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TMI Blog2014 (10) TMI 147X X X X Extracts X X X X X X X X Extracts X X X X ..... pital gain is making it very clear as to what is indexed cost of improvement - The profit and loss account for the year ending 31st March 2008 shows the profit on sale of land, the balance sheet as on 31.3.2008 also in partners’ capital account has reflected land as an asset and the value has been quantified. The assessee had in computation of income, claimed long term capital gain after showing the profit on sale of land - The statement of long term capital gain also specifies the particulars, the sale price and the year, indexed cost of the year, indexed cost of improvement and the capital gain - the belief of the AO even if would have been there that income chargeable to tax had escaped assessment, the same lacks validity - Any reopening if is resorted to under Section 147 of the Act fundamental requirement of the AO is to have a reason to believe that the income chargeable to tax had escaped assessment - This fundamental requirement is not done away with - as decided in Asstt. Commissioner of Incometax V. Rajesh Jhaveri Stock Brokers (P) Limited, [2007 (5) TMI 197 - SUPREME Court] - such reason to believe need not necessarily be a final decision of the AO and yet when this r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ly 2008 showing its total income at Rs. Nil. On 31st July 2008, the computation of income statement was given for long term capital gain [LTCG] which reflected an amount of consideration received, the indexed cost and the indexed cost of improvement alongwith the cost of improvement incurred on the land in question. The petitioner also filed a revised return on 30th January 2009 where, once again, such LTCG was provided on the very lines, as given in the original return of income. 3.2 Notice under subsection (2) of Section 143 of the Act dated 21st September 2009 was issued by the Department. Yet another notice under Section 142 of the Act was given on 8th July 2001 calling for certain details in respect of long term capital gain and other connected details. Yet another notice dated 14th August 2010 also was received by the petitioner under Section 142 (1) of the Act asking the petitioner to furnish further details by 27th August 2010. In such communication, the details were given viz., (i) of the purchase of land; (ii) cost of improvement incurred in different years; and (iii) computation of capital gains which was given alongwith the return of income as well as with the revise ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssued notice u/s. 148 of the I.T Act, 1961 for the Assessment Year 200809 with prior approval of CITI, Baroda vide letter No. BRD/CITI/ Audit/148reasons/ 1213 dated 26.02.2013. 3.5 Objections to the reopening of the assessment were furnished through the Chartered Accountant on 24th December 2013 which, of course, were not found sustainable and the order of disposal of the objections against reopening under Section 147 of the Act came to be passed on 3rd March 2014. Therefore, the present petition seeking aforementioned reliefs. 3.6 Affidavitinreply is filed by the respondent inter alia contending that the notice for reopening is within four years from the end of relevant assessment year, and therefore, the Court is not required to intervene. More particularly, when alternative remedy is available, no interference by way of a writ petition is desirable. It is the case of the respondent that permission for nonagricultural purpose for industrial use of the land was given on 31st July 1997 by the Taluka Development Officer, Jambusar but, the cost of improvement has been sought much prior to getting the permission for non agricultural use. In other words, when the land was agricu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that no commercial activities were carried out by the assessee. 5.1 It would be apt to reproduce the assessment order dated 30th September 2010, which reads thus The assessee filed the return of income on declaring total loss of ₹ 51,262/=. The return was duly processed u/s. 143 (1) of the Act. Assessee has also filed revised return of income on 2.2.2009 declaring total income of ₹ 43,12,940/=. The case was selected for scrutiny and notice u/s. 143 (2) of the Act was issued on 24.09.2009 and served upon the assessee. Thereafter, notice u/s. 142 (1) of the Act along with detailed questionnaire was issued on 08.07.2009 and served upon the assessee for compliance. 2. In response to notice u/s. 142 (1) of the Act, Shri Rahul Parikh, Chartered Accountant, duly authorized by the assessee, attended from time to time and the case was discussed with him. 3. Assessee is in the business of dealing in formulations of Pesticides and other chemicals. During the year under consideration, no commercial activities has been carried out by the assessee. Copy of Balance sheet, profit and loss account, and other details were called for verified and kept on record. D ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 9/from the sales consideration of ₹ 9541620/. Further scrutiny revealed that the assessee had shown cost of improvement during 199293 ₹ 85,000/199394 ₹ 774370/199495 ₹ 195000/199596 ₹ 423605/199697 ₹ 201455/199899 ₹ 70406/and this expenses assessee is taken indexation benefit of improvement further scrutiny revealed that this property is land and permission of non agricultural purpose for industrial use was given on 31/7/1997 by TDO, Jambusar. So, the cost of improvement taken on this land required to be verified because on this land in each year assessee had spent expenses and expenses before use of non agri. Permission was given in 1997. In absence of detailed regarding expenses done in each year the cost of improvement allowed was not verified. Hence, the assessing officer may be requested to verify the facts as tax involvement of ₹ 985140/{ 3678639 x 20% = 735728/+ EC 3% ₹ 22072/+ 234B 30% ₹ 227340/= ₹ 985140/}. The A.O may offer his remarks. 9. The Deputy Commissioner of Income Tax, Circle2 (2), Baroda did not find observation of the audit party acceptable, and therefore, responded thus The ob ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tly clear that at the first go itself, when the audit party raised an objection pointing out that there was an error in computation of capital gain and called for remarks of the Assessing Officer, objection of the audit party was not acceptable to the Assessing Officer. In no unclear terms a noting has been made by the Assessing Officer giving his unequivocal opinion that the expenditure incurred in improvement is allowable under Section 48 of the Act. It further noted that the permission for non agricultural use was given by the TDO, Jambusar on 31.7.1997 is of no relevance. Whether permission given on a later date or before was not a question, but, the question was whether the expenditure incurred was on the capital asset or not and whether the same has been made good by the assessee or not is the issue and expenditure in each year for improvement of the capital asset had been found to have been incurred by the assessee. 11. The audit party did not find reply of the Assessing Officer acceptable on the ground that the Incometax Act would not permit expenditure which was violating the other acts, and therefore, it was incorrect computation of capital gain. While proposing the re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion of mind to all those materials and allowed deduction, in absence of any tangible material with the Assessing Officer to validly exercise powers of reopening, the Court held the impugned notice for reopening illegal on the ground that it was based on mere change of opinion and the reassessment powers cannot be exercised to merely review the earlier assessment. As in the reasons recorded it was mentioned that during the course of assessment, it has remained to be verified whether the assessee was the owner of the infrastructure facility or not. The Court held that, ..It cannot be gainsaid that reopening of assessment for the purpose of 'verifying' or 'verification' will be necessarily an action based on a mere change of opinion. The connotation of word 'to be verified', 'verification' is to reexamine the existing material. Verification is always with reference to the details already considered once. When one wants to verify his decision, it means that one reviews the decision. 13.1 This Court in Sarla Rajkumar Varma v. Assistant Commissioner of Incometax, reported in [2014] 43 Taxmann.com 372 (Guj), the petitioner had challenged reopening of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er se would not bar the Assessing Officer from reopening the assessment on the basis of such material. The expression 'tangible material' does not mean material alien to original record. 11. Similar view was expressed by three Judge Bench of Delhi High Court in case of CIT v. Usha International Limited [2012] 348 ITR 485. It was held that in a case where the assessment order itself records that the issue was raised and decided in favour of the assessee, the reassessment proceedings will be hit by the principle of change of opinion. It was further observed that reassessment proceedings will be invalid in case an issue or query is raised and answered by the assessee in original assessment proceedings but thereafter the Assessing Officer does not make any addition in the assessment order. In such a situation, it should be accepted that issue was examined,but the Assessing Officer did not find any ground or reason to make addition or reject the stand of the assessee. 14. It can thus be seen that the claim of deduction under section 80IB (10) of the Act came up for scrutiny minutely by the Assessing Officer in the original assessment proceedings. He disallowed the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rected the assessee to furnish in writing, in prescribed manner, the information called for to be submitted on 27th August 2010. On 16th August 2010, reply to the same has been given specifying that the assessee though is in the business of dealing in pesticides or formulation of pesticides and other chemicals and such other concern business, however, during the A.Y 2008-09, had no commercial activities. During the year under review, revised return of income showed profit on sale of fixed assets that was land. The year of purchase/improvement of land with the amount has been specified quantifying the same to be ₹ 22.91 lacs [rounded off]. Details of sale of fixed asset ie., land also is provided. 15.1 The assessment order thereafter came to be passed on 30th September 2010 where the Assessing Officer has considered the balance sheet and profit loss account and other details which were called for verification and were also kept on record. Details as per the questionnaire were called for, verified and they were placed on record. Bank passbook and other details were called for and were verified on test check basis. The return of income of the assessee thereafter came to be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessee had the option under section 55 (2) to substitute the fair market value of the lands as on 1st July 1954. In this respect, the Court further observed, thus- ...The reference clearly is to the point of time when the capital asset is acquired and the cost of such acquisition is required to be deducted from the full value of the consideration. Where the property transferred was not capital asset at the date of acquisition but subsequently became capital asset as in the present case, it is difficult to see how it can be said that the property as a capital asset was acquired by the assessee when it was converted into a capital asset and how it would be possible in such a case to determine the cost of acquisition. There are no two different acquisitions of property, one as a non capital asset and the other as a capital asset. The property is acquired by the assessee only once and merely its character changes in the sense that, whereas,originally it was non capital asset, it now becomes capital asset. It would indeed be doing violence to the language of section 48, clause (ii), to read the words the cost of acquisition of the capital asset in the manner suggested on behal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d the basic requirement of the Assessing Officer having reason to believe that income chargeable to tax had escaped assessment must be fulfilled. This Court in the case of Inductotherm (I) P. Ltd v. M.Gopalan, Deputy CIT, 356 ITR 481 (Guj.) held and observed as under: 13. Despite such difference in the scheme between a return which is accepted under section 143(1) of the Act as compared to a return of which scrutiny assessment under section 143(3) of the Act is framed, the basic requirement of section 147 of the Act that the Assessing Officer has reason to believe that income chargeable to tax has escaped assessment is not done away with. Section 147 of the Act permits the Assessing Officer to assess, reassess the income or recompute the loss or depreciation if he has reason to believe that any income chargeale to tax has escaped assessment for any assessment year. This power to reopen assessment is available in either case, namely, while a return has been either accepted under section 143(1) of the Act or a scrutiny assessment has been framed under section 143(3) of the Act. A common requirement in both of cases is that the Assessing Officer should have reason to belie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee not to claim depreciation till the amendment was made by explanation 5 in section 32(1) of the Act which had the effect only from 1.4.2002. That being the position, the very belief of the Assessing Officer that income chargeable to tax had escaped assessment lacks validity. 20. In wake of the legal position referred to hereinabove, the belief of the Assessing Officer even if would have been there that income chargeable to tax had escaped assessment, the same lacks validity. Any reopening if is resorted to under Section 147 of the Act fundamental requirement of the Assessing Officer is to have a reason to believe that the income chargeable to tax had escaped assessment. This fundamental requirement is not done away with. Under any circumstances, as held in case of Asstt. Commissioner of Incometax V. Rajesh Jhaveri Stock Brokers (P) Limited, reported in [2007] 291 ITR 500 and as referred to hereinabove, such reason to believe need not necessarily be a final decision of the Assessing Officer and yet when this requirement is not being fulfilled and when the Assessing Officer himself has no reason to believe that any income chargeable to tax has escaped the assessment, the very n ..... X X X X Extracts X X X X X X X X Extracts X X X X
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