Wp/10044/2010 Of Atlas Capco (India) Limited v. The Deputy Commissioner Of Income Tax And Ors

IN THE HIGH COURT OF JUDICATURE AT BOMBAY CIVIL JURISDICTION WRIT PETITION NO.10044 OF 2010 Mr. Percy J. Pardiwala, senior Advocate with Mr.Nitesh Joshi i/b. Atul K. Jasani for the petitioner. Mr. Vimal Gupta for respondent. CORAM : J.P. DEVADHAR AND MRS. R.S, DALVI, JJ. DATED : 22ND MARCH, 2011 ORAL JUDGMENT (PER J.P. DEVEDHAR, J.) 1)Rule. Rule made returnable forthwith. By consent, the petition is taken up for final hearing. 2)This petition is filed to challenge the notice dated 30/3/2010 issued under Section 148 of the Income Tax Act, 1961 ('the Act' for short) seeking to reopen the assessment for the Assessment Year 2003-04. The petitioner has also challenged the order dated 2/11/2010 whereby the objections raised by the petitioner for reopening the assessment has been rejected. During the pendency of the Writ Petition reassessment order has been passed on 20/12/2010 and therefore, the petition has been amended to challenge the reassessment order dated 20/12/2010, 3.The relevant facts are that Consolidated Pneumatic Tool Co. (India) Ltd. had purchased a property at Mulund in the year 1957. The said Company merged into the petitioner company with effect from 1/4/2000. By a resolution dated 31/10/2001 the Board of Directors of the petitioner company decided to transfer the development rights of the aforesaid property to a third party. Accordingly, agreement to transfer the development rights was entered into on 27/12/2001 for a total consideration of Rs.14.31 crores. 4.In the return of income filed for AY 2003-04 the assessee offered to tax long term capital gains arising on transfer of the development rights in the property in question. The assessing officer after detailed investigation and after obtaining full particulars from the assessee passed an order under Section 143(3) of the Act assessing the capital gains arising on transfer of development rights as long term capital gains. Thereafter, by the impugned notice dated 30/3/2010 the assessment is sought to be reopened on the ground that the capital gains ought to have been computed as short term capital gains instead of long term capital gains. 4.The reasons recorded for arriving at such conclusion was that firstly that there was no transfer of land and therefore indexation in respect of the cost of land was not allowable to the assessee. Secondly, the Board of Directors had passed a resolution on 31/10/2001 thereby making the tenure of holding development rights from November, 2001 till the date of transfer of development rights, which less than three years and therefore the capital gains ought to have been computed as short term capital gains. 4.The reasons recorded for arriving at such conclusion was that firstly that there was no transfer of land and therefore indexation in respect of the cost of land was not allowable to the assessee. Secondly, the Board of Directors had passed a resolution on 31/10/2001 thereby making the tenure of holding development rights from November, 2001 till the date of transfer of development rights, which less than three years and therefore the capital gains ought to have been computed as short term capital gains. 5.At the outset, it may be noted that in the present case, the assessment is sought to be reopened beyond the period of four years from the end of the relevant assessment year. As per the proviso to Section 147 of the Act, the assessment beyond four years from the end of the relevant assessment year can be reopened only if there is failure on the part of the assessee to disclose fully and truly all material facts necessary for the purpose of assessment. Perusal of the reasons recorded by the assessment officer shows that there is not even an allegation of suppression of material facts on the part of the assessee. Moreover, during the course of the assessment proceedings, the assessing officer had called for all the particulars relating to the transfer of development rights and on being satisfied passed an order under Section 143(3) of the Act. Whether indexation is allowable or not is a question to be decided on merits. Similarly, the question as to whether the capital gains are liable to be assessed as long term capital gain or short term capital gain is a question to be determined on merits. In either case, the assessee cannot be said to have suppressed material facts. Similarly, development rights were available on the property in question even before the Board of Directors of the company decided to transfer the development rights. Therefore, the date on which the resolution was passed for transfer of development rights has no relevance in computing the capital gains. 6.In these circumstances, it cannot be said that there was any failure on the part of the assessee to disclose fully and truly all material facts. 7.In the result, the impugned notice dated 30/3/2010 for reopening the assessment as also the order dated 2/11/2011 and reassessment order dated 20/12/2010 are quashed and set aside. 8.Rule is made absolute in the above terms with no order as to costs. (MRS. R.S. DALVI, J.) (J.P. DEVADHAR, J.)