Dinkarrai Anantrai Mankad vs Income Tax Officer, Circle-II, Ward-I

Mehta, J.—The petitioner assessee by this petition has prayed for appropriate writs, orders and directions to quash and set aside the notice

dated June 29, 1984, issued by the ITO, Circle II, Ward-1, Rajkot, respondent herein under s. 148 read with s. 147(b) of the I.T. Act, 1961, and

restraining him from reopening the assessment for the assessment year 1981-82, which was completed by the assessment order dated June 17,

1982. A few facts need be noticed in order to appreciate the circumstances which resulted in the impugned notice for reassessment.

The petitioner purchased a building in Rajkot on April 2, 1962, for a sum of Rs. 37,000. It appears that in the financial year 1967-68, the

petitioner made substantial alterations and additions to the said building at a cost of Rs. 55,700. The building was sold thereafter by him on

September 24, 1980, for an aggregate amount of Rs. 1,64,000. In the course of the assessment proceedings for the assessment year 1981-82, the

petitioner filed a statement of income showing long-term capital gain of Rs. 49,730 as per the computation contained in the said statement. It

appears that the petitioner had sought to deduct from the amount of sale proceeds, a sum of Rs. 37,000 being the original cost of acquisition and a

further sum of Rs. 55,700 being the cost of additions and alterations, in all aggregating to Rs. 92,700. The net balance was, therefore, shown at

Rs. 71,300 and claiming statutory deduction of Rs. 5,000, a further deduction was claimed at the rate of 25% which worked out to Rs. 16,570 as

permissible in law and thus was shown the net long-term capital gain of Rs. 49,730. It is claimed by the petitioner that in the course of the

assessment for the year 1981-82, the petitioner had satisfied the ITO concerned about the cost of additions and alterations carried out by him in

the financial year 1967-68. The additional construction was to the extent of 1,239 sq. feet and he had furnished the necessary details and also

produced the relevant pass-book to substantiate the cost of the said additional construction. He had also filed an affidavit in Gujarati setting out the

necessary relevant facts in support of his computation. The petitioner claims that the ITO concerned accepted the computation of long-term capital

gain as shown by the petitioner and completed the assessment accordingly by his order of June 17, 1982. He was, therefore, surprised to receive

the impugned notice which he received on July 23, 1984. The petitioner on receipt of this notice applied for extension of time for filing the return

and on inquiry he learnt that the reopening of the said assessment was on the basis of an audit note which had opined that the cost of additional

construction arrived at by the petitioner was on the higher side and, therefore, the assessment should be reopened. It is in these circumstances that

the notice for reassessment has been sought to be impugned.

Broadly stated, two grounds are urged in support of the challenge. Firstly, the audit could not have constituted an information so as to justify the

notice for reassessment. Secondly, in any case, having regard to the fact that all details having been disclosed at the time of original assessment as

clearly evident from the order of assessment dated June 17, 1982, the impugned notice is merely a change of opinion, and, therefore, could not

have been issued in law.

In response to the rule issued by this court, the respondent officer has filed reply affidavit stating, inter alia, that the internal audit had objected to

the details of expenses in respect of the development of the property to the extent of Rs. 55,700 not having been put on record before completion

of the assessment on June 17, 1982, and, therefore, the impugned notice was required to be issued, since the assessee had failed to disclose full,

true and all the necessary material and details in respect of the development of the house property as a result of which capital gains chargeable to

tax had escaped assessment.

We are of the opinion that this petition should be allowed on both the grounds. Firstly, so far as this court is concerned, the question as to

whether internal audit would constitute information so as to justify the action for reassessment is concluded by the decision of the Supreme Court in

Indian and Eastern Newspaper Society, New Delhi Vs. Commissioner of Income Tax, New Delhi, , which ruled that audit information is not

information in law.

Even if it furnishes such information, we are of the opinion that it is difficult to agree with the contention of the ITO concerned-the respondent

herein-that all the necessary, true and complete facts were not disclosed before him in the course of the assessment year 1981-82. Apart from the

statement of computation which had been furnished along with the return, an affidavit of June 11, 1982, of the assessee was also filed before the

ITO to show as to how the expenses for the additions and alterations in the sum of Rs. 55,700 were entailed. In the assessment order for the

assessment year 1981-82, the ITO has recorded, inter alia, that the advocate for the assessee attended from time to time and filed details

regarding the building, construction, etc., and had also produced the map of the building and an affidavit from the assessee regarding the expenses

incurred for the construction of the building and the necessary details as well as a copy of the sale deed were filed before him. The pertinent

observation of the ITO in the assessment order is that : ""the payment for the construction has been verified from the bank''s pass-book"" and

thereafter the income as returned was accepted after full discussion of the case. In the affidavit of the assessee which was filed before the ITO, it

has been, inter alia, stated by the assessee that the total cost of the additional construction came to Rs. 55,700 including the cost of materials and

labour charges and the above amount was withdrawn by him from his bank pass-book. In the circumstances, therefore, the grievance of the

petitioner that there was no failure on the part of the assessee in disclosing the true and complete material is completely borne out.

In that view of the matter, therefore, we are of the opinion that the petition should be and is allowed. The impugned notice is quashed and set

aside. The ITO concerned - the respondent herein - is restrained from proceeding further in pursuance of the notice so quashed. Rule is made

absolute accordingly with no order as to costs.