Title: Manujendra Shah v. Commissioner of Income Tax and Anr.
Decided on: 18th July, 2023
+ W.P.(C) 12677/2018
CORAM:HON’BLE MR. JUSTICE RAJIV SHAKDHER HON’BLE & MR. JUSTICE GIRISH KATHPALIA
Introduction
The Delhi High Court quashed a reassessment notice issued under the Income Tax Act, ruling that the proceedings were initiated without proper application of mind. The reassessment was based on the incorrect invocation of Section 50C of the Income Tax Act and the erroneous determination of the market value of the land as on April 1, 1981, for the computation of capital gain. The Court found that the Assessing Officer (AO) and the Principal Commissioner of Income Tax (PCIT) failed to properly consider the relevant provisions and materials before reopening the assessment.
Facts
The Assessee, an individual, filed a return of income for the Assessment Year (AY) 2011-12, disclosing long-term capital gain (LTCG) of Rs. 1.47 crore from the sale of six parcels of land. The Assessee declared the full value of consideration (FVC) as Rs. 20.26 crore and the cost of acquisition (COA) as Rs. 17.77 crore, claiming an exemption of Rs. 1 crore under Section 54EC.
The Revenue initiated reassessment proceedings, alleging non-disclosure of the actual FVC of Rs. 5.32 crore, which was below the circle rate specified by the stamp valuation authority. They also invoked Section 50C and questioned the COA of Rs. 17.77 crore, claiming an escapement of income amounting to Rs. 18.56 crore.
The Assessee approached the High Court, contending that the AO did not possess relevant material before initiating the reassessment proceedings.
Analysis
The Delhi High Court observed that Section 50C clearly stipulates that the FVC should be taken as the circle rate fixed by the stamp valuation authority while calculating capital gain under Section 48 of the Act. In this case, there was no dispute that the Assessee had already calculated capital gains based on the circle rate of Rs. 20.26 crore. Hence, the invocation of Section 50C was inapplicable as the capital gain was already computed using the circle rate.
The significant difference in LTCG between the AO and the Assessee was due to the difference in the COA. The AO based the COA on inputs claimed by the DCIT (Central Circle), Dehradun, using a rate of Rs. 8 per square meter, while it was claimed that Rs. 10 per square meter should have been used.
The High Court noted that the AO failed to apply his mind to the inputs from DCIT (Central Circle) and did not provide any reason for adopting the rate of Rs. 8 per square meter instead of Rs. 10 per square meter for calculating COA.
Held
The Delhi High Court held that there was complete non-application of mind by the AO, both in the applicability of Section 50C and in failing to secure the relevant material from DCIT, Dehradun, for determining the market value of the land as on April 1, 1981, which forms the basis of COA. Consequently, the reassessment proceedings were quashed.
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Written by- Ankit Kaushik
