The High Court of Gujarat quashed the reassessment order as there was no income escapement when the assessee paid Short Term Capital Gain (STCG) and Long Term Capital Gain (LTCG).
During the year under consideration, Apex Remedies Pvt. Ltd, the petitioner sold immovable property comprising an industrial plot of land along with an industrial shed constructed thereon (“property in question”) to M/s. Pooja Industries, for which, the petitioner received the sum of Rs.40,00,000/-.
The sale consideration of Rs.40,00,000/- received by the petitioner was bifurcated into two parts i.e. an amount of Rs.11,56,159/- was attributable to the industrial plot of land and an amount of Rs.28,43,841/- was attributable to industrial shed constructed thereon. It was further stated that since the land is a non-depreciable asset, LTCG on the sale thereof was computed at Rs.10,869/- after taking into consideration the sale consideration of Rs.11,56,159/-.
The building (industrial shed) was a depreciable asset and, hence, Short Term Capital Gain (STCG) on the sale thereof was computed at Rs.26,736/- after taking into consideration the sale consideration of Rs.28,43,841/-. Thus, such capital gains i.e. LTCG and STCG have been duly taken into consideration while filing the original return of income on 16.01.2016.
It was further stated by the petitioner that the respondent issued an impugned notice dated 29.03.2021 under Section 148 of the Income Tax Act seeking the reopening of the case of the petitioner for the year under consideration. The reason stated was that the case has been reopened broadly on the alleged count that the petitioner has not shown capital gain on the sale of the property in question in the return of income.
It was also stated that as per the case of the respondent, information has been received that M/s. Pooja Industries has purchased the property in question from the petitioner for Rs.1,10,00,000/-, out of which, Rs.40,00,000/- was paid to the petitioner and a balance sum of Rs.70,00,000/- was paid to two confirming parties.
The respondent has reason to believe that the income of Rs.40,00,000/- has escaped assessment in the hands of the petitioner for the year under consideration and, hence, the case of the petitioner has been reopened.
It was stated that the objections were raised by the petitioner against the reopening of the assessment by filing a reply dated 25.11.2021, wherein it was pointed out that the entire sum of Rs.40,00,000/- is duly shown in its return of income.
It was the case of the petitioner that though the said objections were raised, the respondent vide order dated 02.12.2021, disposed of same by observing that such information would be verified in re-assessment proceedings.
Senior Counsel, Ms Tushar Hemani assisted by an advocate, Ms Vaibhavi Parikh appeared for the petitioner and advocate, and Mr Varun Patel appeared for the respondent.
It was submitted that the petitioner has declared LTCG of Rs.10,869/- and STCG of Rs.26,736/- on the sale of the property in question while filing a return of income. Thus, the very foundation for reopening would be belied, therefore, the reopening is not justified.
It was also submitted that the respondent did not question the factum of receipt of Rs.40,00,000/being shown and offered for tax in the return of income while disposing of the objections submitted by the petitioner.
The condition precedent to resort to reopening proceedings under Section 147 of the Income Tax Act is that there must be ‘escapement of any income chargeable to tax’ and in the absence of escapement of any income chargeable to tax, it is not open for the respondent – department to reopen the case of the assessee.
It was observed that the capital gain on the sale of property in question has been duly disclosed in the return of income and, therefore, there is no question of escapement of income chargeable to tax.
It was stated that the petitioner has not shown capital gain on the sale of the property in question in the return of income and the officer has reason to believe that the income of Rs.40,00,000/- has escaped assessment at the hands of the petitioner for the year under consideration.
The division bench comprising Justice Vipul M Pancholi and Justice Devan M Desai observed that the petitioner has also paid STCG of Rs.26,736/- and LTCG of Rs.10,869/-. Therefore, it cannot be said that the income chargeable to tax has escaped assessment in the hands of the assessee. The impugned notice issued by the respondent under Section 148 of the Income Tax Act and the proceedings pursuant thereto are hereby quashed and set aside.
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