Indian Hume Pipe Co. Ltd. vs. ACIT and Others. [SLP (Civil) No.5195 of 2012 dated 20-7-2012]
On July 13, 2001, the petitioner entered into memorandum of understanding with a third party, Dosti Associates, for the transfer of development rights in certain land for a consideration of Rs. 39 crore. Following this a development agreement was entered into on 31st October, 2001. Finally, a supplemental agreement was entered into on 15th December, 2003, by which in consideration of the total agreed of Rs. 39 crore paid by the developer to the petitioner, the petitioner recognised the acquisition by the developer of the absolute right to develop the property. Clause 5 of the agreement stipulated that with effect from 15th December, 2003, the developer had been placed in absolute and complete possession of the property. The petitioner filed a return of income for the assessment year 2004-05. In the computation of assessable income, profits on the sale of land amounting to Rs. 38.75 crore were considered separately.
The petitioner annexed a working of the taxable long-term capital gains. The total long-term capital gains were computed at Rs. 23.19 crore. The petitioner claimed an exemption u/s. 54EC of the Income-tax Act, 1961, stating that a total amount of Rs. 23.24 crore had been invested in specified bonds of the National Highway Authority of India (Rs. 2 crore), the Rural Electrification Corporation of India (Rs.14.44 crore) and the National Housing Bank (Rs. 6.80 crore). The computation of capital gains in the amount of Rs. 23.19 crore, as stated earlier, was based on the total consideration of Rs. 39 crore received for the sale of development rights under the conveyance executed on 31st December, 2003; from which an amount of Rs.15.80 crore was deducted representing the value of the land as on 1st April, 1981.
During the assessment proceedings, the Assessing Officer asked for a copy of the agreements with the purchaser and other details which the assessee furnished. A copy of each of the section 54EC bonds (which gave the dates of investments) was also furnished. The Assessing Officer passed an order of assessment u/s. 143(3) on 27th November, 2006 allowing the deduction as claimed.
A notice was issued to the Petitioner by the Assessing Officer after an audit query was raised on 4th June, 2007. As per the audit query the Petitioner was entitled to deduction u/s. 54EC only in respect of the amount of Rs. 6.80 crore which was invested within six months from the date of sale deed. The remaining amounts had been invested between 1st February, 2002 and 30th June, 2002, prior to date of transfer, that is, 15th December, 2003.
A notice for reopening assessment was issued on 29th March, 2011, u/s. 148. As per the reasons recorded deduction u/s. 54EC was not admissible on the investments made prior to the date of transfer.
The petitioner filed a Writ Petition to challenge the reopening on the ground that there was no failure on its part to make a full and true disclosure of material facts.
The High Court (348 ITR 439) held that the Petitioner, in the return of income that was originally filed, submitted a computation of taxable long-term capital gains. After computing the long-term capital gains at Rs. 23.19 crore, the Petitioner sought to deduct therefrom an amount of Rs. 23.24 crore investment u/s. 54EC. The statement, however, was silent on the date on which the amounts were invested. The Asessing Officer did during the course of the assessment proceedings raise a query on 14th July, 2006, seeking an explanation of an amount of Rs. 38.75 crore credited from the sale of certain property. The Assessing Officer called upon the Petitioner to furnish a copy of the sale deed together with the details of the property sold; valuation reports for determination of the fair market value as on 1st April, 1981, and a detailed working of capital gains arising out of the sale of the property. The Petitioner disclosed the sale agreements and furnished a working of capital gains which was in terms of what was submitted with the return of income. The High Court noted that, neither in the return of income nor in the disclosures that were made in response to the query of the Assessing Officer did the Petitioner make any reference to the dates on which amounts were invested in bonds of the National Highway Authority of India, Rural Electrification Corporation of India and National Housing Bank. The petitioner did enclose copies of the certificates which did bear the date of allotment. According to the High Court it was evident that the Assessing Officer had clearly not applied his mind to the question as to whether the petitioner had fulfilled the conditions specified in section 54EC for availing of an exemption. Also, the petitioner was required to make a full and true disclosure of materials facts which did not appear either from the computation of taxable long-term capital gains in the original return of income or in the computation that was submitted in response to the query of the Assessing Officer. In both the sets of computation there was a complete silence in regard to the dates on which the amounts were invested. The assessment order did not deal with this aspect. In the circumstances, the High Court held that there was no full and proper disclosure by the petitioner of all the material facts necessary for the assessment.
The Petitioner challenged the order of the High Court before the Supreme Court but later the learned counsel for the petitioner sought permission to withdraw the Special Leave Petition in view of the fact that petitioner’s appeal, bearing No. IT No.63/2012-2013 was pending before Commissioner of Income Tax (Appeals) against the Order of re-assessment dated 29th May, 2012. The Supreme Court while permitting the Petitioner to do so, however, clarified that on the issue of validity of Notice u/s. 148 of the Income-tax Act, 1961, it would be open to the petitioner as well as Department to put forth their respective contentions before the Appellate Authority and the Appellate Authority would decide this issue also along with other issues without being influenced by the observation made by the High Court in the its order.
