2023 (7) TMI 1093 - HC - Income Tax

Reopening of assessment u/s 147 - sufficient material available to form a belief that income which was otherwise chargeable to tax had escaped assessment - Capital gain computation - real difference in the capital gains emanated from the difference in the cost of acquisition, as taken by the petitioner and that which was arrived at by the AO - validity of PCIT's i.e., the authority granting approval for reopening - HELD THAT - Highest rate qua each parcel of land would be approximately Rs.10 per square metre. This very extract goes on to note that as on 01.04.1981, the cost of acquisition of land sold by the petitioner should have been Rs. 2000/- per 250 square meters, which would work out to Rs. 8 per square metre. AO, based on this reasoning arrived at the cost of acquisition, which is, in effect, the market value of land as on 01.04.1981, by multiplying Rs. 8 per square meter with the total land area sold by the petitioner i.e., Rs. 2,63,194/-. The product of which is Rs. 21,05,552/-. Counsel for the parties agree that the AO had to index the cost of acquisition, which is what the petitioner did. Notwithstanding the above, the AO, as noticed above, has not applied his mind to the input received by him from the DCIT via letter dated 27.01.2015. It appears that the AO did not indicate as to why Rs. 8 per square metre was taken as the rate, as against Rs. 10 per square metre, while ascertaining the cost of acquisition. AO did not have the relevant material in his possession. This aspect has been emphasized by Dr Gupta by referring to assertions made in paragraphs 11 and 24 of the writ petition, wherein it is averred that the AO did not have relevant material in his possession before triggering the reassessment proceedings. This plea is supported by referring to the counter-affidavit, where there is no denial qua the assertion made in the writ petition. What makes matters worse is that the Principal Commissioner of Income Tax in short, PCIT , while granting approval, has adopted an almost nonchalant approach. AO, while putting a probative value with regard to the capital gains in the reasons recorded by him, somehow has also missed adjusting the deduction claimed by the petitioner under Section 54EC of the Act. As noted hereinabove, the petitioner had claimed deduction of Rs.1 crore in this regard. Therefore, for the foregoing reasons, there has been complete non-application of mind by the AO, both with regard to the provision which was applicable in the instant case and also insofar as his failure to secure the material that was available with the DCIT in arriving at the market value of the land as on 01.04.1981, which, as noticed above, forms the basis of the cost of acquisition. PCIT i.e., the authority granting approval for reopening the reassessment proceedings, did not do better. PCIT, in fact, rubber-stamped the attempt of the AO to reopen the assessment. Courts have, time and again, held that such an approach is to be abjured - Decided in favour of assessee.

Summary

Issues Involved:
1. Validity of Reassessment Proceedings
2. Application of Section 50C of the Income Tax Act, 1961
3. Calculation of Cost of Acquisition for Capital Gains

Summary:

1. Validity of Reassessment Proceedings:
The main contention raised by the petitioner was that the reassessment proceedings were initiated without due application of mind by the Assessing Officer (AO). The petitioner argued that both the AO and the authority granting approval did not properly consider whether there was sufficient material to form a belief that income chargeable to tax had escaped assessment. The court found that the AO had not applied his mind to the input received from the DCIT and had failed to secure relevant material before triggering the reassessment proceedings. Additionally, the Principal Commissioner of Income Tax (PCIT) had merely rubber-stamped the AO's attempt to reopen the assessment without proper examination, leading to a conclusion of non-application of mind.

2. Application of Section 50C of the Income Tax Act, 1961:
The AO initiated reassessment proceedings on the basis that the petitioner did not disclose the "full and true value of the consideration" for the land sold during the Financial Year 2010-11. The AO argued that the consideration received was less than the circle rate, thus attracting the provisions of Section 50C of the Act. However, the court observed that the petitioner had calculated his capital gains by taking the circle rate into account, and therefore, the provisions of Section 50C were not applicable. The AO had missed this crucial aspect, leading to an erroneous basis for reopening the assessment.

3. Calculation of Cost of Acquisition for Capital Gains:
The real difference in the long-term capital gain was due to the cost of acquisition. The petitioner calculated the cost of acquisition based on the circle rate, while the AO pegged it at a much lower rate based on a letter from the DCIT, which referred to outdated market rates from 1980-83. The court noted that the AO did not provide a rationale for using Rs. 8 per square meter instead of Rs. 10 per square meter in calculating the cost of acquisition. Furthermore, the AO failed to adjust the deduction claimed by the petitioner under Section 54EC of the Act. This indicated a lack of due diligence and application of mind by the AO.

Conclusion:
The court allowed the writ petition, quashing the notice dated 29.03.2018 issued under Section 148 of the Income Tax Act. The reassessment proceedings were deemed invalid due to non-application of mind by both the AO and the PCIT, and the erroneous application of Section 50C.