IT Act| Authority Granting Approval For Reopening Assessment Merely Rubber-Stamped Attempt Of AO: Delhi HC

While quashing the reassessment notice, the Delhi High Court ruled that reassessment proceedings were initiated without application of mind by invoking the provisions of Section 50C of the Income Tax Act and erroneously arriving at the market value of the land as on Apr 1, 1981 for computation of capital gain.

The High Court elaborated that there has been complete non-application of mind by the AO, both regarding the provision which was applicable in the instant case and insofar as his failure to secure the material that was available with the DCIT in arriving at the market value of the land as on Apr 01, 1981, which forms the basis of the cost of acquisition.

The Division Bench comprising of Justice Rajiv Shakdher and Justice Girish Kathpalia observed that “The PCIT i.e., the authority granting approval for reopening the reassessment proceedings, did not do better. PCIT, in fact, rubber-stamped the attempt of the AO to reopen the assessment”.

Advocate Dr. Rakesh Gupta appeared for the Assessee while Revenue was represented by Advocate Puneet Rai.

The brief facts of the case were that the Assessee-individual filed return of income for AY 2011-12 and computed long term capital gain (LTCG) of Rs. 1.47 Cr by disclosing ‘full value of consideration’ of Rs. 20.26 Cr (FVC) and ‘cost of acquisition’ of Rs. 17.77 Cr (Cost of acquisition) on sale of 6 parcels of land along with exemption of 1 Cr under Section 54EC. The Revenue initiated reassessment proceedings alleging (i) non-disclosure of FVC of Rs. 5.32 Cr adopted was below the circle rate amounting to Rs. 20.26 Cr as specified by the stamp valuation authority, (ii) applicability of Section 50C and (iii) COA of Rs. 21.05 Lac as against Rs.17.77 Cr disclosed by Assessee, leading to escapement of income amounting to Rs.18.56 Cr. The Assessee therefore approached the High Court contending that AO did not have the relevant material in his possession before initiating the reassessment proceedings.

After considering the submission, the Bench observed that the AO seems to have missed that Section 50C clearly stipulates that value fixed by the stamp valuation authority which is the circle rate should be taken as the FVC while calculating Capital Gain under Section 48 of the Act.

In the present case, the Bench found that there is no dispute whatsoever that capital gains were calculated by the Assessee by taking the circle rate into account of which amount to Rs. 20.26 Cr, and accordingly, Section 50C is inapplicable as the computation of Capital Gain was based on the circle rate.

The High Court found from a perusal of reasons recorded by the AO, that the real difference in LTCG computed by AO and the Assessee pertains to the difference in Cost of acquisition (COA).

On the issue of COA, the High Court noted that AO’s COA was based on the inputs claimed by DCIT (Central Circle), Dehradun wherein the highest rate on each parcel of land would be Rs. 10 per square metre as on Apr 1, 1981 and adopted Rs. 8 per square meter thereby computing COA amounting to Rs. 21.05 Lac.

The Bench elucidated that the AO has not applied his mind to the input received from DCIT (Central Circle) since it did not indicate as to why Rs. 8 per sq. meter was taken as against Rs. 10 per sq. meter while ascertaining COA.

Accordingly, finding that that there has been complete non-application of mind by the AO both regarding applicability of Section 50C and failure to secure the material available with DCIT, Dehradun in arriving at the market value of the Land as on Apr 01, 1981 which forms the basis of ascertainment of COA, the High Court quashed the reassessment proceedings.

Cause Title: Manujendra Shah v. Commissioner of Income Tax and Anr.

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