NAGINBHAI G. PATEL VS INCOME-TAX OFFICER, 1998 PTD-GUJARAT-HIGH-COURT-INDIA 1187 (1995)

Income-tax---

----Reassessment---Failure to disclose material facts necessary for assessment---Transfer of property---Purchaser put in possession of property but no execution of sale-deed---Facts disclosed to Assessing Officer---Notice after four years on ground that capital gains arising from the transaction had escaped assessment---Not valid---Indian Income Tax Act, 1961, Ss.147 & 148---Constitution of India, Art.226.

In order to assume jurisdiction for initiating proceedings under sections 147 and 148 of the Income Tax Act, 1961, beyond the period of four years from the end of the relevant assessment year the condition precedent is that the Assessing Officer must have reason to believe that the escapement of income chargeable to tax has arisen on account of failure or omission on the part of the assessee to disclose truly and fully all material facts necessary for his assessment for that assessment year.

A search operation took place in the premises of the assessee in July, 1987, in the course of which it was disclosed by the assessee that he had given possession of land belonging to him to a purchaser in 1983 and received a total consideration of Rs.42 lakhs in lieu thereof under an agreement to sell. However, no sale document was executed. It was brought to the notice of the Assessing Authority that possession of the land having been delivered way back to 1983, the amended definition of transfer under section 2(47) of the Income Tax Act which is not retrospective, could not be invoked and it could not be treated as a transfer for the purpose of the assessment year 1988-89. This contention of the assessee found favour with the Income-tax Officer. In March, 1993, a notice of reassessment was issued on the ground that the amount of Rs.42 lakhs had escaped assessment. On a writ petition challenging the notice:

Held, allowing the petition that there had been no failure on the 'part of the assessee to disclose any material fact relevant for the assessment year 1988-89, which had been made the basis of issuing notice. The fact that the assessee had received Rs.42 lakhs under the agreement to sell, that possession of the land in question had been delivered to the buyer in 1983 and that the sale-deed had not been executed, were all noticed by the Income ax Officer in his assessment order for the year in question. The notice of reassessment was not valid and was liable to be quashed.

J.P. Shah for Petitioner.

B.R. Shah for Respondent.

JUDGMENT

RAJESH BALIA, J.---In this petitionthe notice, dated December 21, 1995, issued by the Income-tax Officer, Ward I (Surat), for the assessment year 1988-89, issued to the petitioner on the ground that the income of the assessee has escaped assessment is under challenge.

The notice is challenged on the ground that there has been no failure or omission on the part of the assessee to disclose fully and truly all material facts necessary for his assessment for the assessment year 1988-89 and the Assessing Officer in that assessment year (Exh. E, dated March 27, 1991) after due application of mind to the facts put before it had come to the conclusion that the petitioner was not liable to capital gains in respect of Rs.42 lakhs received by him under an agreement to sell the land, possession of which was handed over to the buyer in the year 1983, in the absence of any duly executed sale-deed. In view of the aforesaid, it is contended that the assessing authority had acted in issuing the notice only on a mere change of opinion and he had no reason to hold a belief that income chargeable to tax for the assessment year 1988-89 has escaped assessment. It is also the case of the petitioner that at any rate it is not a case of failure on the part of the assessee to disclose fully and truly all, material facts necessary for his assessment for the concerned assessment year.

Therefore, the notice which has beets issued beyond a period of four years from the end of relevant assessment year is wholly without jurisdiction.

We have heard learned counsel and perused the material placed on record.

The facts that clearly emerge are that on July 23, 1987, a search operation took place against the petitioner in pursuance of which proceedings under section 132(5) took place. During the course of those proceedings, it has been disclosed by the assessee that possession of the land was given in the year 1983 to the purchaser and he has received a total consideration of Rs.42 lakhs in lieu thereof under an agreement to sell. However, no sale document in respect thereof was executed. Unless a capital asset is transferred no capital gain in respect thereof can arise. A sale of immovable property takes place only through a registered sale-deed and until a sale-deed is duly executed and registered in accordance with law, no transfer of asset takes place. The liability to pay tax on capital gains would arise only when a completed sale transaction came into existence and not earlier to that. It was also brought to the notice of the assessing authority that possession of the land having been delivered way back in 1983, the amended definition of transfer under section 2(47) of the Income Tax Act which is not retrospective, cannot also be invoked in the present case by treating it to be a transfer for the purpose of the assessment year 1988-89. This contention of the assessee found favour with the Income-tax Officer and he recorded this finding in Exh. E---the assessment order for the assessment year 1988-89 which is as under:

"There was an action under section 132 in this case on July 23, 1987, and it came to light that the assessee had handed over possession of 30,000 sq. yards of land to Shri Popatlal Naranbhai Patel for a total consideration of Rs.42 lakhs. It was contended on behalf of the assessee that the capital gains would be chargeable only when the sale document is executed in the light of the Gujarat High Court decision reported in 132 ITR 55 (sic). The-possession of the land having been given in 1983, the amended provisions will not affect his case. Though the possession was given, the land still stands in his name and the value is being shown in the wealth-tax returns. The definition of 'capital gains' has been amended with effect from the assessment year 1988-89 acid has no retrospective effect. The capital gain will be included in his total income as and when document is executed. There is considerable force in the assessee's contention."

Thereafter, the Assistant Commissioner of Income-tax Circle 1(1), Surat, after issuing show-cause notice as to why the aforesaid amount of Rs.42 lakhs should not be treated as a sum which has escaped assessment, issued a notice under section 148 on March 30, 1993. The said notice was challenged, vide Special Civil Application No.3924 of 1993, inter alia, on the ground that the officer issuing notice had no jurisdiction over the assessee. The said petition was withdrawn on July 2, 1993, when counsel for the Revenue made a statement before the Court that the notice, dated March 30, 1993,will be withdrawn by the respondents on or before July 12, 1993. However, the Court left it to the Department to issue notice afresh in accordance with law. Thereafter, the present notice has been issued.

The reasons recorded by the Income-tax Officer for issuing notice reads as under:

"In this case a search and seizure operation was carried out on July 23 , 198 7 , and it has come to the light of the Department that the assessee has sold some land to Shri Popatbhai Naranbhai Patel, partner of Jay Construction for a total consideration of Rs.42 lakhs. The assessee had disclosed the said amount, i.e., Rs.42 lakhs. However, the same has not been taxed in the assessment year 1988-89. A notice under section 148 of the Act was issued by the Assistant Commissioner of Income-tax (Investigation), Circle 2(1), Surat, as the income chargeable to tax had escaped assessment (being sale proceeds of land) within the meaning of section 147 of the Income Tax Act, 1961. The assessee filed a writ application challenging the validity of the above-said notice in the High Court, Ahmedabad.

The Gujarat High Court, after accepting the argument of the standing counsel, has given a direction that the notice be withdrawn with the condition to reserve the right of the Department to issue notice under section 148 of the Income Tax Act. Thereafter, the case records of the abovenamed assessee were transferred from the Assistant Commissioner of Income-tax (Investigation). Circle 2(1), Surat, to the Assistant Commissioner of Income-tax (Investigation), Circle 1(1), Surat. The Assistant Commissioner of Income-tax Investigation), Circle 1(1), Surat again transferred the case records to the Assistant Commissioner of Income-tax, Circle 1(1), Surat. Further, the Assistant Commissioner Income-tax, Circle 1(1), Surat, transferred the case records to the Income-tax Officer, Ward 1(4), Surat, having correct jurisdiction.

In view of the above facts, I am satisfied that income chargeable to tax had escaped assessment within the meaning of section 147 of the Act, in so far as the sale proceeds of the land are concerned. Hence, approval to issue notice under section 148 of the Act may kindly be accorded."

From the perusal of the assessment order and the reasons recorded by the Assessing Officer, it is apparent that there has been no failure on the part of the assessee to disclose any material fact relevant for the assessment year 1988-89, which has been made the basis of issuing notice. The fact that the assessee has received Rs.42 lakhs under agreement to sell, that possession of land in question has been delivered to the buyer in 1983 and that sale-deed has not been executed were all noticed by the Income-tax Officer in his assessment order of the year in question. The assessing authority, after noticing those facts and the decision of the Gujarat High Court, accepted the contention raised by the assessee about the transaction in question not attracting the provisions relating to capital gains. In fact in the reasons recorded by the assessing authority itself it has been stated that the assessee had disclosed the said amount, that is, Rs.42 lakhs. Apparently, the notice has been issued after the expiry of four years from the end of the relevant assessment year income in relation to which is sought to be reassessed. It is also beyond argument that in order to assume jurisdiction for initiating proceedings under sections 147 and 148 beyond the period of four years from the end of the relevant assessment year the condition precedent is that the Assessing Officer must have reason to believe that the escapement of income chargeable to tax has arisen on account of failure or omission on the part of the assessee to disclose truly and fully all material facts necessary for his assessment for that assessment year.

As the condition precedent for "assuming jurisdiction beyond the period of four years is not existing in the present case, the issuance of the impugned notice in our opinion, suffers from inherent lack of jurisdiction and deserves to be quashed. Apart from the above, we are also satisfied on the facts of this case that this is a case of mere change of opinion.

Accordingly, the petition succeeds. The impugned notice, Annexure " L", dated December 21, 1994, is quashed. Rule is made absolute with no order as to costs.

M.B.A./1432/FCPetition accepted.