Gujarat High Court Quashes Reopening Of Assessment Order And Notice In Land Acquisition Case, Rules Compensation Not Taxable As Capital Gains

While passing the above ruling, the division bench of Justices Ashutosh Shastri and C. Doshi underscored that the authorities' action was based on a mere change of opinion and lacked justification.

The case centered around Anilaben Rohitbhai Modi, along with other co-owners, who owned a piece of land in Village Khoraj, Taluka Sanand. In October 2013, the Gujarat Industrial Development Corporation (GIDC) issued a notification to acquire the land for public purposes. Anilaben and the other co-owners provided details of their land and received a notice in December 2013 to receive compensation for the acquisition. They received 75% of the compensation for three land parcels and later agreed to sell the land, executing sale deeds in June 2017.

In March 2017, Anilaben filed her income tax return for the assessment year 2016-2017, declaring a total income of Rs. 9,10,000/- and claiming exemption on the income from the compulsory acquisition of land, which amounted to around Rs. 2,74,83,074/-. Her return was processed and scrutinized, and a notice was issued in July 2018 under Section 142(1) of the Income Tax Act, requesting evidence for the exempt income claim. Anilaben provided the necessary details and documents in response to the notice. In October 2018, the assessing officer accepted her claim and assessed the income as per her filed return.

However, after nearly two years, Anilaben received a notice under Section 148 of the Income Tax Act on March 31, 2021, from the Income Tax Officer, asking her to file a return of income for the assessment year 2016-2017. She filed the return in April 2021 and requested the reasons for reopening the case. Subsequently, the respondent authority issued a notice under Section 143(2) of the Act in June 2021, mentioning the issues based on the recorded reasons. Anilaben raised objections to the validity of the notice under Section 148, but her objections were rejected.

Feeling aggrieved by the notice and the order dismissing her objections, Anilaben approached the Gujarat High Court to challenge the validity of the notice issued under Section 148 and the order rejecting her objections.

Advocate B. S. Soparkar, representing the petitioner, strongly argued that the notice and subsequent order were impermissible and violated relevant laws. He contended that the authority had relied on a single reason to believe that income had escaped assessment, without considering the correct provisions of Sections 147 and 263 of the Act.

Advocate Soparkar emphasized that a specific notice under Section 142(1) of the Act had already been issued, and the petitioner had provided the necessary details and documents in response, resulting in the Assessing Officer accepting her claim of exemption. Thus, reopening the assessment without any new material was deemed a violation of the principle against a mere change of opinion.

Advocate Varun K. Patel, representing the respondents, argued that the initiation of action under Section 263 of the Act was not solely based on one reason but was a result of careful consideration and application of mind. He contended that if the Assessing Officer believed that taxable income had escaped assessment, it was within their jurisdiction to act accordingly. Advocate Patel emphasized that the rejection of the exemption claim for other co-owners should also apply to the petitioner, justifying the reopening of the assessment.

The court, while taking into consideration the issue related to the claim of exemption under Section 10(37) of the Act, referred to a Circular dated 25.10.2016 by the Central Board of Direct Taxes (CBDT). The court observed that the circular clarified the taxability of compensation received and stated that such compensation shall not be taxable under the provisions of the Income Tax Act, even in the absence of specific exemption provisions.

The court also placed reliance on the case of Balakrishnan versus Union of India reported in (2017) 80 taxmann.com 84 (SC) relating to compulsorily acquisition the Apex Court has dealt with and clarified that “on the transfer of agricultural land by way of compulsory acquisition under any law, no capital gain tax is payable,” and the court had held the conclusion of an authority that income has escaped assessment to be erroneous.

Considering the above discussion and relevant legal precedents, the court granted the relief sought by the petitioner. The impugned order and notice were quashed and set aside, and the petition was allowed.

Case Title: Anilaben Rohitbhai Modi Versus Income Tax Officer, Ward 5(3)(1), Ahmedabad R/Special Civil Application No. 3526 Of 2022

Case Citation: 2023 Livelaw (Guj) 112

Appearance: Mr B S Soparkar(6851) For The Petitioner(S) No. 1 Mr.Varun K.Patel(3802) For The Respondent(S) No. 1,2

Click HereTo Read/Download Order