Taxap/1091/2008 Of Arun Munshaw Huf v. Income Tax Officer, Ward 7(1)

C/TAXAP/1091/2008 JUDGMENT IN THE HIGH COURT OF GUJARAT AT AHMEDABAD R/TAX APPEAL NO. 1091 of 2008 FOR APPROVAL AND SIGNATURE: HONOURABLE MR.JUSTICE J.B.PARDIWALASd/-andHONOURABLE MR. JUSTICE BHARGAV D. KARIASd/-================================================================1Whether Reporters of Local Papers may be allowedNOto see the judgment ?2To be referred to the Reporter or not ?NO3Whether their Lordships wish to see the fair copyNOof the judgment ?4Whether this case involves a substantial questionNOof law as to the interpretation of the Constitutionof India or any order made thereunder ? ================================================================ARUN MUNSHAW HUF VersusINCOME TAX OFFICER, WARD 7(1) ================================================================ Appearance:MRS SWATI SOPARKAR with MR BS SOPARKAR for the Appellant(s) No. 1MRS MAUNA M BHATT(174) for the Opponent(s) No. 1 ================================================================ CORAM: HONOURABLE MR.JUSTICE J.B.PARDIWALAandHONOURABLE MR. JUSTICE BHARGAV D. KARIA Date : 13/01/2020 ORAL JUDGMENT (PER : HONOURABLE MR.JUSTICE J.B.PARDIWALA) This Tax Appeal under Section 260A of the Income Tax Act,1961 (for short, 'the Act 1961') is at the instance of an assessee and is directed against the order dated 9[th] March 2007 passed bythe Income Tax Appellate Tribunal, Ahmedabad Bench 'D' in theITA No.1113/Ahd/2001 for the Assessment Year 1991-92. The facts giving rise to this Appeal may be summarised asunder : The assessment was completed under Section 143(3) of theAct 1961 on 28[th] March 1994 on the total income ofRs.75,404=00, which included the long term capital gains ofRs.61,812=00. The assessee sold a property being anagricultural land admeasuring 7986 sq.yards in the form of afarmhouse along with water tank, servant quarter, etc.,constructed on it for a consideration of Rs.30,00,000=00 duringthe Accounting Year relevant to the Assessment Year 1991-92.The assessee claimed deduction under Sections 53(b), 54(1)(i)and 54E of the Act, 1961 (as amended by the Finance Act, 1992)from the capital gains arising from the sale of the property. Thedeductions as claimed were allowed. The claim of the assesseewas that the sale was of a residential house along with the landappurtenant thereto. Later, it was noticed by the AssessingOfficer that the property in question was agricultural land and,therefore, the deduction under Sections 53(b) and 54(1)(i) of theAct had been wrongly allowed. In such circumstances, theAssessing Officer reopened the assessment by issuing a noticeunder Section 148 of the Act. The reassessment was accordinglycompleted withdrawing the deductions under Sections 53(b) and54(1)(i) respectively of the Act. The long term capital gains wasdetermined at Rs.17,11,363=00. The assessee, being dissatisfied with the assessment order,preferred an appeal before the Commissioner of Income Tax (Appeals) VIII, Ahmedabad. The appeal preferred by the assesseecame to be allowed by the CIT(A) vide order dated 13[th] March2001. While allowing the appeal, the CIT(A) held as under : The assessee, being dissatisfied with the assessment order,preferred an appeal before the Commissioner of Income Tax (Appeals) VIII, Ahmedabad. The appeal preferred by the assesseecame to be allowed by the CIT(A) vide order dated 13[th] March2001. While allowing the appeal, the CIT(A) held as under : “4.During the course of hearing of appeal, which wasattended both by the Authorised Representative of theappellant and the present Assessing Officer, a reportdt.15.1.2000 was sent by the Assessing Officer. In the saidreport, it was submitted that the department's view withregard to the property sold by the appellant is that it wasagricultural land and not residential property. TheAssessing Officer has stated that in the Deed of Conveyancesubmitted at the time of assessment proceedings theproperty has been shown as agricultural land along withfarm house and servant quarters, etc. and nothing has beenmentioned about the nature of the construction or the areaunder construction described as farm house. It is also statedthat during the course of assessment proceedings theassessee had not furnished any evidence whereby it couldbe held that the property in question was residentialproperty and the same was actually used for the purpose.The A.O. has further submitted that the wealth tax return ofthe appellant for A.Y. 1990-91 shows that a bungalowmentioned as 'Avanti' has been disclosed in the statement ofnet wealth and at present also the assessee is staying inthat bungalow i.e. 'Avanti'. The A.O. has, therefore, opinedthat the property declared in the Conveyance Deed as farmhouse was not the bungalow which was mentioned in thewealth tax return for A.Y. 1990-91. Accordingly, the A.O.was of the view that there was a failure on the part of theassessee to disclose fully and truly all material facts necessary for assessment. The A.O. has further submittedthat though in the reasons recorded for the issue of noticeu/s.148 specific words regarding 'failure on the part of theassessee to disclose fully and truly all material factsnecessary for assessment' have not been mentioned, hisaction was only as a result of the same. The A.O. has alsoreferred to the judgment of the Hon'ble Gujarat High Court inthe case of Praful Chunilal Patel and Vasant Chunilal Patelv. M.J.Makwana, ACIT (236 ITR 832) for justifying thereopening of assessment in this case. 4.1In view of the above report of the A.O., the AssessingOfficer was again asked to be present for the hearing on15.2.2001 wherein the issue pertaining to the reopening ofassessment in this case was discussed with him and withthe Authorised Representative of the appellant. In view ofvarious doubts expressed by the Assessing Officerregarding the failure on the part of the assesee to disclosefully and truly all material facts during the originalassessment proceedings, the A.O. was required to makefurther inquiry with the appellant as to whether it was'Avanti' bungalow which was sold or whether it was someother farm house on agricultural land which was theproperty in question. It was clarified by the appellant thatthe bungalow sold by the assessee was named as 'Avanti'and was situated at block no.518. It is also stated thatreference to bungalow situated at block no.518 is made atvarious places in the Deed of Conveyance. It is also statedthat in Form No.37I, there is a specific reference to a farmhouse along with water tank, servant quarter, etc againstcolumn – 'Description and location of the property'. It is further clarified that on page no.16 of the Conveyance Deed,it is specifically stated that there is block no.512 situated onthe eastern side of block no.518. The assessee has alsoclarified that he had constructed a new bungalow on blockno.512, which has also been named as 'Avanti' by him andthe assessee is presently living in that bungalow. The aboveclarifications of the assessee were forwarded to me by theA.O. vide letter dt.7.3.2001. The Assessing Officer has,however, not refuted these clarifications. 5.I have considered the facts of the case and thecontentions of the appellant and also heard the AssessingOfficer in the matter. I have also considered the reports ofthe A.O. dtd.15.1.2001 and 7.3.2001. The reasons recordedby the Assessing Officer for reopening the assessmentu/s.147 of the Income-tax Act have also been gone through.The reasons show that on scrutiny of record the AssessingOfficer noticed that during the year under consideration theassessee had sold agricultural land along with farm housebuilt on it and deductions u/s.53(b); 54(1)(i) and 54E hadbeen claimed from the capital gains. The A.O. has furthernoticed that deductions u/s.53(b) and 54(1)(i) were notapplicable to the assessee as these relate to residentialproperty. The above reasons show that the assessment was reopenedbecause of the belief of the A.O. that certain statutorydeductions had been wrongly claimed and allowed. Thereasons, however, do not indicate that the assessment wasreopened on account of any material fact relating to theclaim, which was not before the A.O. at the time of original assessment and which came to the notice of the A.O.subsequently. As far as the submissions made by thepresent Assessing Officer during the course of hearing ofappeal are concerned, it is seen that the inquiry conductedon various points with the appellant shows that what wassold was an agricultural land having a farm house built onit, which was named by the assessee as 'Avanti'. Thecomparison of the information furnished during the originalassessment proceedings with that of the wealth tax recordsof the assessee (statement of net wealth for A.Y. 1990-91)does not show that the assessee had any other residentialhouse besides this farm house built on agricultural land.Thus, what was required to be considered was, whether thefarm house could be treated as bungalow more specificallyas a residential house for the purposes of deductionu/s.53(b) and 54(1)(i) of the Income-tax Act or not. The factsdo not, however, reveal that the appellant had himselfmis-informed the department or failed to disclose any of thematerial facts. Even if a view is subsequently taken that theproperty sold was agricultural land and not a residentialhouse with the land appurtenant thereto, it could only beinferred that a wrong claim for deduction was made but, itcannot be said that there was a failure on the part of theassessee to disclose all material facts relevant to theassessment. The relevant documents i.e. Conveyance Deed;permission of the Appropriate Authority giving the nature ofthe property sold, had been filed by the appellant at the timeof original assessment proceedings. No new information ordocument came to the notice of the Assessing Officer so asto now hold that the deductions had been wrongly allowed,because the property sold was agricultural land and not residential house. It was only a change of opinion on thebasis of same factual information that the property inquestion was to be considered as agricultural land and notresidential house for the purposes of capital gains. Therewas however, no failure on the part of the appellant todisclose fully and truly all material facts necessary forassessment. residential house. It was only a change of opinion on thebasis of same factual information that the property inquestion was to be considered as agricultural land and notresidential house for the purposes of capital gains. Therewas however, no failure on the part of the appellant todisclose fully and truly all material facts necessary forassessment. 5.1In the case of Garden Silk Mills Ltd. v. DCIT 222 ITR27, which was before the Hon'ble Gujarat High Court, theassessee had claimed depreciation on increase in cost ofmachinery due to fluctuation in rate of foreign exchange.Depreciation was allowed by the I.T.O. after considering thematter and allowance was also upheld on revision by theCIT. The re-assessment proceedings were however initiatedafter 4 years on the ground that excessive depreciation hadbeen allowed. It was held by the Hon'ble High Court that theA.O. was aware about the investment and fluctuations inthe exchange rate and there was no failure on the part ofthe assessee to disclose any material facts necessary forassessment. The notice of re-assesssment was not validand was required to be quashed. 5.3The Assessing Officer in his report dt.15.1.2000 hasrelied on the judgment of the Hon'ble Gujarat High Court inthe case of Praful Chunilal Patel and Vasant Chunilal Patelv. M.J.Makwana, ACIT (236 ITR 832). A perusal of thejudgment shows that the power to make an assessment orre-assessment within four years from the end of the relevantassessment year has been upheld by the Hon'ble GujaratHigh Court even in a case where there has been a complete disclosure of all relevant facts upon which a correctassessment might have been passed in the first instanceirrespective of whether it is an error of fact or law that hasbeen discovered or found out justifying the belief required toinitiate the re-assessment proceedings. This judgment is notapplicable in the case of the appellant as re-assessmentproceedings in this case have been initiated beyond fouryears from the end of the relevant assessment year. 6.Undisputedly the notice u/s.148 has been issuedbeyond the period of 4 years from the end of the assessmentyear ended on 31.3.1992 as the notice u/s.148 has beenissued on 22.1.98. Also as discussed in the precedingparas, there is no failure on the part of the assessee todisclose fully and truly all material facts necessary forassessment. The mistake, if any, committed by theAssessing Officer, is on account of improper appreciation offacts before him. Accordingly, the notice issued u/s.148 isnot a valid notice and any assessment framed in pursuancethereof is also not a valid assessment and is required to beannulled. The appellant succeeds on this point.” The Revenue, being dissatisfied with the order passed bythe CIT(A), went in appeal before the Income Tax AppellateTribunal. The appellate tribunal, vide order dated 9[th] March2007, allowed the appeal of the Revenue, thereby quashing andsetting aside the order passed by the CIT(A). We may quote therelevant part of the order passed by the appellate tribunal thus : “5.1 The reopening in the present case is clearly after theexpiry of four years from the end of relevant assessment year, so that the same could only be, in terms of the relevantsection (s.147), where the assessee has failed to make a fulland true disclosure of all material facts necessary for hisassessment for the relevant year. In this regard, the scopeand ambit of the words 'full and true' have to be properlyappreciated, even as emphasized by the Apex Court in thecase of Calcutta Discount Co. Ltd, 41 ITR 191. Further, dueregard has also to be given to Explanation I to Section 147 ofthe Act, which reads as : “Explanation I – Production before the AssessingOfficer of account books or other evidence from whichmaterial evidence could with due diligence have beendiscovered by the Assessing Officer will notnecessarily amount to disclosure within the meaningof the foregoing proviso.” year, so that the same could only be, in terms of the relevantsection (s.147), where the assessee has failed to make a fulland true disclosure of all material facts necessary for hisassessment for the relevant year. In this regard, the scopeand ambit of the words 'full and true' have to be properlyappreciated, even as emphasized by the Apex Court in thecase of Calcutta Discount Co. Ltd, 41 ITR 191. Further, dueregard has also to be given to Explanation I to Section 147 ofthe Act, which reads as : “Explanation I – Production before the AssessingOfficer of account books or other evidence from whichmaterial evidence could with due diligence have beendiscovered by the Assessing Officer will notnecessarily amount to disclosure within the meaningof the foregoing proviso.” 5.2If, therefore, as per the disclosure by the assessee, itcan be said that he has disclosed all material factsnecessary for his assessment for the relevant year, fullyand truly, escapement of income, even if so, would only beattributable to the A.O., and for which the law protects theassessee by placing a cap of four years from the end ofrelevant assessment. The issue under reference is thus oneof fact, to be decided in consideration of the material onrecord at the time of the original assessment, in which theassessee claimed and stood allowed the impugneddeductions. In the present case, assessee has not stated, asis apparent, in his return of income (copy of which is notplaced on record, in spite of being specifically called for fromthe assessee at the time of hearing) : a)that what was sold stood described invariably as anagricultural land in the relevant conveyance deed, theprimary document transferring the title to the capital assetunder transfer; b)the total area of the land subject to conveyance,including the area on which the residential house stoodconstructed; c)the manner in which the sale rate of the propertystood arrived at, i.e. whether as per the rates applicable tothe agricultural land, or as a private land forming part of aresidential house, and which stood separately valued (asthe entire sale consideration, and thus, capital gains, stoodconsidered as in respect of the residential property only); d)whether, the house, or a part of it was used as a farmhouse, i.e. for the beneficial user of the said land foragricultural purposes; and e)whether the dominant user of the house property wasfor residential purpose. Further, he has also not explained the basis on which heconsidered the capital asset under transfer as a residentialhouse and not an agricultural land, i.e. in whole or in part,in spite of agricultural operations being carried thereon, andfurther, being so stated in the conveyance deed itself, aswell as the permission sought by the assessee from theAppropriate Authority (AA) for selling the same, by treating the said land only as appurtenant to the residential buildingsituate thereon, entitling him, thus, to claim of deduction u/s53(b) and 54(1)(i) of the Act with respect to the total amountof capital gains realized on the transfer of the capital asset. e)whether the dominant user of the house property wasfor residential purpose. Further, he has also not explained the basis on which heconsidered the capital asset under transfer as a residentialhouse and not an agricultural land, i.e. in whole or in part,in spite of agricultural operations being carried thereon, andfurther, being so stated in the conveyance deed itself, aswell as the permission sought by the assessee from theAppropriate Authority (AA) for selling the same, by treating the said land only as appurtenant to the residential buildingsituate thereon, entitling him, thus, to claim of deduction u/s53(b) and 54(1)(i) of the Act with respect to the total amountof capital gains realized on the transfer of the capital asset. 5.3There is no discussion in the assessment order of thenature of the capital gains, or of the deductions claimedthere against, and which would necessarily be the case hadthere been a disclosure on any one or more of the foregoingaspects of the transaction, all of which are unarguablymaterial for the proper assessment of income under the saidhead (of income) for the relevant year. No doubt, asexplained by the Hon'ble jurisdictional High Court, theassessee's obligation is restricted to the disclosure of theprimary facts only, with the inferential facts being left to thediscretion of the A.O. Each of the aforesaid fact is a primaryfact in relation to the assessment of the income arising onthe aforesaid fact is a primary fact in relation to theassessment of the income arising on the transfer of thecapital asset under question, lead as it does, to thedetermination of its nature as also the deductions exigiblethere against. There is no expression of opinion in theoriginal assessment order in the matter, for one to hold thatthe reason to believe of the escapement of income as beingon account of a change of opinion, as stated by the LdCIT(A). As such, we are of the firm view that the assesseehas failed to make a full and true disclosure of all thematerial facts, necessary for his assessment, which he isobliged to in order to debar the initiation of reassessmentproceedings in relation to the impugned assessment. 5.4In fact, the arguments led by the assessee whilecontesting the reopening of his assessment, i.e. of havingnot sold a farm house, and of the same being described inhis wealth tax return as a residential house, werenecessitated only by the fact of the aforesaid non-disclosureof the basic facts in relation to the impugned asset and itsuser, and which were necessary to arrive at a properdecision in the matter. Further, as would be apparent, theassessee has also cited thereat the decisions in the case ofHajee Mohamed Ibrahim vs. Gift-Tax Officer (supra) andC.I.T. vs. Zibunnisa Begum (supra), contending theirapplicability to the facts of the present case. However, whatis lost sight of, irrespective of the merits of the assessee'sclaim of the applicability of those decisions, is that thedisclosure of facts as made, besides being inconsistent withthe primary record, i.e. the conveyance deed, land revenuerecord, permission from the AA, was not sufficient oradequate to be able to apply the ratio of those decisions tothe same. And which, on merits, rather, appear to besupportive of the Revenue’s case, though by stating asmuch, we may clarify, that this may not be construed as anexpression of opinion in the matter. 5.5The Ld. CIT(A) has directed investigation by the A.O.on the basis of the assertions made by the assessee beforehim in the appellate proceedings and with reference to thematerial adduced by him, being the wealth tax return forA.Y. 1990-91, and in relation to the construction of a newresidential house, similarly named, on an adjacent piece ofland. The same, to our mind, is misdirected, as the saidmaterial was not before the A.O. at the time of original 5.5The Ld. CIT(A) has directed investigation by the A.O.on the basis of the assertions made by the assessee beforehim in the appellate proceedings and with reference to thematerial adduced by him, being the wealth tax return forA.Y. 1990-91, and in relation to the construction of a newresidential house, similarly named, on an adjacent piece ofland. The same, to our mind, is misdirected, as the saidmaterial was not before the A.O. at the time of original assessment, so that, irrespective of the validity of theassessee’s claims, what is to be seen is whether he hasmade at the time of original assessment a full and properdisclosure of all material facts. In fact, the verification asdirected, relates to pertinent facts only, and which onlybears out to the absence adequate material on record tosupport the assessee’s claims. Further, the permission fromthe Appropriate Authority, for the sale of the capital asset(s)under reference, and which stands sought by the assesseehimself, state of the same as an agricultural land, i.e. asdescribed in the conveyance deed, which being a part of theoriginal return; it was held by him that there has been a full& true disclosure, with no new information or documentcoming to the notice of the A.O. for initiation ofre-assessment proceedings. We find that to be acontradiction in terms. Firstly, the assessee has not pleadedof the submission of the said permission at the time of theoriginal assessment proceedings before the A.O. Secondly,even so, the same stating the subject-matter of thepurported transfer to be an agricultural land, in agreementwith the conveyance deed, the primary documenttransferring the title, while the assessee contends it to beonly a residential house, an explanation for this contraryview is incumbent on the assessee, being a primary andmaterial factual matter, i.e. if it were to be stated, ascontended, that there is a full & true disclosure of allmaterial facts, and which has it clearly failed to. This ismore so considering that he has claimed deduction undersections which were only applicable for capital gain arisingon a transfer of residential property. Thirdly, this becomesunarguably so as the Explanation I to the Proviso to section 147(1) clearly obliges the assessee to make anexplicit/express disclosure, as against an implicit or a covertone. As observed earlier, the return of income as furnished, andthe claim(s) made per it, is apparently inconsistent with theconveyance deed, which is the primary document in relationto the subject matter of transfer under reference, conveyingthe title to the capital asset as well as evidencing itscharacter (and which in the facts of the case is based on itsactual user), so that it cannot be said that there is a trueand full disclosure of the material facts relevant forassessment by the assessee, and would, besides, warrantan explanation as referred to earlier (at para 5.2 above) andwhich the assessee pleads in the reassessmentproceedings, placing reliance for the purpose on the decisionin the case of Hajee Mohamed Ibrahim vs. Gift-Tax Officer(supra) and CIT vs Zibunnisa Begum (supra). In fact, thesaid decisions also; the land, or a good part of it, being putto agricultural operations, prima facie support the Revenue'scase, and not of the assessee. There is no expression ofopinion in the original assessment order in the matter tohold it as a case of change of opinion. 5.7In view of the foregoing, we are of the unequivocalview that there has not been a full and true disclosure of allmaterial facts necessary for his assessment for the currentassessment year by the assessee, so that the initiation ofreassessment proceedings, the law in the matter beingpatently clear, by the issue of notice u/s.148 of the Act, isnot bad in law, as held by the first appellate authority. 5.7In view of the foregoing, we are of the unequivocalview that there has not been a full and true disclosure of allmaterial facts necessary for his assessment for the currentassessment year by the assessee, so that the initiation ofreassessment proceedings, the law in the matter beingpatently clear, by the issue of notice u/s.148 of the Act, isnot bad in law, as held by the first appellate authority. 5.8The Ld. CIT(A) has not decided the issue on merits ashe had annulled the reassessment as made. Under thecircumstances, having upheld the validity of thereassessment proceeding, the matter would necessarilyhave to go back to his file for adjudication on merits, whichalso stand agitated before him as per the grounds of appealas enumerated at page-2 of his order. We decideaccordingly.” Being dissatisfied with the order passed by the appellatetribunal, the assessee has come up with the present appeal. On 29[th] April 2009, this Court admitted the appeal on thefollowing two substantial questions of law : “(i)Whether on the facts and in the circumstances of thecase, the ITAT was right in holding that the reopening of theassessment was rightly made ? (ii)Whether in the facts and in the circumstances of thecase, the ITAT was right in holding that the Assessee hadnot made full and true disclosure of all material factsnecessary for his assessment ?” Mr.Soparkar, the learned counsel appearing for theappellant, vehemently submitted that the appellate tribunalcommitted a serious error in passing the impugned order. Hewould submit that the appellate tribunal ought not to havedisturbed the well-reasoned order passed by the CIT(A).According to Mr.Soparkar, it cannot be said by any stretch of imagination that there was no full and true disclosure. Accordingto Mr.Soparkar, there was no tangible material before theAssessing Officer for the purpose of reopening the assessment.The case is one of mere 'change of opinion'. In suchcircumstances referred to above, Mr.Soparkar prays that therebeing merit in his appeal, the same be allowed and thesubstantial questions of law as formulated by this Court beanswered in favour of the assessee and against the Revenue. On the other hand, Ms.Mauna Bhatt, the learned standingcounsel appearing for the Revenue, has vehemently opposed thisappeal. Ms.Bhatt would submit that no error, not to speak of anyerror of law, could be said to have been committed by theappellate tribunal in passing the impugned order. Ms.Bhatt would submit that the assessee could be said tohave sold an agricultural land and not a residential house. Theassessee is not entitled to claim deduction under Sections 53(b)and 54(1)(i) of the Act. According to Ms.Bhatt, there was no fulland true disclosure of the particulars and, therefore, theAssessing Officer was justified in reopening the assessment. Having heard the learned counsel appearing for the partiesand having gone through the materials on record, the onlyquestion that falls for our consideration is, whether the appellatetribunal committed any error in passing the impugned order. We take notice of the fact that at many places in the deedof conveyance there is a reference of bungalow situated on theland bearing Block No.518. It is not in dispute that the assesseehad filled in Form No.37-I as provided in Rule 48 of the IncomeTax Rules. In the said form, there is a specific reference of a farmhouse along with water tank, servant quarter, etc. Form37-I reads thus : “FORM NO.37-I (See rule 48L) Statement of transfer of immovable property to be furnishedto the appropriate authority under section 269UC I/We, ______________________ intend to transfer the immovable property located at _________________ to ______________________. The total apparent consideration for We take notice of the fact that at many places in the deedof conveyance there is a reference of bungalow situated on theland bearing Block No.518. It is not in dispute that the assesseehad filled in Form No.37-I as provided in Rule 48 of the IncomeTax Rules. In the said form, there is a specific reference of a farmhouse along with water tank, servant quarter, etc. Form37-I reads thus : “FORM NO.37-I (See rule 48L) Statement of transfer of immovable property to be furnishedto the appropriate authority under section 269UC I/We, ______________________ intend to transfer the immovable property located at _________________ to ______________________. The total apparent consideration for the transfer of the above property is ____________________.The particulars of the agreement for transfer of the saidproperty are furnished in the annexure to the statement. Verification In my/our opinion and to the best of my/our knowledge andinformation, the particulars furnished above and in theannexure hereto are true and correct. Transferor(s) Transferee(s) 1.____________2.____________ 3.____________ 1.____________2.____________3.____________ *Note : Any change in the address of the transferor(s) or thetransferee(s) should be communicated in writingimmediately to the appropriate authority to whom thisstatement of transfer has been furnished.” Section 53 of the Act reads thus : “53. Exemption of capital gains from a residential house.-Notwithstanding anything contained in section 45, where inthe case of an assessee being an individual [or a Hinduundivided family], the capital gain arises from the transferof [long-term capital asset], being buildings or landsappurtenant thereto, and being a residential house, theincome of which is chargeable under the head "Income fromhouse property", the capital gain arising from such transfershall be dealt with in accordance with the followingprovisions of this section, that is to say,- (a) in a case where the full value of the considerationreceived or accruing as a result of the transfer of suchcapital asset does not exceed two hundred thousand rupeesthe whole of the capital gain shall not be charged undersection 45; (b) in a case where the full value of such considerationexceeds two hundred thousand rupees, so much of thecapital gain as bears to the whole of the capital gain thesame proportion as the amount of two hundred thousandrupees bears to such consideration shall not be chargedunder section 45: Provided that nothing contained in this section shall apply toa case where the assessee owns on the date of suchtransfer any other residential house. [Explanation.- In this section and in sections 54, 54B, 54D,54E, 54F and 54G, references to capital gain shall beconstrued as references to the amount of capital gain ascomputed under clause (a) of sub- section (1) of section 48.]” Section 54(1)(i) of the Act reads thus : “54. Profit on sale of property used for residence. (i)if the amount of the capital gain is greater than thecost of the residential house so purchased or constructed(hereinafter in this section referred to as the new asset), thedifference between the amount of the capital gain and thecost of the new asset shall be charged under section 45 asthe income of the previous year; and for the purpose ofcomputing in respect of the new asset any capital gainarising from its transfer within a period of three years of itspurchase or construction, as the case may be, the cost shallbe nil; or” The principles of law governing re-assessment may besummarised thus : Section 54(1)(i) of the Act reads thus : “54. Profit on sale of property used for residence. (i)if the amount of the capital gain is greater than thecost of the residential house so purchased or constructed(hereinafter in this section referred to as the new asset), thedifference between the amount of the capital gain and thecost of the new asset shall be charged under section 45 asthe income of the previous year; and for the purpose ofcomputing in respect of the new asset any capital gainarising from its transfer within a period of three years of itspurchase or construction, as the case may be, the cost shallbe nil; or” The principles of law governing re-assessment may besummarised thus : (i) The Court should be guided by the reasons recorded forthe reassessment and not by the reasons or explanationgiven by the Assessing Officer at a later stage in respect ofthe notice of reassessment. To put it in other words, havingregard to the entire scheme and the purpose of the Act, thevalidity of the assumption of jurisdiction under Section 147 can be tested only by reference to the reasons recordedunder Section 148(2) of the Act and the Assessing Officer isnot authorized to refer to any other reason even if it can beotherwise inferred or gathered from the records. TheAssessing Officer is confined to the recorded reasons tosupport the assumption of jurisdiction. He cannot recordonly some of the reasons and keep the others upto hissleeves to be disclosed before the Court if his action is everchallenged in a court of law. (ii) At the time of the commencement of the reassessmentproceedings, the Assessing Officer has to see whether thereis prima facie material, on the basis of which, thedepartment would be justified in reopening the case. Thesufficiency or correctness of the material is not a thing tobe considered at that stage. (iii) The validity of the reopening of the assessment shallhave to be determined with reference to the reasonsrecorded for reopening of the assessment. (iv) The basic requirement of law for reopening andassessment is application of mind by the Assessing Officer,to the materials produced prior to the reopening of theassessment, to conclude that he has reason to believe thatincome has escaped assessment. Unless that basicjurisdictional requirement is satisfied - a postmortemexercise of analysing the materials produced subsequent tothe reopening will not make an inherently defectivereassessment order valid. (v) The crucial link between the information made availableto the Assessing Officer and the formation of the beliefshould be present. The reasons must be self evident, theymust speak for themselves. (vi) The tangible material which forms the basis for thebelief that income has escaped assessment must be evidentfrom a reading of the reasons. The entire material need notbe set out. To put it in other words, something therein,which is critical to the formation of the belief must bereferred to. Otherwise, the link would go missing. (vii) The reopening of assessment under Section 147 is apotent power and should not be lightly exercised. Itcertainly cannot be invoked casually or mechanically. (viii) If the original assessment is processed under Section143(1) of the Act and not Section 143(3) of the Act, theproviso to Section 147 will not apply. In other words,although the reopening may be after the expiry of fouryears from the end of the relevant assessment year, yet itwould not be necessary for the Assessing Officer to showthat there was any failure to disclose fully or truly all thematerial facts necessary for the assessment. (ix) In order to assume jurisdiction under Section 147where assessment has been made under sub-section (3) ofsection 143, two conditions are required to be satisfied; (i) The Assessing Officer must have reason to believethat the income chargeable to tax has escapedassessment; (viii) If the original assessment is processed under Section143(1) of the Act and not Section 143(3) of the Act, theproviso to Section 147 will not apply. In other words,although the reopening may be after the expiry of fouryears from the end of the relevant assessment year, yet itwould not be necessary for the Assessing Officer to showthat there was any failure to disclose fully or truly all thematerial facts necessary for the assessment. (ix) In order to assume jurisdiction under Section 147where assessment has been made under sub-section (3) ofsection 143, two conditions are required to be satisfied; (i) The Assessing Officer must have reason to believethat the income chargeable to tax has escapedassessment; (ii) Such escapement occurred by reason of failure onthe part of the assessee either (a) to make a return ofincome under section 139 or in response to the noticeissued under sub-section (1) of Section 142 orSection 148 or (b) to disclose fully and truly all thematerial facts necessary for his assessment for thatpurpose. (x) The Assessing Officer, being a quasi judicial authority,is expected to arrive at a subjective satisfactionindependently on an objective criteria. (xi) While the report of the Investigation Wing mightconstitute the material, on the basis of which, theAssessing Officer forms the reasons to believe, the processof arriving at such satisfaction should not be a mererepetition of the report of the investigation. The reasons tobelieve must demonstrate some link between the tangiblematerial and the formation of the belief or the reason tobelieve that the income has escaped assessment. (xii) Merely because certain materials which is otherwisetangible and enables the Assessing Officer to form a beliefthat the income chargeable to tax has escaped assessment,formed part of the original assessment record, per se would not bar the Assessing Officer from reopening theassessment on the basis of such material. The expression“tangible material” does not mean the material alien to theoriginal record. (xiii) The order, disposing of objections or any counteraffidavit filed during the writ proceedings before the Courtcannot be substituted for the “reasons to believe”. (xiv) The decision to reopen the assessment on the basis ofthe report of the Investigation Wing cannot always becondemned or dubbed as a fishing or roving inquiry. Theexpression “reason to believe” appearing in Section 147suggests that if the Income Tax Officer acts as a reasonableand prudent man on the basis of the information securedby him that there is a case for reopening, then Section 147can well be pressed into service and the assessments bereopened. As a consequence of such reopening, certainother facts may come to light. There is no ban or any legalembargo under Section 147 for the Assessing Officer totake into consideration such facts which come to lighteither by discovery or by a fuller probe into the matter andreassess the assessee in detail if circumstances require. (xv) The test of jurisdiction under Section 143 of the Act isnot the ultimate result of the inquiry but the test iswhether the income tax officer entertained a “bona fide”belief upon the definite information presented before him.Power under this section cannot be exercised on mererumours or suspicions. (xvi) The concept of “change of opinion” has been treated asa built in test to check abuse. If there is tangible materialshowing escapement of income, the same would besufficient for reopening the assessment. (xv) The test of jurisdiction under Section 143 of the Act isnot the ultimate result of the inquiry but the test iswhether the income tax officer entertained a “bona fide”belief upon the definite information presented before him.Power under this section cannot be exercised on mererumours or suspicions. (xvi) The concept of “change of opinion” has been treated asa built in test to check abuse. If there is tangible materialshowing escapement of income, the same would besufficient for reopening the assessment. (xvii) It is not necessary that the Income Tax Officer shouldhold a quasi judicial inquiry before acting under Section147. It is enough if he on the information received believesin good faith that the assesee's profits have escapedassessment or have been assessed at a low rate. However,nothing would preclude the Income Tax Officer fromconducting any formal inquiry under Section 133(6) of theAct before proceeding for reassessment under Section 147of the Act. (xviii) The “full and true” disclosure of the material factswould not include that material, which is to be used fortesting the veracity of the particulars mentioned in thereturn. All such facts would be expected to be elicited bythe Assessing Officer during the course of the assessment.The disclosure required only reference to those materialfacts, which if not disclosed, would not allow the AssessingOfficer to make the necessary inquiries. (xix) The word “information” in Section 147 meansinstruction or knowledge derived from the external sourceconcerning the facts or particulars or as to the law relatingto a matter bearing on the assessment. An informationanonymous is information from unknown authorship but nonetheless in a given case, it may constitute informationand not less an information though anonymous. This isnow a recognized and accepted source for detection of largescale tax evasion. The non-disclosure of the source of theinformation, by itself, may not reduce the credibility of theinformation. There may be good and substantial reasonsfor such anonymous disclosure, but the real thing to belooked into is the nature of the information disclosed,whether it is a mere gossip, suspicion or rumour. If it isnone of these, but a discovery of fresh facts or of new andimportant matters not present at the time of theassessment, which appears to be credible to an honest andrational mind leading to a scrutiny of facts indicatingincorrect allowance of the expense, such disclosure wouldconstitute information as contemplated in clause (b) ofSection 147. (xx) The reasons recorded or the material available onrecord must have nexus to the subjective opinion formedby the Assessing Officer regarding the escapement of theincome but then, while recording the reasons for the beliefformed, the Assessing Officer is not required to finallyascertain the factum of escapement of the tax and it issufficient that the Assessing Officer had cause orjustification to know or suppose that the income hadescaped assessment [vide Rajesh Jhaveri Stock Brokers (P.)Ltd.'s case (supra)]. It is also well settled that thesufficiency and adequacy of the reasons which have led tothe formation of a belief by the Assessing Officer that theincome has escaped the assessment cannot be examinedby the court. Mr.Soparkar seeks to rely upon a decision of this Court inthe case of Nilamben Sandipbhai Parikh v. AssistantCommissioner of Income Tax, Circle-4(2) [2019]109taxmann.com 336 (Gujarat). We quote the relevant observationsrelied upon by Mr.Soparkar thus : “6.1 Short question which arises for determination in thispetition is, whether the concept of "change of opinion"stands obliterated with effect from 1st April, 1989, i.e., aftersubstitution of Section 147 of the Income Tax Act, 1961 byDirect Tax Laws (Amendment) Act, 1987 ? Mr.Soparkar seeks to rely upon a decision of this Court inthe case of Nilamben Sandipbhai Parikh v. AssistantCommissioner of Income Tax, Circle-4(2) [2019]109taxmann.com 336 (Gujarat). We quote the relevant observationsrelied upon by Mr.Soparkar thus : “6.1 Short question which arises for determination in thispetition is, whether the concept of "change of opinion"stands obliterated with effect from 1st April, 1989, i.e., aftersubstitution of Section 147 of the Income Tax Act, 1961 byDirect Tax Laws (Amendment) Act, 1987 ? 6.2 To answer the above question, we need to note thechanges undergone by Section 147 of the I