2022 (5) TMI 955 - HC - Income Tax

Reopening of assessment u/s 147 - information received from ITO I CI - II, Pune - capital gain on sale of land - applicability of Section 50C - HELD THAT - Different parcels of lands were purchased by the said Director as an Agriculturist and thereafter sold/transferred to Zuari Cements Limited. It is not clear that how the funds of the petitioner could have been used to finance the purchase by its Director. The sale is also by the said Director in his individual capacity as an Agriculturist on 30.07.2011 to Zuari Cements Limited - income from the land development cost has been shown as Rs.7,08,39,862/- during the previous year. Further, a sum of Rs.2,98,97,357/- has been shown as expenses incurred towards land development charges. Further, the land sold during the relevant year was only for Rs.97,37,500/-. There is no clarity on this aspect. The guideline value of the property sold during the period in dispute was Rs.3,21,61,000/-. Therefore, Section 50C of the Income Tax Act was invoked, as if the land was a capital asset of the petitioner company. The Department wanted to include an amount of Rs.2,24,23,500/- Rs.3,21,61,000 Rs.97,37,500 as income having escaped assessment during 2013 to 2014, it is however not clear which the entire parcel of land was sold or only an extent of land was sold during the previous year for Assessment Year 2013-2014. It is also not clear how the land can be treated as a capital asset of the petitioner company when the land was neither purchased nor sold by the petitioner Company. These aspects are not forthcoming clearly either in the reply of the petitioner or in the orders passed by the respondent earlier on 22.11.2018 which was earlier quashed by an order dated 12.12.2018 or in the impugned orders dated 17.12.2018 disposing objection of the petitioner against reopening of the assessment under Section 148 of the Income Tax Act, 1961 and the consequential assessment order passed on 20.12.2018 impugned in this writ petition. Thus while upholding the impugned order overruling the objection against re-opening the assessment, we are inclined to set aside the consequential assessment order dated 20.12.2018, passed by the first respondent and remit the case back to the first respondent to pass a de novo orders on merits

Issues Involved:
1. Legality of the reopening of the assessment under Section 148 of the Income Tax Act, 1961.
2. Validity of the assessment order dated 20.12.2018.
3. Applicability of Section 50C of the Income Tax Act, 1961.
4. Treatment of land as a capital asset versus a business asset.
5. Alleged violation of principles of natural justice.

Issue-wise Detailed Analysis:

1. Legality of the reopening of the assessment under Section 148 of the Income Tax Act, 1961:
The petitioner challenged the notice dated 17.01.2018 issued under Section 148, arguing it was without jurisdiction and motivated by a change of opinion. The petitioner contended that there was a full and true disclosure at the time of the original assessment completed on 27.03.2016. The court observed that the Assessing Officer did not address all objections raised by the petitioner, particularly regarding the applicability of Section 50C. The court emphasized that the Assessing Officer must deal with each objection raised and express a decision on those objections. The court upheld the order overruling the objections against reopening but required a fresh assessment considering all objections.

2. Validity of the assessment order dated 20.12.2018:
The petitioner argued that the assessment order was invalid as it was based on a change of opinion and lacked jurisdiction. The court noted that the assessment order was passed without addressing the objections comprehensively and remitted the case back to the Assessing Officer for a de novo assessment. The court set aside the assessment order dated 20.12.2018 and directed the Assessing Officer to pass fresh orders within six months, ensuring that the petitioner is heard before passing such orders.

3. Applicability of Section 50C of the Income Tax Act, 1961:
The petitioner argued that Section 50C, which deals with the valuation of capital assets, was not applicable as the land sold was agricultural land and not a capital asset. The court noted that the guideline value of the property sold was significantly higher than the sale consideration, invoking Section 50C. However, the court found a lack of clarity on whether the land was sold as a capital asset or a business asset and directed a fresh assessment to clarify this aspect.

4. Treatment of land as a capital asset versus a business asset:
The petitioner treated the land as a business asset, claiming business expenses. The respondent argued that the land should be treated as a capital asset. The court observed that the original scrutiny assessment treated the land as a business asset, but the reopening was based on treating it as a capital asset. The court found inconsistencies and lack of clarity in the treatment of the land and directed a fresh assessment to address this issue.

5. Alleged violation of principles of natural justice:
The petitioner argued that the assessment order violated principles of natural justice as findings were arrived at for the first time without prior notice. The court noted that the petitioner was not given an adequate opportunity to respond to the findings in the assessment order. The court emphasized the need for adherence to principles of natural justice and directed a fresh assessment ensuring the petitioner is heard.

Conclusion:
The court dismissed W.P.No.350 of 2019 challenging the communication overruling the objections against reopening the assessment but set aside the consequential assessment order dated 20.12.2018. The case was remitted back to the Assessing Officer for a de novo assessment, ensuring all objections are addressed and the petitioner is heard. The court directed the fresh assessment to be completed within six months.

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