Wp/9724/2023 Of Mr. Vinay Narayanswamy v. Income Tax Officer

Digitallysigned byNARASIMHAMURTHYVANAMALALocation:HIGHCOURT OFKARNATAKA IN THE HIGH COURT OF KARNATAKA AT BENGALURU DATED THIS THE 12 DAY OF OCTOBER, 2023 BEFORE THE HON'BLE MR JUSTICE B M SHYAM PRASAD -WRIT PETITION NO. 9724 OF 2023 (TRES) BETWEEN: MR. VINAY NARAYANSWAMY AGED ABOUT 42 YEARS NO 987, HAL 2 STAGE 12 MAIN 1 CROSS, INDIRANAGAR BENGALURU - 560008 …PETITIONER (BY SMT. VANAJA M R.,ADVOCATE) AND: 1. INCOME TAX OFFICER WARD (1) (1) (1) BANGALORE KORAMANGALA, KHB GAMES VILLAGE BANGALORE - 560095. KORAMANGALA, KHB GAMES VILLAGE BANGALORE - 560095. 2. THE PRINCIPAL CHIEF COMMISSIONER OF INCOME TAX KARNATAKA AND GOA PUNLIKINIWAD RVA DEQUREM PANAJI GOA PIN - 403001. OF INCOME TAX KARNATAKA AND GOA PUNLIKINIWAD RVA DEQUREM PANAJI GOA PIN - 403001. 3. CENTRAL BOARD OF DIRECT TAXES,NORTH BLOCK, CENTRAL SECRETARIAT, NORTH BLOCK, CENTRAL SECRETARIAT, NEW DELHI DELHI- 110001 REPRESENTED BY THE SECRETARY TAX POLICY AND LEGISLATION DIVISION. …RESPONDENTS (BY SRI.K.V. ARAVIND., ADVOCATE ALONG WITH SRI. M. DILIP, ADVOCATE) THIS W.P. IS FILED UNDER ARTICLE 226 OF THE CONSTITUTION OF INDIA PRAYING TO QUASH THE ORDER BEARING NO. ITBA/AST/F/148A/2022-23/1051820923(1), FOR THE ASSESSMENT YEAR 2016-17, UNDER CLAUSE(d) OF SECTION 148A OF THE ACT DATED. 31.03.2023 ISSUED BY THE R-1 (ANNX-J) AND THE NOTICE ISSUED U/S 148 OF THE I.T.ACT DATED 31.03.2023 FOR THE ASST. YEAR 2016-17 UNDER REF NO ITBA/AST/S/148/2022-23/1051821109(1) BY THE R-1 (ANNX-K).OR DIRECT THE R-1 TO WITHDRAW THE ORDER PASSED UNDER CLAUSE (d) OF SECTION 148A OF THE ACT ANNX-J AND THE NOTICE ISSUED U/S 148 OF THE I.T. ACT DATED. 31.03.2023 FOR THE ASST. YEAR 2016-17 UNDER REF NO. ITBA/AST/S/148/2022-23/10518521109(1) BY THE R-1 (ANNX-K). THIS PETITION, COMING ON FOR PRELIMINARY HEARING, THIS DAY, THE COURT MADE THE FOLLOWING: ORDER The petitioner has called in question the order dated 31.03.2023[Annexure-J] under Section 148A[d] of the Income Tax Act, 1961 [for short ‘the IT Act’] for the Assessment Year 2016-17and with prayers for consequential reliefs. The undisputed facts are that the petitioner along with his father and brother are members of Hindu Undivided Family, and as joint owners of the land measuring 3 acres 1 gunta in R. Narayanapura village, K R Hobli, Bengaluru, they have entered into a registered Joint Development Agreement with M/s Midtown Structures on 27.06.2013 with a contemporaneous supplementary deed. 2. It is also undisputed that the petitioner thereafter has entered into partition deeds in the month of March 2014 and 2016. The Occupancy Certificate for building constructed in performance of the terms of the Joint Development Agreement is issued on 24.06.2015 by the competent authority. The petitioner as part of his entitlement has received certain residential units and some of these units have been transferred during the financial years 2016-17 and 2017-18. 3. The first respondent in this petition has issued notice under Section 148A[b], and the reasons recorded for re-assessment read as under: “As per information received from ITO, (I&CI), Bangalore, the assessee claims a considerable amount towards improvement details including cost of construction and payment to Bescom, BWSSN department, for which no justifiable clarifications/submissions are done in-spite of several reminders and opportunities given, which construes that the assessee has nothing to offer in support of his claim. The tax provision upon the execution of JDA had also not been complied with. The details of the units sold and the claim made are as below: In view of the above, the amount of Rs. 83,31,893/- is not disclosed by the assessee and remain untaxed and hence has to be brought to tax for AY 2016-17.” issued notice under Section 148A[b], and the reasons recorded for re-assessment read as under: “As per information received from ITO, (I&CI), Bangalore, the assessee claims a considerable amount towards improvement details including cost of construction and payment to Bescom, BWSSN department, for which no justifiable clarifications/submissions are done in-spite of several reminders and opportunities given, which construes that the assessee has nothing to offer in support of his claim. The tax provision upon the execution of JDA had also not been complied with. The details of the units sold and the claim made are as below: In view of the above, the amount of Rs. 83,31,893/- is not disclosed by the assessee and remain untaxed and hence has to be brought to tax for AY 2016-17.” The petitioner has filed his response and ultimately the impugned order is passed. The first respondent’s reasons under Section 148A[d] of the IT Act is in line with the reasons for issuance of notice under Section 148A(b) of the Act. 4. It is obvious from the first respondent’s order that the reason to opine that the income has escaped tax in the Assessment Year 2016-17 is because the petitioner, who has filed Returns for offering capital gain in the Assessment Years 2017-18 and 2018-19, has claimed expenditure as incurred during the Assessment Year 2016-17 towards the cost of construction and deposits to statutory authorities but without filing Income-tax Returns for such Assessment Year. The first respondent has proceeded on the footing that the petitioner has receipts in the Assessment Year 2016-17 which is applied towards incurring certain expenditure but has not declared the same by filing ITR, and therefore, there is escapement of tax. However, this may not be justified if the petitioner’s case as seen in the reply filed as per Annexure-E is considered. 5. The petitioner, in furnishing details of the cost of improvement [as expenses incurred], has referred to the cost of construction incurred by the builder. The response reads as under: “Computation of capital gain: Asst year 2017- 18 Rs. Sale consideration - Residential flat sold (25.11.2016) 5434350 Less: Commission or brokerage and incidental expenses 54345 Net Sale Consideration 5380005 Cost of the acquisition: Cost of improvement i.e. Interiors cost NIL Cost of undivided share of land with respect to: Landlord UDS 931@ Landlord UDS 931@ Rs. 3307.32 Indexed : 3204445 (Being the fair market value for proportionate Share of UDS on the basis of guidance value of Rs.3307 in 2015-16 for 2001-02 is Rs.306 per sft) AND -UDS Lost to Builder 1046 @ Rs.3307.32 3459122 OR Cost of construction by the Builder for Super Built up area of sft1705 @ Rs.1412= indexed 2407991 2505451 5710447 whichever is lower CAPITAL GAIN (ACTUAL) 330442 DECLARED AS PER ORIGINAL RETURN* 951308 *claimed cost of UDS for 2001-02 as fair market value on ad hoc basis while filing original return in the absence of information, which is rectified. fair market value on ad hoc basis while filing original return in the absence of information, which is rectified. Cost towards BESCOM and BWSSB charges recovered by the builder not claimed since this is subsumed in construction cost per sft. per valuation of Service Tax Rules. charges recovered by the builder not claimed since this is subsumed in construction cost per sft. per valuation of Service Tax Rules. • Therefore, it is apparent that the official (IC&I) wrongly interpreted that low claim made by the assessee while filing the original return was the basis and assumed that there is a escapement of income. Computation of capital gain: Asst Year 2018-19 Rs. Sale consideration – residential flat sold( 02.07.2017) 6000000 Less: Commission or brokerage and incidental expenses 0 Net sale consideration 6000000 Cost of the acquisition: Cost towards BESCOM and BWSSB charges recovered by the builder not claimed since this is subsumed in construction cost per sft. per valuation of Service Tax Rules. charges recovered by the builder not claimed since this is subsumed in construction cost per sft. per valuation of Service Tax Rules. • Therefore, it is apparent that the official (IC&I) wrongly interpreted that low claim made by the assessee while filing the original return was the basis and assumed that there is a escapement of income. Computation of capital gain: Asst Year 2018-19 Rs. Sale consideration – residential flat sold( 02.07.2017) 6000000 Less: Commission or brokerage and incidental expenses 0 Net sale consideration 6000000 Cost of the acquisition: Cost of improvement i.e. Interiors cost NIL Cost of undivided share of land with respect to: -Landlord share UDS 933@ Rs.3307.32 indexed – 3305785 AND -UDS loss to builder 1049 @ Rs.3307.32 3469379 OR Cost of construction by the builder for super build up area of sft.1710@ Rs. 1412= indexed 2415052 2586197 5891982 whichever is lower CAPITAL GAIN (ACTUAL) 108018 DECLARED AS PER ORIGINAL RETURN* 305818 *claimed cost of UDS for 2001-02 as fair market value on ad hoc basis while filing original return in the absence of information, which is now rectified. value on ad hoc basis while filing original return in the absence of information, which is now rectified. Cost towards BESCOM and BWSSB charges recovered by the builder not claimed since this is subsumed in construction cost per sft. per valuation of Service Tax Rules. recovered by the builder not claimed since this is subsumed in construction cost per sft. per valuation of Service Tax Rules. Therefore, it is apparent that the official (IC&I) wrongly interpreted that low claim made by the assessee while filing the original return was the basis and assumed that there is a escapement of income.” 6. If the petitioner could indeed justify that there was no actual income/ receipt or expenditure but has claimed the cost incurred by the builder towards the construction of the units allotted to him under the Joint Development Agreement and sold for deduction under Section 48 of the IT Act, such justification be specifically considered and reasoned why, despite there being no income, there would be escape of income justifying reopening of the assessment under Sections 147 and 148 of IT Act. This Court must opine that the petitioner is categorical that he has not received any income in the Assessment Year 2016-17 but has claimed a notional expenditure in the next Assessment Years while declaring capital gain, the merit of such claim should be considered before concluding that there is escapement of tax. 7. The first respondent has not considered this material circumstance, and therefore, there must be interference by this Court to restore the proceedings for reconsideration. Though the learned counsel for the petitioner argues that this Court must interfere with the impugned order dated 31.03.2023 [Annexure-J] because the petitioner was not required to file Returns to avail the benefit under Sections 45 and 48 of the IT Act and the initiation of proceedings under Section 148 thereof is time-barred, these contentions do not persuade this Court at this stage. However, if there is to be any assessment consequent to the reconsideration under Section 148A[d] of the IT Act, the petitioner must be at liberty to canvass such grounds in the appropriate appeal proceedings. In the light of the afore, the following: ORDER Act, the petitioner must be at liberty to canvass such grounds in the appropriate appeal proceedings. In the light of the afore, the following: ORDER The petition is allowed, and the impugned order dated 31.03.2023 under Section 148A[d] of the IT Act is quashed. The proceedings are restored for consideration in the light of this Court’s observation as above. Consequentially, the notice dated 31.03.2023 under Section 148 of the IT Act is also quashed. The petitioner is reserved liberty to file additional reply, if any, within four weeks from the date of receipt of this order. Sd/- JUDGE NV