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TMI Blog2015 (6) TMI 849X X X X Extracts X X X X X X X X Extracts X X X X ..... Capital Gain after claiming indexed cost of acquisition of Rs. 59,20,188/-. 3. On the facts and in circumstances of the case as well as law on the subject, the learned Commissioner of Income-Tax (Appeals) has erred in not granting deduction u/s. 54EC against the amount of Rs. 1,46.00.000/- taxed by him. 4. On the facts and in circumstances of the case as well ax law on the subject, the learned Commissioner of Income-Tax (Appeals) has erred reducing the claim of unabsorbed deprecation by Rs. 1,38,366/- out of the total claim of Rs. 9,56, 520/-. 5. On the facts and in circumstances of the case as well as law on the subject, the learned Commissioner of Income-Tax (Appeals) has erred in giving direction u/s. 150(1) for issue of notice u/s. 148 in the case of Shri Devendra S. Naik by holding that capital gain is taxable only in his case as he was holding rights in the properly: 6. It is therefore prayed that the assessment framed u/s 143(3) r,w.s. 147 of the Act may kindly be quashed. 7. It is also prayed that the directions issued u/s. 150(1) may please be quashed. 8. ft is also prayed that the amount received on transfer of the rights in the plot may please be taxed as income f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... owner (tenant) of the lease rights, as per the provisions of Section 55(2)(a) of the Act, the cost of acquisition was to be treated as 'nil'. However, in the instant case, the LTCG u/s.48 was computed by allowing indexed cost of acquisition of Rs. 5920188. Incorrect computation of capital gains resulted in underassessment of LT.C.G. of Rs. 59,00,000.'' 3.1 Thereafter a notice u/s.148 was issued on 29.03.2011. Undisputedly, the reasons recorded for the reopening of the assessment were provided to the assessee. From the side of the assessee, the reopening was challenged primarily on the ground that there was no escapement of income on the part of the assessee; hence, the assessment once completed should not be reopened. It was contested before AO that the term "previous owner" should not be given a restricted meaning so as to include only that person who has "pending right" vested in him before the transfer. According to the assessee the previous owner of the property is also 'lessor', as in the instant case. The payment for acquiring lease rights have been made to lessor, i.e., GIDC; hence, the cost of acquisition of lease hold rights should be eligible for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n receiving that information, learned CIT(A) had remanded the matter to AO u/s.250(4) of IT Act. The assessee was asked to furnish the original lease deed in favour of the assessee. Hence, the AO was directed to make necessary inquiries from GIDC. The AO has submitted its report according to which the land was allotted to one partnership firm, namely, M/s. D.S. Synthetics, which was later on converted into a proprietorship concern of one Sri Divendra Samabhai Naik. The said change in the constitution was informed, as well as, the transfer was approved by GIDC vide a letter dated 20th of November, 2004. Thereupon, the said lease was transferred in favour of M/s. R.D. Dyeing and Printing Mills Pvt. Ltd. by M/s. D.S. Syenthetics. GIDC has also informed the Revenue Department as under: "Initially, the said plot was allotted to DS Synthetics vide this office allotment letter no.4738 dated 25.04.1991 and agreement was executed on 25.05.1991. Later on as per the application received from M/s. D.S. Synthetics, change in constitution was made by this office vide final transfer order dated 02.01.1992. Moreover, party had again applied far change of constitution, i.e.. from M/s. D.S. Synthet ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the appellant and lease was in favour of appellant and it was taken directly from GIDC. As mentioned in the Land Plot No. 365 (GIDC Sachin) ledger account filed, the description of JV entry of Rs. 12,16,453/- passed on 31.03.2005 was 'JV AC GIDC 365, i.e., it was not mentioned that JV entry had been passed transferring the amount from the books of Devendra S. Naik. " 4.3 However, learned CIT(A) has held that merely filing of a notarized deed dated 4lh February, 2005 "in Gujarati" and simply filing GIDC approval dated 16.06.2005 would not amount to full disclosure of material facts. As per him, the order passed u/s. 143(3) did not discussed of those aspects. Hence, it was not a case of "change of opinion", as held in the case of Photo Finvest Ltd., 281 ITR 393. It was concluded that the AO passed the original order on incomplete and incorrect factual information, therefore, there was sufficient reason to reopen the assessment u/s. 148 of IT Act. The conclusion drawn by learned CIT(A) is reproduced below: "Under Sec/ion 147 of the IT Act, the assessing officer should have reason to believe regarding escapement of income at the time of notice u/s. 148. This reason to believe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for reopening of the impugned assessment. He has drawn our attention on the "reasoning for reopening" dated 23.03.2011, a portion already reproduced supra, as discussed by the AO in the assessment order. Learned AR has further drawn our attention on the original order passed u/s. 143(3) dated 31.12.2007 according to which the returned income was assessed without any change. However, he has mentioned that before the said assessment a notice was issued u/s. 142(1) and u/s. 143(2) of IT Act and in one of the reply the assessee has informed as under: "(1) Regarding Sale of open land plot no. 365 at GIDC Sachin, Surat for an amount of Rs. 1.46,00,000,-, the Net Long Term Capital Gain was Rs. 86,79,812/-. My client has invested Rs. 87,00,000/- in Rural Electrification Corporation Ltd. Bond, the benefits under Section 54EC of the Income Tax Act, 1961 for Long Term Capital Gains. The Xerox copy of Bond Certificate & Copy of A/c. Land Plot No. 365(GIDC Sachin) is attached herewith for your kind verification. (2). In G.I.D.C. Sachin there was no sale deed was made. The transfer procedure was completed after receiving no objection certificate from seller & no due certificate receive from G. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t of acquisition then the entire gain was required to be assessed in the hands of the recipients. However, if the amount received did not pertain to any asset then automatically the impugned receipt is correctly taxed under the head "other sources". Learned CIT(A) has directed to issue notice to M/s. D.S. Synthetics because the law requires to assess the amount in the hands of the right person. For this legal proposition he has placed reliance on CIT vs Kiranbhai Jamnadas Sheth (HUF) 39 taxmann.coml 16 (Guj). At this juncture itself it is worth to mention that the facts of this precedents have revealed that the assessment which was reopened was initially completed U/s 143(1) of the Act, therefore, it was that being completed without scrutiny hence can be reopened beyond four years. This distinction is to be kept in mind while deciding the issue in hand. 7. We have heard the submissions of both the sides at some length. We have also perused the material placed before us. The admitted factual position is that for A.Y. 2005-06 a notice u/s. 148 was issued by the AO on 29.03.2011. A period of four years from the end of the assessment year has, therefore, expired in March, 2010. Hence, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed on 31.10.2005, wherein a computation of Long Term Capital Gain was furnished disclosing the year-wise investment made by the assessee. As per the said calculation, the index cost of & acquisition was computed at Rs. 59,29,188/-. The said indexed cost of acquisition was reduced from the sale price of Rs. 1,46,00,000/-, therefore, the balance amount of Rs. 86,79,812/- was disclosed under the head "Long Term Capital Gain". Further, the assessee had made an investment in RAC bonds of Rs. 87 lacs, therefore, a 'Nil' Long Term Capital Gain was disclosed in the return. On receiving that return the Revenue Department had issued notices as appeared in the paper book. In compliance assessee has informed certain basic facts, relevant portion already extracted above. The AO has then completed the assessment u/s.l43(3) on 31.12.2007. In the said order vide paragraph 2, the AO has given a finding that the notices u/s 143(2) and 142(1) were issued time to time and in compliance the assessee had furnished the details called for. Those details were stated to have been examined by the AO, Thereafter, the returned income at Rs. Nil was accepted by the then AO. In view of those facts one th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... taben Gulabchand, 108 ITR 764 (Bom), it was held that in the case of a lease, the date of acquisition will be the date from which the assessee took possession as lessee even though the actual acquisition and registration is much later, therefore, the previous owner does not mean that there should be an another party between transaction. Because of this basic reason we hereby hold that the satisfaction recorded by the AO for issuance of notice u/s.148 was based upon a wrong interpretation of the provisions of Section 55(2)(a) of IT Act. 7.3 Apart from the above discussion, before learned CIT(A) an another controversy has been addressed that the land in question was not a property of the assessee, therefore, the Long Term Capital Gain was not to be assessed in the hands of the assessee but to be assessed in the hands of M/s D.S. Synthetics. It appears that the learned CIT(A) wanted to step into shoes of AO while recording reasons for issuance of notice u/s.148 of IT Act. The same is not permissible in the eyes of law. The reasons recorded for issuance of notice u/s.148 was not that the Long Term Capital Gain did not arise to the assessee, but to M/s. D.S. Synthetics. The reasons for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... case of Vipin Kumar P. Khandcliya, 28 taxmann.com 218 (Gujarat), a search was carried and a disclosure was made which was retracted later on. A return was filed without disclosing the fact that a disclosure was made during the course of search. The assessment was completed on the basis of the return filed. Thereupon, re-assessment proceedings were initiated because it was held that at the time of filing of the return the assessee had not made true and complete disclosure, rather all material facts were not disclosed. On those facts, the action u/s.147 was justified by the Court. On the face of it's facts, this precedent is not applicable here. Even in the case of Dish man Pharmaceuticals and Chemicals, 30 taxmann.com 67(Gujarat). The crux of upholding the reopening was that simply production of books of account was not enough if the foundation of the reopening was that the assessee had not truly and fully disclosed of material facts. On the other hand, decisions as cited by the assessee such as Kelvinator of India 320 ITR 561(SC) etc, are supporting the view taken by us. We rather hold, following Gujarat Fluro Chemicals 319 ITR 282 (Guj.) that the AO had recorded the reasons a ..... X X X X Extracts X X X X X X X X Extracts X X X X
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