Point of Law:
Court should be guided by reasons recorded for reassessment and not by reasons or explanation given by Assessing Officer at a later stage in respect of notice of reassessment. To put it in other words, having regard to the entire scheme and the purpose of the Act, validity of assumption of jurisdiction under Section 147 can be tested only by reference to reasons recorded under Section 148(2) of Act and Assessing Officer is not authorized to refer to any other reason even if it can be otherwise inferred or gathered from records – Assessing Officer is confined to recorded reasons to support assumption of jurisdiction.

JUDGMENT :

J.B. PARDIWALA, J.

1. 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 9th March 2007 passed by the Income Tax Appellate Tribunal, Ahmedabad Bench 'D' in the ITA No.1113/Ahd/2001 for the Assessment Year 1991-92.

2. The facts giving rise to this Appeal may be summarised as under :

3. The assessment was completed under Section 143(3) of the Act 1961 on 28th March 1994 on the total income of Rs.75,404.00, which included the long term capital gains of Rs.61,812=00. The assessee sold a property being an agricultural land admeasuring 7986 sq.yards in the form of a farmhouse along with water tank, servant quarter, etc., constructed on it for a consideration of Rs.30,00,000.00 during the 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. The deductions as claimed were allowed. The claim of the assessee was that the sale was of a residential house along with the land appurtenant thereto. Later, it was noticed by the Assessing Officer that the property in question was agricultural land and, therefore, the deduction under Sections 53(b) and 54(1)(i) of the Act had been wrongly allowed. In such circumstances, the Assessing Officer reopened the assessment by issuing a notice under Section 148 of the Act. The reassessment was accordingly completed withdrawing the deductions under Sections 53(b) and 54(1)(i) respectively of the Act. The long term capital gains was determined at Rs.17,11,363.00.

4. 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 assessee came to be allowed by the CIT(A) vide order dated 13th March 2001. While allowing the appeal, the CIT(A) held as under :

“4. During the course of hearing of appeal, which was attended both by the Authorised Representative of the appellant and the present Assessing Officer, a report dt.15.1.2000 was sent by the Assessing Officer. In the said report, it was submitted that the department's view with regard to the property sold by the appellant is that it was agricultural land and not residential property. The Assessing Officer has stated that in the Deed of Conveyance submitted at the time of assessment proceedings the property has been shown as agricultural land along with farm house and servant quarters, etc. and nothing has been mentioned about the nature of the construction or the area under construction described as farm house. It is also stated that during the course of assessment proceedings the assessee had not furnished any evidence whereby it could be held that the property in question was residential property and the same was actually used for the purpose. The A.O. has further submitted that the wealth tax return of the appellant for A.Y. 1990-91 shows that a bungalow mentioned as 'Avanti' has been disclosed in the statement of net wealth and at present also the assessee is staying in that bungalow i.e. 'Avanti'. The A.O. has, therefore, opined that the property declared in the Conveyance Deed as farm house was not the bungalow which was mentioned in the wealth tax return for A.Y. 1990-91. Accordingly, the A.O. was of the view that there was a failure on the part of the assessee to disclose fully and truly all material facts necessary for assessment. The A.O. has further submitted that though in the reasons recorded for the issue of notice u/s.148 specific words regarding 'failure on the part of the assessee to disclose fully and truly all material facts necessary for assessment' have not been mentioned, his action was only as a result of the same. The A.O. has also referred to the judgment of the Hon'ble Gujarat High Court in the case of Praful Chunilal