In Writ Petition No. 1763 of 2022 -BOM HC- Bombay HC clarifies: Once query is raised during assessment proceedings & assessee responds, it follows that query was subject of consideration of AO; Rules development agreement not transfer of land, Section 2(47)(v) of IT Act not applicable
Justice K.R. Shriram & Justice N.K. Gokhale [04-09-2023]

Read Order: Darshana Anand Damle v. Deputy Commissioner of Income Tax and Ors

Chahat Varma

New Delhi, September 22, 2023: The Bombay High Court has ruled in favour of an assessee and quashed a notice issued to him under Section 148 of the Income Tax Act. The Court's decision was based on the principle that once a query is raised during the assessment proceedings and the assessee has replied to it, the Assessing Officer (AO) is deemed to have considered the query while computing the assessment. It is not necessary for the assessment order to explicitly mention or discuss the query to demonstrate the AO's satisfaction regarding the matter raised during the assessment.

In the present case, the assessee, an individual, and other co-owners had entered into a Development Agreement on June 15, 2012, with Sai Ashray Developers for the development of a piece of land located in Chikhloli, Ambernath. During the assessment proceedings, the assessee clarified that the Development Agreement did not constitute a transfer of the land to Sai Ashray. The assessee 's explanation was accepted by the AO, and an assessment order under Section 143(3) of the Income Tax Act was passed without making any additional tax liability on account of capital gains. Subsequently, the assessee received a notice under Section 148 of the Income Tax Act, which stated that the Deputy Commissioner of Income Tax had reason to believe that the assessee 's income, chargeable to tax, had escaped assessment. In response to this notice, the assessee submitted detailed objections, which were disposed of by an order dated February 14, 2022.

The division bench of Justice K.R. Shriram and Justice N.K. Gokhale observed that it was evident that the matter concerning whether there was a transfer of land or not had already been examined and deliberated upon by the AO during the assessment proceedings.

Therefore, the bench concluded that there was no failure on the part of the assessee to disclose any material fact. Based on this ground alone, the notice issued under Section 148 of the Income Tax Act had to be quashed and set aside, along with the challenged order that disposed of the assessee's objections.

Furthermore, the bench noted that a similar situation had arisen for another co-owner. The legal heir of the deceased co-owner had filed a writ petition, where the court had ruled that the assessee had merely granted a license to the developer, allowing them access to the assessee's land for development purposes. This did not constitute ‘allowing the possession of the land’ as envisioned under Section 53A of the Transfer of Property Act. Consequently, Section 2(47)(v) of the Income Tax Act would not be applicable. The court had determined that granting a license for the development and sale of flats could not be construed as granting possession of the land.

In light of the aforementioned considerations, the division bench concluded the case in favour of the assessee and disposed of the petition accordingly.