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IN THE HIGH COURT OF GUJARAT AT AHMEDABAD
Bhargav D. Karia, Niral R. Mehta, JJ.
Radhe Developers India Limited – Petitioner
Versus
Assitant Commissioner Of Income Tax, Circle 3(1)(2) – Respondent
R/Special Civil Application No. 4708 of 2021
Decided On : 23-07-2024
Income Tax - Reopening of Assessment - Income Tax Act, 1961 Sections 147, 148, 50C - The court interpreted the provisions regarding reopening assessments and the applicability of sections concerning income escapement, concluding that the Assessing Officer misapplied the law in this case.
Fact of the Case:
The petitioner challenged a notice under section 148 of the Income Tax Act for A.Y. 2013-14, claiming that the property in question was not owned by them and that the reopening was based on erroneous comparisons of property values.
Finding of the Court:
The court found that the Assessing Officer misinterpreted section 50C and failed to establish a direct nexus between the alleged income escapement and the petitioner, leading to the conclusion that the reopening of the assessment was unjustified.
Issues: Whether the reopening of the assessment under section 148 was valid given the circumstances of property ownership and the application of relevant sections of the Income Tax Act.
Ratio Decidendi: The court held that the Assessing Officer lacked jurisdiction to reopen the assessment as the petitioner had disclosed all material facts and the notice was issued beyond the permissible time frame.
Result: The impugned notice dated 16.03.2020 is quashed and set aside.
JUDGMENT :
BHARGAV D. KARIA, J.
1. Heard learned Senior Advocate Mr. S.N.Soparkar with learned advocate Mr. B.S.Soparkar for the petitioner and learned Senior Standing Counsel Mr. Karan Sanghani for learned advocate Mrs. Kalpana
K. Raval for the respondent.
2. Rule returnable forthwith. Learned Senior Standing Counsel Mr. Karan Sanghani waives service of notice of rule for the respondents.
3. Having regard to the controversy involved which is in narrow compass, with the consent of the learned advocates for the parties, the matter is taken up for hearing.
4. By this petition under Article 226 of the Constitution of India, the petitioner has challenged the notice dated 16.03.2020 passed by the Assistant Commissioner of Income Tax, Ahmedabad, under section 148 of the Income Tax Act, 1961 (for short ’the Act’)for A.Y.2013-14.
5. Brief facts of the case are that the petitioner filed return of income for A.Y. 2013-14 on 28.09.2013 declaring total income of ‘Nil’.
5.1 Case of the petitioner was reopened under section 148 of the Act and the reasons were supplied on 25.05.2016. The petitioner filed objections on 22.06.2016. The assessment was framed on 03.10.2016 under section 143(3) read with section 147 accepting the return income.
5.2 Thereafter, once again, notice under section 133(6) of the Act was issued on 19.02.2020 seeking information regarding transfer of property (plots of land) by the petitioner at a value lower than the market value.
5.3 The petitioner received the impugned notice dated 16.03.2020 under section 148 of the Act. The assessee filed reply to the notice under section 133(6) on 15.07.2020 explaining in detail that the property was transferred in the year 1995 and therefore, the comparison of price of transfer of the year 1995 with market value of year 2012 is erroneous as further it was explained that the property was never owned by the petitioner but by the society and therefore, the tax consequences, if any, cannot be upon the petitioner.
5.4 The reasons recorded by the respondent Assessing Officer was incorporated in the notice under section 143(2) dated 22.10.2020 and thereafter, copy of the reasons recorded was provided on 05.01.2021. The petitioner filed the objections on 23.10.2020 which was disposed of by the respondent-Assessing Officer on 18.02.2021.
The petitioner therefore being aggrieved, has preferred this petition.
6. During the pendency of this petition, by order dated 25.06.2021, learned advocate for the respondent was directed to pass an order disposing of the objections.
7. Pursuant to the aforesaid order, respondent-Assessing Officer has passed a speaking order disposing of the objection on 05.07.2024 which is placed on record on 09.07.2024.
8. Learned Senior Advocate Mr. Soparkar submitted that the petitioner is a developer and has booked the plots of the society under the development agreement and shown the same as a stock-in-trade in the books of accounts. It was pointed out that such booking was done for the year 1995.
8.1 It was further submitted that the petitioner in response to the notice under section 133(6) as well as objections to the impugned notice for reopening has stated in detail that there cannot be any comparison of the market value with the value in the year 2012 when the sale deeds were executed and the amount of booking collected in the year 1995.
8.2 It was further pointed out that the petitioner-Company has shown the property in question i.e. plots of land as stock-in-trade in the name of the scheme-”Radhe Arce” as per the development agreement entered into between the Shantinagar (Shela) Cooperative Housing Society and the petitioner. It was also pointed out that the land of the project was purchased by the society and by virtue of the development agreement, the petitioner collected the amount from members on behalf of the society for work to be performed.
8.3 It was submitted that section 43CA of the Act was not on Statute for the year under consideration and as the petitioner was not
The court established that the reopening of an assessment under section 148 requires a clear nexus with income escapement, which was not present in this case.
A notice under Section 148 of the Income Tax Act issued beyond four years without proper examination of material facts is invalid and lacks jurisdiction.
The court established that reopening assessments requires new material evidence, and Section 50C does not apply to stock in trade, reinforcing the principle against mere changes of opinion.
The Assessing Officer cannot reopen an assessment based solely on a change of opinion; valid reasons must exist to believe that income has escaped assessment.
The court established that reopening assessments requires a clear and valid reason to believe that income has escaped assessment, which was not present in this case.
The court emphasized the necessity for the Assessing Officer to apply due diligence and consider all evidence before concluding that income has escaped assessment.
Reopening of income tax assessments requires new information, not merely a change of opinion, to avoid arbitrary exercise of power.
The notice issued under Section 148A(b) of the Income Tax Act was invalid due to procedural errors, lacking necessary information on escaped income and failing to follow required inquiry protocols.
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