has even paid advance tax of Rs.34,60,860/- treating thetransaction as capital gains. Thus the assessee's argument that capital gains isnot taxable since conveyance has not taken place, does not hold good.” 8The sale-deed came to be executed on the strength of thePower of Attorney given by the Petitioner. The sale-deed wasexecuted in favour of the Directors of the said company, claiming to bethe agriculturists. Upon registration of the sale-deed, the the A.O. now Pg 8 of 11 15.wp.3649.2018.db.docseeks to invoke the provisions of Section 50-C of the Act giving rise tothe 'deemed capital gain' in the hands of the Petitioner. In the reasonsrecorded, he had referred to the sale-deed in question and alsopointed out that as per the Stamp Duty Authorities, the market valueof the land in question was Rs. 40.62 Crores. He, therefore, believedthat the 'capital gain' in the hands of the Petitioner should be taxed onthe basis of such valuation instead of sale consideration of Rs.3.80Crores, originally received by the Petitioner. 9The Petitioner had brought to the notice of the A.O. of theprevious facts concerning the assessment for the A.Y 2008-09pointing out inter alia that the A.O. had held that the Petitioner'srights in the immovable property stood transferred upon execution ofthe agreement to sell. The A.O. now cannot take a contrary stand.This objection was rejected by the A.O. in the order, disposing of theobjections by making following observations - 9The Petitioner had brought to the notice of the A.O. of theprevious facts concerning the assessment for the A.Y 2008-09pointing out inter alia that the A.O. had held that the Petitioner'srights in the immovable property stood transferred upon execution ofthe agreement to sell. The A.O. now cannot take a contrary stand.This objection was rejected by the A.O. in the order, disposing of theobjections by making following observations - “6.In this context, please note that while completing your original assessmentu/s. 143(3) dated 02.12.2010, the A.O. held that you were in receipt ofentire sale consideration as per agreement dated 31.08.2007 and therefore,the Long Term Capital Gains earned by you as a result of transfer ofimmovable was taxable in your hands. It may be stated that contrary toyour submission towards objecting to re-opening, you had during thecourse of original assessment proceedings contested that though theassessee received entire sale consideration, no possession of property wasgiven based on adverse possession and litigation. Therefore, it was claimedu/s. 143(3) dated 02.12.2010, the A.O. held that you were in receipt ofentire sale consideration as per agreement dated 31.08.2007 and therefore,the Long Term Capital Gains earned by you as a result of transfer ofimmovable was taxable in your hands. It may be stated that contrary toyour submission towards objecting to re-opening, you had during thecourse of original assessment proceedings contested that though theassessee received entire sale consideration, no possession of property wasgiven based on adverse possession and litigation. Therefore, it was claimed Pg 9 of 11 by you that transfer was not complete within the meaning of section 2(47)of the Act, even though the full consideration was received by you. Youhave not accepted that the capital gains are assessable in AY 2008-09 andyou contested before the A.O. that only in order to buy peace you did notcontest the order and paid the taxes.” 10In plain terms, the action of the A.O. to reopen theassessment is wholly impermissible. Since in the present case theassessee had not filed the return of income for the A.Y. 2014-15, as perthe settled law, there would be no question of change of opinion sincethe A.O. had no occasion to form any opinion with respect to the issueat hand. However, in such a case, the requirement that the A.O. musthave reason to believe that the income to tax has escaped theassessment must exist before the A.O. can issue a notice underSection 148 of the Act. In other words, if it is found that the reasonsrecorded by the A.O. for issuing the notice lack validity, such a noticewould be invalid. In this context, we recall, the Petitioner hadreceived entire sale consideration of Rs.3.80 Crores at the time ofexecution of the agreement-to-sell in the year 2007. The assesseecontended that since there was no transfer of property, such aconsideration cannot be taxed as a 'capital gain' in the hands of thePetitioner. The A.O. did not accept such contention. On the basis ofthe agreement-to-sell produced by the assessee, the A.O. came to theconclusion that the assessee had divested herself of all rights in the Pg 10 of 11 Pg 10 of 11 15.wp.3649.2018.db.docproperty. The assessee had received full sale consideration. Theassessee had handed over the possession of the property to theproposed purchasers. It was the purchasers who would beresponsible for any defects in the title. The purchasers would dealwith the pending litigations. The A.O., therefore, taxed the entireconsideration in the hands of the assessee as her 'capital gain'. Theassessee did not challenge this order and the order of the A.O. thusbecame final. Any action on the part of the A.O. to tax the 'capitalgain' in the hands of the assessee for the A.Y. 2014-15, on the strengthof the subsequent sale-deed, would amount to shifting his stand fromtransfer of property being complete upon execution of the agreementto sale to transfer of property taking place only now upon execution ofthe sale-deed. It is not the case of the revenue that at the time ofexecution of the sale-deed the Petitioner received any further saleconsideration. Under these circumstances, the impugned notice is setaside. The Writ Petition is allowed and disposed of accordingly. Noorder as to costs. (B.P.COLABAWALLA, J.) (AKIL KURESHI, J.) Pg 11 of 11