Gujarat High Court

Aditya Hemang Patel vs The Income Tax Officer, Ward 3(3)(1) on 25 April, 2025

Author: Bhargav D. Karia

Bench: Bhargav D. Karia

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                                       C/SCA/4889/2022                  JUDGMENT DATED: 25/04/2025

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                                     IN THE HIGH COURT OF GUJARAT AT AHMEDABAD

                                       R/SPECIAL CIVIL APPLICATION NO. 4889 of 2022


                       FOR APPROVAL AND SIGNATURE:


                       HONOURABLE MR. JUSTICE BHARGAV D. KARIA

                       and
                       HONOURABLE MR.JUSTICE D.N.RAY
                        ==========================================================

                                    Approved for Reporting                      Yes             No

                       ==========================================================
                                                 ADITYA HEMANG PATEL
                                                         Versus
                                       THE INCOME TAX OFFICER, WARD 3(3)(1) & ANR.
                       ==========================================================
                       Appearance:
                       MR. TUSHAR HEMANI, SR.ADVOCATE WITH MS VAIBHAVI K
                       PARIKH(3238) for the Petitioner (s) No. 1
                       MS MAITHILI D MEHTA(3206) for the Respondent(s) No. 1
                       ==========================================================
                         CORAM:HONOURABLE MR. JUSTICE BHARGAV D. KARIA
                               and
                               HONOURABLE MR.JUSTICE D.N.RAY

                                                         Date : 25/04/2025

                                                     ORAL JUDGMENT

(PER : HONOURABLE MR.JUSTICE D.N.RAY)

1. Heard learned Senior Advocate Mr.Tushar Hemani with

learned advocate Ms.Vaibhavi Parikh for the Petitioner and learned

Senior Standing Counsel Ms.Maithili D. Mehta for the Respondents.

2. With the consent of learned advocates for the respective

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parties, the matter is taken up for hearing, as the issue involved is

quite brief. Rule returnable forthwith. Learned Senior Standing

Counsel Ms. Maithili D. Mehta waives service of notice of Rule on

behalf of the Respondents.

3. The brief facts of the case are as follows:

3.1 During the Assessment Year 2016-17, the Petitioner effected

the sale of an immovable property, being agricultural land, for a

consideration of ₹4,05,91,000/-. The Petitioner filed the original4,05,91,000/-. The Petitioner filed the original

return of income on 16.10.2016, declaring total income of

₹4,05,91,000/-. The Petitioner filed the original1,20,450/-. Subsequently, on 31.03.2017, a revised return was filed

declaring the same income of ₹4,05,91,000/-. The Petitioner filed the original1,20,450/-, while claiming

exemption under Section 54B of the Income-tax Act, 1961

(hereinafter, "the Act") in respect of capital gains purportedly

arising from the sale of the said agricultural land.

3.2 The case was selected for limited scrutiny under the provisions

of Section 143(2) of the Act vide notice dated 19.09.2017. The scope

of scrutiny was confined, inter alia, to the issue of whether the claim

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for deduction from capital gains had been made in accordance with

law.

3.3 In response, the Petitioner furnished requisite information by

letter dated 05.12.2018, including inter alia:

 Explanation in relation to deduction under section 54B

of the Act from capital gains.

 Conveyance deed in relation to sale of agricultural land

for Rs.4,05,91,000/-.

3.4 Further, vide communication dated 15.12.2018, the Petitioner

submitted that the land in question did not fall within the definition

of "capital asset" under Section 2(14) of the Act. It was accordingly

contended that the transaction would not attract capital gains tax. A

certificate from the competent revenue authority was also annexed in

support of this contention.

3.5 The assessment proceedings culminated in an order passed

under Section 143(3) of the Act on 24.12.2018, wherein the returned

income as declared by the Petitioner was accepted without variation.

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3.6 Thereafter, the Respondent issued a notice under Section 148

of the Act dated 31.03.2021, seeking to reopen the assessment for

the year under consideration on the ground of alleged income

escaping assessment.

3.7 In response to the said notice, the Petitioner submitted a return

of income on 23.04.2021 and simultaneously requested the

Respondent to furnish a copy of the recorded reasons for reopening.

3.8. The reasons for reopening were supplied by the Respondent

vide letter dated 12.05.2021. According to the Petitioner , the

reasons disclose that the reassessment was initiated on the premise

that the Petitioner had effected the sale of an immovable property

and that capital gains arising therefrom had not been subjected to

tax.

3.9 In essence, it is the stand of the Respondent that the Petitioner

had sold a property valued at ₹4,05,91,000/-. The Petitioner filed the original4,05,91,000/- and that, in accordance

with the provisions of the Act, capital gains arising therefrom are

chargeable to tax. Since the Petitioner had declared no taxable

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capital gain in the return of income, it was reasoned that income to

the extent of ₹4,05,91,000/-. The Petitioner filed the original4,05,91,000/- had escaped assessment, thereby

warranting reopening of the case under Section 147 of the Act.

3.10 The Petitioner, vide letter dated 12.02.2022, submitted detailed

objections against the reopening, raising various factual and legal

submissions and contending that the preconditions for exercise of

powers under Section 147 of the Act were not satisfied.

3.11 The Respondent disposed of the said objections by an order

dated 25.02.2022, wherein it was held, inter alia, that the reopening

was legally justified.

4. Aggrieved thereby, the Petitioner has instituted the present

writ petition under Article 226 of the Constitution of India, seeking

issuance of an appropriate writ for quashing and setting aside the

impugned notice dated 31.03.2021 issued under Section 148 of the

Act, along with consequential reliefs:

"(a) quash and set aside the impugned notice at ANNEXURE "A" to this petition;

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(b) pending the admission, hearing and final disposal of this petition, to stay the implementation and operation of the notice at ANNEXURE "A" to this petition and stay the further proceedings for the Assessment Year 2016-17;

(d) to provide for the cost of this petition."

5. Mr. Tushar Hemani, learned Senior Advocate along with Ms.

Vaibhavi K.Parikh, learned Counsel for the Petitioner has submitted

that the reasons for reopening are scanty, non-specific and vague.

The case of the Petitioner has been sought to be reopened in a

mechanical manner with no application of mind and there could be

no prima facie "belief" for the escapement of income chargeable to

tax. Further, considering the fact that the Petitioner's case was

selected for scrutiny and assessed thereafter, the attempt to reopen

the case on the same set of facts has to be termed as "change of

opinion", which is impermissible in law.

6. On behalf of the Department, Ms.Maithili Mehta, learned

Senior Standing Counsel has supported the impugned notice on the

ground that the Assessee had sold the immovable property in

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question for an amount of Rs.4,05,91,000/- and has earned income

under the Head of Capital Gains thereon, which was not disclosed in

the return of income for the Assessment Year 2016-17 and therefore,

there was valid reason to believe that the income has escaped the

assessment under the provision of Section 147 of the Act and hence,

the reassessment proceedings have been rightly initiated by issuing

impugned notice under Section 148 of the Act. Ms. Mehta, learned

Senior Standing Counsel further relied upon the decisions of the

Hon'ble Apex Court in the case of ACIT Vs. Rajesh Jhaveri Stock

Brokers Pvt. Ltd. reported in {2007}(161) Taxmann 316 and in the

case of Raymond Woolen Mills Ltd. Vs. ITO and others reported

in [(1999) 236 ITR 34 (SC)], in support of her submission that no

ground exists to stall the reopening at this stage.

7. DISCUSSION & FINDINGS :-

7.1 It will be seen that, by communication dated 19.09.2017, the

Petitioner had received a notice under Section 143(2) of the Act for

limited scrutiny under the Computer Aided Scrutiny Selection

(CASS), wherein, the following issues were identified for

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examination :-

"(i) Whether sundry creditors are genuine.

(ii) Whether deduction from the capital gains has been claimed correctly."

7.2 In response to the said limited scrutiny assessment, the

Petitioner by communication dated 05.12.2018 had categorically

submitted the sale deed of the property sold for Rs.4,05,91,000/-,

which forms the subject matter of the impugned notice and by

subsequent submission dated 15.12.2018 had further explained as

under:-

"1. Submission of explanation on capital gain:

As required by you, we submit our explanation on capital gain as under:

The assessee has sold the plot of rural agricultural land situated at Sanathal at Rs.4,05,91,000/-. Though, the assessee has shown the sale of this land in his return of income and has offered capital gain thereon, it is submitted that the land in question is a rural agricultural land, situated beyond 8 Kms from the town Sanand having population below 10,000 as per 2011 census and hence not a "Capital Asset" as per section 2(14). We reproduce below section 2(14) for your ready reference and record:

"capital asset" means-

(a) property of any kind held by an assessee, whether or not connected with his business or profession;

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(b) any securities held by a Foreign Institutional Investor which has invested in such securities in accordance with the regulations made under the Securities and Exchange Board of India Act, 1992 (15 of 1992),

but does not include-

(i) any stock-in-trade other than the securities referred to in sub-clause (b), consumable stores or raw materials held for the purposes of his business or profession;

(ii) personal effects, that is to say, movable property (including wearing apparel and furniture) held for personal use by the assessee or any member of his family dependent on him, but excludes-

(a) jewellery;

(b) archaeological collections;

(d) paintings;

(e) sculptures; or

(f) any work of art.

Explanation 1. For the purposes of this sub-clause, "jewellery" includes-

(a) ornaments made of gold, silver, platinum or any other precious metal or any alloy containing one or more of such precious metals, whether or not containing any precious or semi-precious stone, and whether or not worked or sewn into any wearing apparel;

(b) precious or semi-precious stones, whether or not set in any furniture, utensil or other article or worked or sewn into any wearing apparel.

Explanation 2.-For the purposes of this clause-

(a) the expression "Foreign Institutional Investor" shall have the meaning assigned to it in clause (a) of the Explanation to

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section 115AD;

(b) the expression "securities" shall have the meaning assigned to it in clause (h) of section 2 of the Securities Contracts (Regulation) Act, 1956 (42 of 1956);

(iii) agricultural land in India, not being land situate-

(a) in any area which is comprised within the jurisdiction of a municipality (whether known as a municipality, municipal corporation, notified area committee, town area committee, town committee, or by any other name) or a cantonment board and which has a population of not less than ten thousand; or

(b) in any area within the distance, measured aerially,-

(I) not being more than two kilometres, from the local limits of any municipality or cantonment board referred to in item

(a) and which has a population of more than ten thousand but not exceeding one lakh; or

(II) not being more than six kilometres, from the local limits of any municipality or cantonment board referred to in item

(a) and which has a population of more than one lakh but not exceeding ten lakh; or

(III) not being more than eight kilometres, from the local limits of any municipality or cantonment board referred to in item (a) and which has a population of more than ten lakh.

Explanation. For the purposes of this sub-clause, "population" means the population according to the last preceding census of which the relevant figures have been published before the first day of the previous year;

Thus, the land in question qualifies as rural agricultural land which is not a "Capital Asset" as per section 2(14). Capital

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Gain Is liable to be Included in total Income only in respect of transfe of capital asset as per charging section 45 of the Act.

This is evidenced by a certificate issued by Taluka Panchayat Office, Sanand under which the village Sanathal falls which is enclosed as Annexure-1."

7.3 Upon receiving the said explanation the assessment order under Section 143(3) of the Act dated 24.12.2018 was passed wherein it had been held as under :-

"ASSESSMENT ORDER In this case, the original return of income was filed by the assessee on 16/10/2016 through electronic media (e-file) vide acknowledgement No. 504254491161016 declaring total income at Rs. 1,20,450/- there after assessee had filed revised return of income on 31/03/2017 through electronic media (e- file) vide acknowledgement No. 746804681310317 declaring total income of Rs. 1,20,450/-. The same was processed u/s.

143(1) of the IT Act. The case was selected for Limited scrutiny in CASS with the following reason.

1. Whether sundry creditors are genuine.

2. Whether deduction from capital gains has been claimed correctly.

Notice u/s. 143(2) of the IT Act was sent through E- Proceeding Facility on ITBA on 19/09/2017. Thereafter, Notice u/s. 142(1) of the Act was also sent through E- Proceeding Facility on ITBA along with questionnaire on 02/11/2018 and 28/11/18. In response to the notices issued, the assessee filed reply through E-Proceeding Facility on ITBA.

2. The assessee having income from Business or Profession and income from other sources. The assessee had submitted the details called for and the same are perused.

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3. After considering the information and details submitted through E-Proceeding Facility on ITBA filed by the assessee, the total income is computed as per return of income at Rs. 1,20,450/-.

Total income assessed. Rs. 1,20,450/-.

4. Assessed u/s. 143(3) of the IT Act, 1961. Calculate tax and interest. Give credit for the prepaid taxes, if any. Issue demand notice and challan accordingly."

8. Thus, it is seen that the ground on which the reopening for the

Assessment Year 2016-17 is being presently sought was the very

same ground for scrutiny for the year 2016-2017 which culminated

in the Assessment Order dated 24.12.2018. In such circumstances,

the Respondent No.1 could not have assumed jurisdiction to

assess/reassess the income for the Assessment Year 2016-17,

inasmuch as, the Respondent No.1 could not be said to possess any

"reason to believe" that any income chargeable to tax for the

Assessment Year 2016-17 has escaped assessment within the

meaning of Section 147 of the Act. Thus, in our view the decisions

of the Hon'ble Apex Court in the case of Rajesh Jhaveri Stock

Brokers (Supra) and Raymond Woolen Mills (Supra) have no