Gujarat High Court
Senitax Chemicals Ltd vs Income Tax Officer on 3 October, 2017
Author: Akil Kureshi
Bench: Akil Kureshi, Biren Vaishnav
C/SCA/13881/2017 JUDGMENT
IN THE HIGH COURT OF GUJARAT AT AHMEDABAD
SPECIAL CIVIL APPLICATION NO. 13881 of 2017
FOR APPROVAL AND SIGNATURE:
HONOURABLE MR.JUSTICE AKIL KURESHI
and
HONOURABLE MR.JUSTICE BIREN VAISHNAV
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1 Whether Reporters of Local Papers may be allowed
to see the judgment ?
2 To be referred to the Reporter or not ?
3 Whether their Lordships wish to see the fair copy of
the judgment ?
4 Whether this case involves a substantial question of
law as to the interpretation of the Constitution of
India or any order made thereunder ?
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SENITAX CHEMICALS LTD.....Petitioner(s)
Versus
INCOME TAX OFFICER....Respondent(s)
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Appearance:
MR SN DIVATIA, ADVOCATE for the Petitioner(s) No. 1
MR KM PARIKH, ADVOCATE for the Respondent(s) No. 1
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CORAM: HONOURABLE MR.JUSTICE AKIL KURESHI
and
HONOURABLE MR.JUSTICE BIREN VAISHNAV
Date : 03/10/2017
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C/SCA/13881/2017 JUDGMENT
ORAL JUDGMENT
(PER : HONOURABLE MR.JUSTICE AKIL KURESHI)
1. The petitioner has challenged a notice dated 7.3.2017 issued by the respondent Assessing Officer for reopening the petitioner's assessment for the assessment year 2005 2006.
2. Brief facts are as under. The petitioner is a company registered under the Companies Act. For the assessment year 20052006, the petitioner had filed return of income on 31.10.2005 declaring nil income. The return was taken in scrutiny by the Assessing Officer. He passed the order of assessment under section 143(3) of the Act on 31.12.2007 accepting the declaration of nil income as also the assessee's claim for long term capital loss of Rs.15.80 lacs on sale of land.
3. The Assessing Officer issued a notice for reopening such assessment under section 148 of the Act on 19.8.2010 in which his dispute was with respect to computation of cost of acquisition of land for the purpose of computing long term capital gain or loss on sale of such land. The assessee Page 2 of 10 HC-NIC Page 2 of 10 Created On Sat Oct 07 09:33:01 IST 2017 C/SCA/13881/2017 JUDGMENT had shown the cost of acquisition as on 1.4.1981 at Rs.135.84 per sq. mtr. as against the valuation of Rs.80 per sq. mtr. shown by the registered valuer. According to the Assessing Officer, in the reasons recorded, instead of capital loss of Rs.15.80 lacs, the assessee had made a long term capital gain of Rs.1.11 crores through sale of land. The Assessing Officer made assessment accordingly under section 143(3) read with section 147 of the Act by passing order on 9.11.2011.
4. The assessee filed appeal before the Commissioner (Appeals) and strongly disputed the validity of the reopening of the assessment itself. On behalf of the assessee, it was urged that the entire issue was scrutinized by the Assessing Officer during the original assessment proceedings and in any case there was no failure on part of the assessee to disclose truly and fully all material facts. Notice of reopening therefore, could not have been issued beyond a period of four years.
5. On the question of additions made by the Assessing Officer in the reassessment, in the appellate proceedings, the assessee presented additional materials suggesting that correct cost of acquisition of land should have been Rs.108.27 per sq mtr. According to this valuation, the long term capital gain of the assessee would be Rs.21.51 lacs, Page 3 of 10 HC-NIC Page 3 of 10 Created On Sat Oct 07 09:33:01 IST 2017 C/SCA/13881/2017 JUDGMENT instead of Rs.14.90 lacs shown in the return.
6. The Commissioner by order dated 15.11.2012 held that the reopening was invalid. He was of the opinion that the Assessing Officer in the reasons recorded had proceeded on the basis of materials on record. There was no failure on part of the assessee to disclose truly and fully all material facts. According to him, the issue was also examined during the original assessment proceedings. On both counts, therefore, Commissioner(Appeals) declared the reassessment invalid.
7. While doing so, he referred to the assessee's further statement before him suggesting that the correct cost of acquisition of land would be Rs.108.27 per sq mtr. He referred to the materials produced by the assessee in this respect and gave the following directions :
"5.1 Thus, as admitted by the AR also, the correct cost of acquisition of saleable lans should have been Rs. 108.27 per sq.mtr and the long term capital gain in the present case should have been Rs. 21,51,968/ in place of long term loss of Rs. 14,90,955/ shown by the appellant in its return of income. The finding that the correct rate of cost of acquisition of saleable land as on 01.04.1981 should have been Rs. 108.27 and hence the appellant had adopted in correct cost of acquisition of the saleable land for computing the long term capital gain during the course of original assessment proceedings, has been arrived at only Page 4 of 10 HC-NIC Page 4 of 10 Created On Sat Oct 07 09:33:01 IST 2017 C/SCA/13881/2017 JUDGMENT during the course of appellate proceedings on verification of sale deeds and other documents. Hence, the AO is directed to reopen the assessment for assessment year 200506 by issuing notice u/s 148 in pursuance of these findings as per the provisions of sec. 150 of the IT Act, 1961."
8. This order was challenged by the Revenue but not by the assessee. The Tribunal rejected the Revenue's appeal and confirmed the decision of the CIT(Appeals). Thereupon pursuant to abovenoted directions of CIT(Appeals), the Assessing Officer issued the impugned notice.
9. In the reasons recorded by the Assessing Officer for issuing such notice, the directions issued by CIT(Appeals) in the said order dated 15.11.2012 have been reproduced. After reproducing the direction portion, the Assessing Officer in the reasons recorded observed as under :
" In view of the above direction U/s. 150 of the IT Act, the reason of reopening u/s. 147 of the IT Act is recorded as under:
On verification of case records, it was noticed that the assessee company has sold plotted land admeasuring 36843 sq. mt. out of the total land of 59388 sq. mt. during the year to the different parties. The assessee has sold 7039 sq. ft of land in earlier years. The rest of land admeasuring 15506 sq mt. belongs to Road and Common areas. In order to worked out the Capital gain on sale of such plotted land the assessee got valuation report of land determining the value of land @ 80 per sq mt as on Page 5 of 10 HC-NIC Page 5 of 10 Created On Sat Oct 07 09:33:01 IST 2017 C/SCA/13881/2017 JUDGMENT 01.04.1981 and after indexation of the value of land as on. 01.04. l981,the assessee had arrived the cost of acquisition.
While working the cost of acquisition of land the assessee has taken rate of land @ 135.84 per sq mt on the basis of entire land area and did not exclude the part of land admeasuring 15506 sq mt which was not saleable on account of being road and common area. Therefore, the cost of saleable land as on 01.04. 1981 should have been worked out as under:
Total cost as on 59338 @ Rs. 80 per Rs. 47,51,040 01/04/1981 sq.mt Total saleable 43882 sq mt Land (excluding of 15506 sq mt being road and common area) Cost per sq mt Total cost of 59388 sq Rs.
mt Saleable land of 4751040/43882=108.
43882 sq mt 27 sq.mt
Rate per sq mt Rs. 108.27 per sq mt.
However, instead of taking rate of land per sq mt of Rs. 108.27 the assessee has taken rate of land at Rs. 135.84 sq.mt. Therefore the assessee has wrongly calculated the cost of acquisition for determining the capital gain. This means that the assessee has inflated the cost of acquisition which resultant into suppression of Long Term Capital Gain. The working of capital gain on the basis of rate of land @ 108.27 per sq.mt is as under"
10. Learned counsel Shri Divatia for the petitioner submitted that the Commissioner(Appeals) had no authority to give any direction once he declared the Page 6 of 10 HC-NIC Page 6 of 10 Created On Sat Oct 07 09:33:01 IST 2017 C/SCA/13881/2017 JUDGMENT reassessment proceedings as invalid. He had come to the conclusion that there was no failure on part of the assessee to disclose truly and fully all material facts and further that during the original assessment, the entire issue was scrutinized. If that be so, there was no reason for him to make any further observations or give direction for reopening the assessment. The Tribunal also confirmed the decision of CIT(Appeals). Counsel further submitted that in any case, the directions issued by the Commissioner (Appeals) could at best save the limitation in terms of section 150 of the Act but would not form the basis for reopening the assessment which would depend solely on the jurisdictional requirements being satisfied.
11. On the other hand, learned counsel Shri Parikh for the department opposed the petition contending that fresh material was brought on record during the appellate proceedings. CIT(Appeals) therefore, made suitable observations and gave directions. These directions were not challenged by the assessee. In collateral proceedings, he cannot question them.
12. The central issue involved in the return filed and in the subsequent assessment concerns the question of long term capital gain of the assessee upon sale of land. The valuer had adopted Rs.80 per sq. mtr as cost of acquisition Page 7 of 10 HC-NIC Page 7 of 10 Created On Sat Oct 07 09:33:01 IST 2017 C/SCA/13881/2017 JUDGMENT of land on 1.4.1981. In the return, the assessee instead adopted the rate of Rs.135.84 per sq. mtr. and claimed the long term capital loss of Rs.15.80 lacs. During the first round of reopening of the assessment, the Assessing Officer had questioned this valuation and computed long term capital gain on the basis that the cost of acquisition of land as on 1.4.1981 would be Rs.80 per sq. mtr. CIT(Appeals) struck down this assessment on the ground that it amounts to invalid exercise of powers of reopening. In the reasons recorded, the Assessing Officer had not referred to any material which was not disclosed by the Assessing Officer. The issue was also scrutinized during the original assessment proceedings. In the opinion of the Commissioner(Appeals) however, issue should not rest there because before him the assessee had taken a stand that correct cost of acquisition should be Rs.108.27 per sq mtr. He had produced documents in support of such a stand and also presented the revised capital gain arising out of such valuation. It was in this background that CIT (Appeals) gave direction for reopening of the assessment.
13. For two reasons, the petitioner cannot succeed. Firstly, the petitioner never challenged the order of CIT(Appeals) which was in part against the petitioner. If the petitioner was aggrieved by the directions issued by the CIT(Appeals), it ought to have challenged the same before Page 8 of 10 HC-NIC Page 8 of 10 Created On Sat Oct 07 09:33:01 IST 2017 C/SCA/13881/2017 JUDGMENT the appropriate forum. The petitioner having accepted and acquiesced in the order cannot question the wisdom or authority of CIT(Appeals) to issue such directions. Equally importantly, the stand of CIT(Appeals) in on one hand annulling the reassessment on the grounds of previously scrutinized claim and no failure on part of the assessee to disclose truly and fully material facts and at the same time directing the reopening of the assessment, was not in any manner incongruent. His observations or conclusions for invalidating the assessment were based on materials which were before the Assessing Officer at the time of issuing the notice for reopening. His directions were based on the materials which came before him during the appellate proceedings. By assessee's own account, correct valuation as on 1.4.1981 of the land in question would be Rs.108.27 per sq mtr. This would have two elements. One, that the original scrutiny would no longer be valid since there was an outside alien material which had later on come on record and two, that the declaration made by the assessee in the return filed and during the previous assessment proceedings would also be under a cloud. The effect of directions that the appellate authority or the Tribunal may issue during the assessment proceedings, need not be in all cases confined to saving of limitation in terms of section 150 of the Act if the directions are specific, as in the present case which can go beyond mere saving of Page 9 of 10 HC-NIC Page 9 of 10 Created On Sat Oct 07 09:33:01 IST 2017 C/SCA/13881/2017 JUDGMENT limitation.
14. In the result, the petition is dismissed. Notice is discharged.
(AKIL KURESHI, J.) (BIREN VAISHNAV, J.) raghu Page 10 of 10 HC-NIC Page 10 of 10 Created On Sat Oct 07 09:33:01 IST 2017