Adequacy of Reasons and Relevancy Forms Foundation for Reopening of Assessment: Gujarat HC allows Income Tax Exemption on Compulsorily Acquired Land [Read Order]

A Division Bench of the Gujarat High Court allowed income tax exemption on compulsorily acquired land and observed that adequacy of reasons and relevancy forms foundation for the reopening of assessment.

The petitioner, Anilaben Rohithbhai Modi, is an individual and citizen of India and was holding a parcels of land with other co-owners. The said parcels of land along with many others were required for public purposes and as such a notification was issued in the Extra Ordinary Gazette dated 07.10.2013 to acquire the same portion of lands which are narrated in the notification.

The petitioner along with other co-owners received 75% of the consideration against the acquisition of three land parcels. It is the case of the petitioner that petitioner has filed her original return of income for Assessment Year 2016 - 2017 declaring total income of Rs.9,10,000/- and claimed exemption on income from compulsory acquisition of land totalling around Rs.2,74,83,074/-.

Accordingly, the petitioner approached the Court by way of present petition under Article 226 of the Constitution of India for challenging the validity of action in the form of impugned notice issued under Section 148 of the Income Tax Act as well as challenging the order disposing objections dated 27.01.2022 by raising multiple contentions.

B. S. Soparkar, advocate appearing for the petitioner contended that the impugned action i.e. notice as well as order passed respectively are totally impermissible and it violates the relevant proposition of law and the issue. It has been submitted that respondent authority has recorded practically only one reason to believe that income has escaped assessment.

The Counsel for the appellant further contended that on the basis of such, a notice for reopening is issued and the objections also came to be rejected and this is a fundamental error committed by an authority in view of the fact that contours of Sections 147 and 263 of the Income Tax Act are altogether different and authority has tried to mix up the said scope of both the provisions and as such the action sought to be initiated is fundamentally erroneous and suffers from the vice of non application of mind.

The Court of Justices Ashuthosh Shastri and JC Doshi relied on the judgment in Nila Infrastructures Ltd wherein it was held that adequacy of reasons and its relevancy would form the foundation for reopening of the assessment and in the absence thereof, on borrowed opinion, reassessment proceedings cannot be commenced. “Here also the land appears to be compulsory acquired and the income is rightly claimed as exempted and therefore, the conclusion of an authority that income has escaped assessment, appears to be erroneous” the Bench concluded.

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