Vidya Rajesh Timblo, B1/B2, Felicinta Complex, Near Highway, Gogol, Margao-Goa v. Principal Commissioner Of

1 WP No.924 of 2019 dtd. 14.01.2020 Suchitra IN THE HIGH COURT OF BOMBAY AT GOA WRIT PETITION NO. 924 OF 2019 1. Rajesh Prakash Timblo, B1/B2, Felicinta Complex, Near Highway, Gogol, Margao-Goa 403601. PAN: 2. Vidya Rajesh Timblo, B1/B2, Felicinta Complex, Near Highway, Gogol, Margao-Goa 403601. PAN: .... Petitioners Versus 1. Principal Commissioner of Income Tax, having his office at Aayakar Bhawan, 1[st] Floor, 5 EDC Complex, Patto Plaza, Panaji-Goa. 2. Assistant Commissioner of Income Tax, Circle 1, Blessing Pioneer complex, Old Market, Opp. District Court, Margao – Goa 400 601. .... Respondents Mr. Jitendra Jain, Mr. G. Panandikar and Ms. Eesha Dukle, Advocatesfor the Petitioners.Ms. Amira Razaq, Standing Counsel for the Respondents. Coram:- M.S. SONAK & SMT. M. S. JAWALKER, JJ.Date:- 14th January, 2020 ORAL JUDGMENT(Per M. S. Sonak, J.) Heard Mr. Jitendra Jain, Mr. G. Panandikar and Ms. EeshaDukle for the Petitioners and Ms. Amira Razaq, learned StandingCounsel for the Respondents. 2.Rule. Rule is made returnable forthwith with the consent and atthe request of learned counsel for the parties. The counsel appearingfor the respondents waives service. 3. The challenge in this petition is to the order dated 30.03.2019by which the Principal Commissioner of Income Tax has dismissed thepetitioner's applications under Section 264 of the Income Tax Act,1961 (I.T. Act) seeking to revise the returns for Assessment Year (A.Y.)2015-16 and the consequential orders made thereon. The challenge in this petition is to the order dated 30.03.2019 3 WP No.924 of 2019 dtd. 14.01.2020 4.It is the case of the petitioners that they are married to each otherunder the Portuguese Civil Code and therefore the provisions ofSection 5A of the I.T. Act are applicable to them. This sectionprovides for apportionment of income earned by the spouses governedby the Code. It is also the case of the petitioners that they, on02.05.2012 purchased an immovable property (land) at Seraulim, Goafor a consideration of `50 lakhs. For A.Y. 2013-14, they filed incometax returns in ITR Form-4 therein, as against the head of “Investment”,the petitioners disclosed an amount of `5,35,33,507/-, which amountincluded the investment of `50 lakhs made in the Seraulim property.It is the case of the petitioners that in ITR-4, there was no specificprovision in relation to investment in properties. The return ofincome for A.Y. 2013-14 was duly accepted by the department underSection 143(1) of the I.T. Act. 5. It is further the case of the petitioners that for A.Y. 2014-15, thepetitioners filed their returns in ITR Form-1. Since this form alloweddisclosure of only income from salary, no details with regard to theSeraulim property were indicated. However, in the balance sheet forthe year ending 31.03.2014, an amount of `4,03,87,633/- wasdisclosed, which includes theSeraulim property valued at `50 lakhs.Even this return of income was accepted Section 143(1) of the I.T. Act. 4 WP No.924 of 2019 dtd. 14.01.2020 6.It is the case of the petitioners that on 02.04.2014 theyconverted the Seraulim property which were earlier shown under thehead of “Investment” into stock in trade for purposes of development.This was done by making a book entry in the books ofaccount/ledgers. However, the petitioners, instead of themselvesdeveloping the property, vide registered sale deed dated 05.05.2014,sold the Seraulim property, which was already converted as stock intrade for a consideration of `90 lakhs and necessary entries were madein the books of account. 4 WP No.924 of 2019 dtd. 14.01.2020 6.It is the case of the petitioners that on 02.04.2014 theyconverted the Seraulim property which were earlier shown under thehead of “Investment” into stock in trade for purposes of development.This was done by making a book entry in the books ofaccount/ledgers. However, the petitioners, instead of themselvesdeveloping the property, vide registered sale deed dated 05.05.2014,sold the Seraulim property, which was already converted as stock intrade for a consideration of `90 lakhs and necessary entries were madein the books of account. 7.The petitioners, on 07.06.2016 filed their return of income forA.Y. 2015-16. However, it is the case of the petitioners that theyerroneously and inadvertently computed the profits from sale ofSeraulim property under the head of “income from capital gains” andarrived at short term capital gain of `20 lakhs after giving effect to theprovisions of Section 5A of the I.T. Act. This return was filed in ITR-4. However, since no business income was shown, the relevant detailsin ITR-4 relating to the balance sheet was reflected as “0” as per theIncome Tax Software provided by the department. This return ofincome was accepted on 06.07.2016 under Section 143(1) of I.T. Act. 8.It is the case of the petitioners that they realized that they hadcommitted a mistake in the filing of the returns and therefore, vide 5 WP No.924 of 2019 dtd. 14.01.2020 applications dated 26.06.2017, made within the prescribed period oflimitation, invoked the provisions of Section 264 of the I.T. Act andapplied for revision of the intimation under Section 143(1) of I.T. Actfor assessing the gain on the sale of Seraulim property as businessincome and not as any short term capital gain. By impugned orderdated 30.03.2019, the Principal Commissioner has rejected the saidapplications. Hence the present petition. 9.Mr. Jitendra Jain, the learned counsel for the petitioners submitsthat the impugned order proceeds on the basis that the Seraulimproperty was not at all reflected in the returns for A.Y. 2012-13, 2013-14, 2014-15 and 2015-16. He submits that this is patently incorrectand amounts to misreading the returns and material furnishestherewith. He submits that were such a doubt to be expressed in thecourse of personal hearing, the petitioners, would have clarified anddemonstrated otherwise. He submits that the observation that theconversion of the investment qua the Seraulim property to stock intrade being dubious as a mere ipse dixit based upon no material onrecord. He submits that the fact that the petitioners made aninadvertent error in the filing of returns for 2015-16, is not at allindicative of any dubious act but, rather, the applications underSection 264 were filed precisely to correct such inadvertent error. 6 WP No.924 of 2019 dtd. 14.01.2020 10.Mr. Jain points out that necessary book entry had been made inthe books of account/ledgers to indicate the conversion of investmentin Seraulim property as stock in trade. He submits that applying theprinciples set out in Circular dated 29.02.2016, which is to be readalong with the provisions of Section 45(2) of the I.T. Act, there wasample material on record to evidence the conversion. He submits thatinasmuch as all these relevant aspects have not been taken intoconsideration and since the impugned order proceeds on the basis ofirrelevant observations, the same warrants interference. 6 WP No.924 of 2019 dtd. 14.01.2020 10.Mr. Jain points out that necessary book entry had been made inthe books of account/ledgers to indicate the conversion of investmentin Seraulim property as stock in trade. He submits that applying theprinciples set out in Circular dated 29.02.2016, which is to be readalong with the provisions of Section 45(2) of the I.T. Act, there wasample material on record to evidence the conversion. He submits thatinasmuch as all these relevant aspects have not been taken intoconsideration and since the impugned order proceeds on the basis ofirrelevant observations, the same warrants interference. 11.Ms. Razaq, the learned Standing Counsel for the respondentsdefends the impugned order on the basis of the reasoning reflectedtherein. She submits that the issue is not about non-disclosure of theSeraulim property but the issue is whether there is any material at allproduced on record by the petitioners to suggest that there was anygenuine mistake in filing of returns for A.Y. 2015-16. She submitsthat there was absolutely no evidence or contemporaneous materialproduced on record by the petitioners in support of alleged conversionof investment into stock in trade. She submits that there are no entrieseven in the books of account/ledgers unilaterally maintained by thepetitioners to indicate any determination of fair value or any entries tosupport the conversion. She submits that this is clearly a case ofafterthought and the impugned order was quite correctly made. 7 WP No.924 of 2019 dtd. 14.01.2020 12.Ms. Razaq pointed out that this is not at all case of failure ofnatural justice because the petitioners were offered hearing, whichoffer, the petitioners have availed. She points out that even the extractsfrom ledgers now produced along with this petition were neitherproduced before the respondent no.1 at the time of hearing nor alongwith the applications under Section 264 of the I.T. Act. 13.For all the aforesaid reasons, Ms. Razaq submits that theimpugned order may not be interfered with and this petition may bedismissed. 14.The rival contentions now fall for our determination. 15.On perusal of the impugned order, we find that respondent no.1has adverted to the returns for A.Y. 2012-13, 2013-14, 2014-15 and2015-16 and thereafter observed that the entry in the context ofSeraulim property is not evident even under the head of “Investment”.It is not quite clear as to whether this is one of the reasons for rejectionof the petitioner's applications under Section 264 of the I.T. Act. Ifthis is one of the reasons, then, Mr. Jain, is quite correct in hissubmission that the returns for the said assessment years have not beenread in their entirety. In any case, the petitioners, do have a plausibleexplanation in this regard and were they informed that this is one of 8 WP No.924 of 2019 dtd. 14.01.2020 the tentative reasons, then, they were clearly in a position todemonstrate that the Seraulim property was indeed referred to in thereturns. In fact, the returns for A.Y. 2012-13 are totally irrelevant forthe present case. 16.The other reason discernible from the impugned order is thereasoning of the respondent no.1 that in the previous assessment years,the Seraulim property was indicated as capital asset and this positioncontinued even for A.Y. 2015-16. Respondent no.1 has also observedthat the petitioners themselves treated the Seraulim property as acapital asset and further, they have produced no evidence to supporttheir claim of conversion of this capital asset into a stock in trade. 8 WP No.924 of 2019 dtd. 14.01.2020 the tentative reasons, then, they were clearly in a position todemonstrate that the Seraulim property was indeed referred to in thereturns. In fact, the returns for A.Y. 2012-13 are totally irrelevant forthe present case. 16.The other reason discernible from the impugned order is thereasoning of the respondent no.1 that in the previous assessment years,the Seraulim property was indicated as capital asset and this positioncontinued even for A.Y. 2015-16. Respondent no.1 has also observedthat the petitioners themselves treated the Seraulim property as acapital asset and further, they have produced no evidence to supporttheir claim of conversion of this capital asset into a stock in trade. 17.In response to Ms. Razaq's contentions that there was nocontemporaneous material produced on record by the petitioners, Mr.Jain, offered to produce on record the balance sheet/profit and lossaccount for A.Y. 2015-16. Upon production, on behalf of thepetitioners, it was pointed out that in the balance sheet for the yearending 31.03.2013 the investment in property was valued at`3,48,10,633/-. Similarly, in the balance sheet for the year ending31.03.2014 this figure increased to `4,03,87,633/- which, included thevalue of the Seraulim property. However, in the balance sheet for theyear ending 31.03.2015, this figure has again come down to 9 WP No.924 of 2019 dtd. 14.01.2020 `3,53,87,633/-. It was pointed out that this, at least, prima facie,indicates that the petitioners did convert this capital asset into a stockin trade and this position was reflected not only in the books ofaccount/ledgers but also in the balance sheet. 18.According to us, although, it is true that neither the books ofaccount/ledgers nor the balance sheets were produced by thepetitioners along with their applications under Section 264 of the I.T.Act or during the course of personal hearing thereon, the interests ofjustice would require that the petitioners are given an opportunity toproduce this material before respondent no.1. The impugned order,makes reference to certain reasons or circumstances, which, may not beentirely relevant. In any case, the impact of such irrelevantcircumstances on the ultimate decision is also not quite clear fromperusal of the impugned order. The fact that for A.Y. 2015-16, therespondents themselves treated the Seraulim property as capital asset isreally begging the point because it is the case of the petitioners that thiswas the error committed by them on account of which they filed theirapplications under Section 264 of the I.T. Act. 19.The aforesaid means that the impugned order is based uponcertain circumstances, which can be styled as irrelevant. Thepetitioners, though had not placed any contemporaneous material 10 WP No.924 of 2019 dtd. 14.01.2020 before respondent no.1 at the time of hearing of their applicationsunder Section 264 of the I.T. Act, have, in the course of presenthearing, placed some material. The effect of such material cannot bedecided by this Court and it is only appropriate that the same isdecided by the respondent no.1 afresh. The impugned order also doesnot reflect that the same was based on the alleged failure on the part ofthe petitioners to make any fair valuation of the Seraulim property atthe stage of their alleged conversion into stock in trade. No doubt, allthese matters might be relevant for determining whether this is a casewhere the petitioners had made a genuine error, as contended by them,or whether, this is a case where the petitioners, merely, by way of anafterthought, seek to invoke provisions of Section 264 of the I.T. Actand thereby avoid paying capital gains tax. 20.Accordingly, we are of the opinion that the interest of justicewould be met if the impugned order is set aside and the respondentno.1 is directed to once again consider the petitioners' applicationsunder Section 264 of the I.T. Act and to dispose of the same on theirown merits and in accordance with law. We grant the petitionersliberty to place additional material on record before the respondentno.1 and we request respondent no.1 to dispose of the petitioners'applications under Section 264 of the I.T. Act as expeditiously aspossible and in any case within a period of four months from today. 11 WP No.924 of 2019 dtd. 14.01.2020 21.We make it clear that none of the observations in this order maybe treated as conclusive or binding one way or the other. The issue asto whether the petitioners' applications under Section 264 of the I.T.Act shall be allowed or not is kept entirely open and respondent no.1 isrequired to decide the same on their own merits and in accordancewith law. No doubt, this time, without being influenced by any of theobservations in the impugned order, which, in any case, we have nowset aside. 22.We further clarify that all issues i.e. the contentions on behalf ofthe petitioners as well as the respondents are specifically kept open andthe burden of satisfying the respondent no.1 that this was indeed a caseof a genuine error will lie squarely upon the respondents who will beexpected to discharge the same in accordance with law. 23.The impugned order is accordingly set aside. The matter isremanded to the respondent no.1 to dispose of petitioners' applicationsunder Section 264 of the I.T. Act afresh, on their own merits and inaccordance with law. We request respondent no.1 to dispose of theseapplications as expeditiously as possible and in any case within a periodof four months from today. 24. The Rule is made absolute in the aforesaid terms. There shallbe no orders as to the costs. 12 WP No.924 of 2019 dtd. 14.01.2020 25.All the concerned to act on the basis of an authenticated copy ofthis order. SMT. M. S. JAWALKAR, J. M. S. SONAK, J. ss