Residency, Belavali, Badlapur (East) 421 v. Deputy Commissioner Of Income Tax

i/b Mr. Kumar Kale. for respondentsMr. Suresh Kumar CORAM:K. R. Shriram & Dr.N.K. Gokhale, JJ.DATED:4[th] September 2023 ORAL JUDGMENT (Per K.R. Shriram J):- 1.Pleadings are complete. With the consent of the Parties wedecided to dispose this Petition at this admission stage. Therefore,Rule, made returnable forthwith. 2.Petitioner is an individual, who filed return of income on13[th] January 2014 for Assessment Year 2013-14 declaring totalincome of Rs.2,32,81,270/-. Petitioner’s case was selected forscrutiny and Petitioner received notice under section 143(2) of theIncome Tax Act, 1961 (“the Act”). 3.During Financial Year 2012-13 corresponding to AssessmentYear 2013-14, Petitioner along with other co-owners had enteredinto a Development Agreement on 15[th] June 2012 with one SaiAshray Developers ("Sai Ashray") for developing the land situated at Chikhloli, Ambernath. During the assessment proceedingsunder Section 143(3) of the Act, Petitioner, vide letter dated 17[th]March 2016, had filed a copy of the Development Agreementbefore the Assessing Officer (“AO”). The AO asked Petitioner as towhy the Development Agreement should not be treated as ‘transferof the said land’ resulting in capital gains and taxed accordingly.Petitioner filed a reply and in the reply Petitioner explained that byentering into the Development Agreement, Petitioner has nottransferred the land to Sai Ashray and specific reference was madeto provisions of Section 2(47)(v) of the Act and Section 53A of theTransfer of Property Act, 1882. Petitioner’s explanation wasaccepted and the assessment order under Section 143(3) of the Actcame to be passed on 31[st] March 2016 without making anyaddition on account of capital gains. Petitioner’s income was,however, determined as Rs.3,32,85,240/- wherein other additionsto the total income of Petitioner were made. 4.Petitioner received a notice dated 22[nd] March 2021 underSection 148 of the Act stating that Respondent No.1 had reasons tobelieve that Petitioner’s income chargeable to tax for AssessmentYear 2013-14 had escaped assessment within the meaning of Section 147 of the Act. Petitioner also received a notice dated 6[th]January 2022 under Section 142(1) of the Act. Petitioner was alsoserved the reasons recorded for re-opening the assessment. 5.Petitioner filed detailed objections vide its communicationdated 8[th] February 2022 that came to be disposed by an orderdated 14[th] February 2022. It is this order along with notice issuedunder Section 148 of the Act which is impugned in this Petition. 6.It is Petitioner’s case that since the notice under Section 148of the Act has been issued after the expiry of four years from theend of the relevant assessment year, as provided in Section 147 ofthe Act, re-opening of the assessment was not permissible unlessthere was failure on the part of Petitioner to fully and truly disclosematerial facts required for assessment. Mr. Jain submitted that thereasons to believe does not indicate that there was any failure onthe part of Petitioner to truly and fully disclose material facts. 7.Mr. Suresh Kumar submitted that Petitioner has filed originalreturn of income treating the land in question as ‘stock in trade’ inthe books of accounts and hence, not a ‘capital asset’ within the meaning of Section 2(47) of the Act. But the screenshot of theschedule of fixed assets held by Petitioner as seen in the balancesheet as on 31[st] March 2012 required for Assessment Year 2012-13,the land in question was treated as a ‘capital asset’ and, therefore,Petitioner had misrepresented the facts by treating the land as‘stock in trade’ in her books of accounts instead of treating it as a‘capital asset’ within the meaning of Section 2(47) of the Act. 7.Mr. Suresh Kumar submitted that Petitioner has filed originalreturn of income treating the land in question as ‘stock in trade’ inthe books of accounts and hence, not a ‘capital asset’ within the meaning of Section 2(47) of the Act. But the screenshot of theschedule of fixed assets held by Petitioner as seen in the balancesheet as on 31[st] March 2012 required for Assessment Year 2012-13,the land in question was treated as a ‘capital asset’ and, therefore,Petitioner had misrepresented the facts by treating the land as‘stock in trade’ in her books of accounts instead of treating it as a‘capital asset’ within the meaning of Section 2(47) of the Act. 8.The entire basis as we could gather from the reason forreopening which prompted the AO to conclude that there wasreason to believe escapement of income is that Petitioner alongwith two other co-owners had granted development rights inrespect of land at Chikhloli, Ambernath to Sai Ashray. As per theDevelopment Agreement, Sai Ashray shall develop the property atits own cost and shall give directly to owners 36% of the totalconstructed saleable area as total consideration for grant ofdevelopment rights. As per the Development Agreement, SaiAshray paid Rs.40 Crores to land owners as refundable interestfree deposit out of which Rs.21 Crore has been paid to Petitionerand her co-owner one Ashish Anand Damale. From those facts,according to AO, it is clear that Petitioner has transferred, as defined under Section 2(47) of the Act, land to Sai Ashray duringFinancial Year 2012-13. According to AO, the market value of theconstructed saleable area was Rs.9.5994 Crores and Petitioner hasonly shown consideration of Rs.3 Crores in the DevelopmentAgreement. Therefore, Petitioner should have offered capital gainduring the Assessment Year 2013-14. 9.At the outset, we have to note that during the assessmentproceedings a query had been raised by the AO and Petitioner hadsubmitted copy of agreement relating to joint development atChikhloli vide its Chartered Account’s letter dated 17[th] March2016. By a further undated letter, Petitioner, after referring to theongoing scrutiny assessment proceedings and referring to thequery that was raised during the assessment proceedings as to whythe Development Agreement entered into by Petitioner with SaiAshray should not be treated as ‘transfer of land’ and taxedaccordingly, explained in detail as to why there was no ‘transfer ofland’. Subsequently, the assessment order 31[st] March 2016 hasbeen passed in which there is even a reference to the JointDevelopment Agreement between Petitioner and Sai Ashray of landat Chikhloli village. Therefore, it is clear that the issue as to whether there was a transfer of land or otherwise was the subjectof consideration before the AO during the assessment proceedings.As seen in Aroni Commercials Ltd. v Deputy Commissioner ofIncome Tax 2(1), Mumbai & Anr. [1] once a query is raised duringthe assessment proceedings and the assessee has replied to it, itfollows that the query raised was the subject of consideration ofthe AO while computing the assessment. It is not necessary that anassessment order should contain reference and/or discussion todisclose its satisfaction in respect of the query raised. Paragraph14 of Aroni Commercial (supra) reads as under: whether there was a transfer of land or otherwise was the subjectof consideration before the AO during the assessment proceedings.As seen in Aroni Commercials Ltd. v Deputy Commissioner ofIncome Tax 2(1), Mumbai & Anr. [1] once a query is raised duringthe assessment proceedings and the assessee has replied to it, itfollows that the query raised was the subject of consideration ofthe AO while computing the assessment. It is not necessary that anassessment order should contain reference and/or discussion todisclose its satisfaction in respect of the query raised. Paragraph14 of Aroni Commercial (supra) reads as under: “14.We find that during the assessment proceedings thepetitioner had by a letter dated 9 July 2010 pointed out thatthey were engaged in the business of financing trading andinvestement in shares and securities. Further, by a letterdated 8 September 2010 during the course of assessmentproceedings on a specific query made by the AssessingOfficer, the petitioner has disclosed in detail as to why itsprofit on sale of investments should not be taxed as businessprofits but charged to tax under the head capital gain. Insupport of its contention the petitioner had also relied uponCBDT Circular No.4/2007 dated 15 June 2007. (The reasonsfor reopening furnished by the Assessing Officer also placesreliance upon CBDT Circular dated 15 June 2007). It wouldtherefore, be noticed that the very ground on which thenotice dated 28 March 2013 seeks to reopen the assessmentfor assessment year 2008-09 was considered by the AssessingOfficer while originally passing assessment order dated 12October 2010. This by itself demonstrates the fact that noticedated 28 March 2013 under Section 148 of the Act seeking toreopen assessment for A.Y.2008-09 is based on mere changeof opinion. However, according to Mr. Chhotaray, learned Counsel for the revenue the aforesaid issue now raised hasnot been considered earlier as the same is not referred to inthe assessment order dated 12 October 2010 passed forA.Y.2008-09. We are of the view that once a query is raisedduring the assessment proceedings and the assessee hasreplied to it, it follows that the query raised was a subject ofconsideration of the Assessing Officer while completing theassessment. It is not necessary that an assessment ordershould contain reference and/or discussion to disclose itssatisfaction in respect of the query raised. If an AssessingOfficer has to record the consideration bestowed by him onall issues raised by him during the assessment proceedingseven where he is satisfied then it would be impossible for theAssessing Officer to complete all the assessments which arerequired to be scrutinized by him under Section 143(3) of theAct. Moreover, one must not forget that the manner in whichan assessment order is to be drafted is the sole domain of theAssessing Officer and it is not open to an assessee to insistthat the assessment order must record all the questions raisedand the satisfaction in respect thereof of the Assessing Officer.The only requirement is that the Assessing Officer ought tohave considered the objection now raised in the grounds forissuing notice under Section 148 of the Act, during theoriginal assessment proceedings. There can be no doubt inthe present facts as evidenced by a letter dated 8 September2012 the very issue of taxability of sale of shares under thehead capital gain or the head profits and gains from businesswas a subject matter of consideration by the Assessing Officerduring the original assessment proceedings leading to anorder dated 12 October 2010. It would therefore, follow thatthe reopening of the assessment by impugned notice dated 28March 2013 is merely on the basis of change of opinion of theAssessing Officer from that held earlier during the course ofassessment proceeding leading to the order dated 12 October2010. This change of opinion does not constitute justificationand/or reasons to believe that income chargeable to tax hasescaped assessment” 10.This would also indicate that there was no failure to disclose any material fact. On that ground alone the notice dated 22[nd]March 2021 issued under Section 148 of the Act has to be quashedand set side. So also the impugned order dated 14[th] February 2022disposing Petitioner’s objections. Moreover, the other co-owner’s case was also proposed tobe reopened. The other co-owner Late Bharat Jayantilal Patel(since deceased) through legal heir Smt. Minal Bharat Patel hadfiled Writ Petition No.1612 of 2022 which came to be disposed on10[th] February 2023. In that case, we could say identical reasons forreopening of the assessment was recorded. The Court afterconsidering the submissions made and relying upon the judgmentof the Apex Court in the case of Seshasayee Steels (P) Ltd. VAssistant Commissioner of Income Tax VI(2), Chennai[2] held thatthe assessee had only granted a licence to Developer who enteredinto assessee’s land for the purpose of development and that didnot amount to ‘allowing the possession of the land’ ascontemplated under Section 53A of the Transfer of Property Act,1882 and therefore Section 2(47)(v) of the Act would not apply.The Court held that granting of a licence for the purpose ofdevelopment of the flats and selling the same could not be said tobe granting possession. The findings of the Court in Writ PetitionNo. 1612 of 2022 will squarely apply to the facts of this case aswell. 22020 (115) taxmann.com 5 (SC). 11.Accordingly, we make the rule absolute in terms of prayerclause (a) which reads as under: “(a)that this Hon’ble Court may be pleased to issuea Writ of Certiorari or a Writ in the nature ofCertiorari or any other appropriate Writ, Order ordirection, calling for the records of the Petitioner’scase and after going to the legality and proprietythereof, to quash and set aside the notice u/s 148dated 22.03.2021 (“Exhibit D”) and the Order dated14.02.2022 (“Exhibit I”) disposing of Petitioner’sobjections to the issue of impugned notice.” 12.Petition disposed. (DR. N. K. GOKHALE, J.) (K. R. SHRIRAM, J.)