Chunibhai Ranchhodbhai Dalwadi vs Assistant Commissioner Of Income Tax

Mr. Akil Kureshi, J.—The petitioner has challenged the notice of reopening dated 28.2.2014 issued by respondent Assessing Officer, copy of which is produced at Annexure-A to the petition. This petition arises in the following background. The assessee is the legal heir of late Chunibhai Ranchhodbhai Dalwadi. For the assessment year 2007-2008, the assessee had filed return of income declaring total income of Rs.29,53,970/-. The return was taken in scrutiny. The Assessing Officer framed the scrutiny assessment under section 143(3) of the Income Tax Act on 25.8.2009. To reopen such assessment, he issued impugned notice. He had recorded his reasons for issuing the notice which reads as under :

"The assessee has sold immovable property being NA land vide sale deed dated 19/04/2006. The sale value as per the agreement is Rs. 87,71,765/- and registered, with Sub-registrar Nadiad on 19/04/2006 vide registration no. NDD/1310/01/55. Registration charges paid on the above agreement is Rs. 1,32,205/- and stamp duty paid is Rs.11,92,500/-.

As per above Stamp Duty the sale value is determined at Rs. 2,12,86.400/- by the Stamp Authority. However, the Agreement is made for Rs. 87,71,765/- only. Hence as per the provisions of Section 50C, the deemed LTCG is Rs. 1,25,14,635/-, which has not been offered for tax by the assessee in the return of income filed for A.Y.2007-08 dated 12/03/2008. Hence I have reason to believe that the income of Rs. 1,25,14,635/- has escaped assessment."

The petitioner raised objections in the process of reopening under communication dated 23.3.2015. Such objections were however, rejected by the Assessing Officer under an order dated 25.3.2015. Hence the petition.

Under order dated 27.3.2015, while issuing notice, the Court passed the following interim directions :

"Notice returnable on 06.04.2015. The proceedings of the assessment officer may go on and the petitioner to participate in the same without prejudice to his rights and contentions in the present petition and by way of ad interim relief, it is directed that final order, if any passed, may not be implemented till the next date of hearing. Direct service is permitted today."

We are informed that the order of assessment is also passed. However, by subsequent directions dated 6.4.2015, which continued from time to time, the department is precluded from enforcing tax recovery pursuant to such order of reassessment. However, in the present petition, we are concerned with the very validity of the reopening of the assessment.

In this context, counsel for the petitioner submitted that the assessment previously framed after scrutiny was sought to be recovered within a period of four years from the end of relevant assessment year. There was no failure on part of the assessee to disclose truly and fully all materials. Notice for reopening was therefore, bad in law. He further contended that the notice for reopening was issued against deceased Chunibhai Ranchhodbhai Dalwadi and thus there was no valid issuance of service of notice.

On the other hand, learned counsel Shri Parikh for the department submitted that the assessee had made major mis-declarations concerning the nature of land under sale and its true sale consideration. He submitted that sale deed was not on record and, therefore, the assessing authority had no means to ascertain the stamp valuation adopted by the stamp authorities. Only upon the Assessing Officer coming to know of the higher stamp valuation, he sought to invoke the provisions of section 50C of the Income Tax Act. There was thus clear failure on part of the assessee to disclose truly and fully material facts. It is submitted that defect in service of notice would not be a ground for invalidating the assessment proceedings. In any case, the petitioner has not raised any such contention in the petition, cannot be now allowed to raise orally.

Regarding the validity of reassessment proceedings, we may recall the Assessing Officer in his reasons had stated that the assessee had sold immovable property vide sale deed dated 19.4.2006. The sale value declared was Rs.87.71 lacs (rounded off). However, the sale deed was registered with the Sub-Registrar, Nadiad on 19.4.2006 on which registration charge of Rs.1.32 lacs(rounded off) and stamp duty of Rs.11.92 lacs (rounded off) was paid. He therefore, noted that as per the stamp duty, sale value determined by the stamp authorities would come to Rs.2.12 crores (rounded off). He therefore, invoked section 50C and desired to treat the difference of Rs.1.25 crores(rounded off) by way of deemed long term capital gain. He therefore, recorded the reason to believe that income chargeable to tax to the extent of Rs.1.25 crores had escaped assessment. We do not find that the Assessing Officer lacked jurisdiction to reopen the assessment. It appears that the assessee had declared the sale consideration of the land in question as Rs.87.71 lacs where as had accepted the stamp valuation which would come to Rs. 2.12 crores considering the stamp duty of Rs. 11.92 lacs affixed on the sale deed. It was in this background, the Assessing Officer invoked section 50C of the Act treating the difference as deemed long term capital gain. When these facts were not on record, when the sale deed was not on record during the original assessment, this certainly is a case where the assessee failed to disclose truly and fully material facts necessary for assessment. In order dated 25.3.2015, the Assessing Officer while disposing of the objections of the petitioner made following observations :

"The registered agreement (Banakat) as claimed by you and referred to now, nowhere indicates that the land in question was agriculture land, it only gives the revenue survey details. Even during the assessment proceedings, no submission has been made to indicate that the land in question was agriculture land. You have submitted 7/12 extracts along with this letter dated 23/03/2015. The Banakat as submitted during the assessment proceedings specifically contains that the land in question was agreed to be sold at Rs.87,71,765/- out of which an amount of Rs.17,87,454/- received as Banakat and the assessee would not claim anything more than the agreed consideration. However, it is to bring to your notice the terms as mentioned in the Banakat page 4 para-2 that the possession of the land agreed to be sold would not be given to the purchasers till the final registration is complete.

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In the above background and the circumstances as mentioned in detail as above, it is clear that at the point of time when the sale deed was registered the land in question was NA land (which was duly converted by paying the necessary conversion charges by the purchasers) and accordingly as per the terms of the registered Banakat the possession of the NA land was given to the purchasers, thus completing the sale and transfer of the land. Hence, the land in question purchased was NA land and accordingly the stamp registering authority had rightly applied the rates for NA land at the time of execution of the sale deed. In view of the above, the stamp rates charged by the Stamp Authority was for NA land and the sub registrar accordingly worked out the document value as Rs.2.12,86,400/-. Thus. from the above it becomes amply clear that you have sold NA land whereas you have paid capital gains on agriculture land. The registration of Banakat appears only to circumvent the due process of law to pay capital gains on NA land. By registering the Banakat without releasing the possession of the land to the purchasers, you have in fact retained all the incumbent rights on the said land. It appears that by asking the purchasers to convert the said land into NA land you have tried to avoid incurring the cost of taking NA permission. Another pertinent point to mention in this sale transaction is that the purchasers are a charitable trust and agricultural land as claimed by you could not be purchased by them. Thus, the land. in question had to be compulsorily an NA land for the purchasers to take possession of the same. In view of the same, the above transaction of sale and transfer of the land as mentioned by you is NA land only and stamp duty rates have rightly been applied accordingly. Therefore, the capital gains on the land sale is as mentioned in the reasons for re-opening the assessment proceedings."

Undisputedly, this issue was never examined by the Assessing Officer during the original assessment proceedings. Further, as noted, necessary and relevant information was not placed by the assessee during such proceedings. Reopening within four years was therefore, permissible. Regarding the question of invalidity or improper notice, such a contention has not been taken in the petition. Reassessment has already been framed. We leave it for the petitioner to raise the same in appellate proceedings, if so advised. Such contention is therefore, not examined in the present proceedings.

Petition is disposed of accordingly. Notice is discharged, Interim relief stands vacated.