Lokhandwala Construction Industries Ltd v. DCIT

Case snapshot

Sections / provisions: 147; 148; 22 & 43CA

Questions before the Court / Tribunal

• Reopening within four years – deemed rental income on stock in trade & Section 43CA on difference in Agreement value and stamp value – issues examined in original assessment proceedings- change of opinion – reopening is bad in law. Reopening was done on two issues. The first issue was that petitioner has, in the profit and loss account and balance sheet, shown closing finished goods for two projects which has not been offered to tax under the head ‘Income from house property’ as held by the Delhi High Court. The second issue is, that out of 12 flats sold by petitioner for 9 flats market value is more than the agreement value and therefore, provisions of Section 43CA(1) of the Act applies. On first issue it was observed that AO had enquired the issue of deemed rental income on closing stock in trade and AO had the benefit of Delhi High Court decision at the time of Assessment. On Second…
• Which factual, statutory and procedural conditions controlled the requested relief?
• How did the forum apply the governing provisions to the evidence and procedural history recorded in this case?

Material facts and procedural background

27-WP-1164-2022.doc IN THE HIGH COURT OF JUDICATURE AT BOMBAY ORDINARY ORIGINAL CIVIL JURISDICTION WRIT PETITION NO.1164 OF 2022 LOKHANDWALA CONSTRUCTION ) INDUSTRIES PRIVATE LIMITED ) Plot No.48, Indranarayan Road, Santacruz ) West, Mumbai – 400054 PAN No.AAACP2037 )...PETITIONER V/s. 1 DY.COMMISSIONER OF INCOME TAX ) CIRCLE 4(3)(1), Mumbai, R.No.649, 6th Floor ) Aayakar Bhavan, M.K.Road, Mumbai-400020 ) ) 2 UNION OF INDIA through the Secretary ) Department of Revenue, Ministry of Finance, ) North Block, New Delhi – 110001 )...RESPONDENTS Mr.Rahul Hakani, Advocate for the Petitioner. Mr.Suresh Kumar, Advocate for the Respondent. CORAM : K. R. SHRIRAM & N. R. BORKAR, JJ. DATE : 29th MARCH 2022 ORAL JUDGMENT : (PER : K. R. SHRIRAM, J.) 1 Petitioner is impugning the notice dated 30 th March 2021 issued under Section 148 of the Income Tax Act, 1961 (the said Act) for A.Y. 2017-18 and the order dated 10 th December 2021 rejecting petitioner’s objections. The subsequent notices issued have also been included in the petition. A VK 1/7

27-WP-1164-2022.doc 2 Admittedly, the re-opening has been proposed before the expiry of four years from the end of relevant assessment year, and therefore, even proviso to Section 147 will not apply. At the same time, it is settled that if an assessment has been completed under Section 143(3), re-opening cannot be proposed on the basis of change of opinion. In this case assessment under Section 143(3) has been completed. Let us now examine whether the notice is sustainable. 3 We have considered the reasons recorded and we are satisfied that the re-opening proposed is on the basis of change of opinion. Two issues are raised in the reasons for reopening. The first issue is, petitioner has, in the profit and loss account and balance sheet, shown closing finished goods of Rs.54,68,37,517/- and out of this the value of unsold flats was shown at Rs.54,64,17,000/- for two projects which has not been offered to tax under the head ‘Income from house property’ as held by the Delhi High Court and ITAT Ahmedabad. The second issue is, that out of 12 flats sold by petitioner, A VK 2/7

27-WP-1164-2022.doc for 9 flats market value is more than the agreement value and therefore, provisions of Section 43CA(1) of the Act applies. 4 As regards the first issue, identical reasons were recorded for A.Y.2016-17 and this Court was pleased to pass the order dated 27 th January 2022 in Writ Petition No.102 of 2022. Paragraph 2 of the said order reads as under : “2. Paragraph No.1 of the order dated 10 th January, 2022 reads as under : 1. Dr. Shivram for petitioner states that the notice under Section 148 of the Income Tax Act, 1961 ("the Act") for Assessment Year 2016-2017 has been issued purely on change of opinion, which is not permissible in law. Dr. Shivram states that, for the reasons, reliance has been placed in assessment records and the Return filed by the petitioner along with the profit and loss account and balance sheet and secondly, an issue raised is regarding the finished stocks of Rs.65,53,57,872/-, which was for unsold flats of two projects at Kandivali and Bandra and according to respondents, petitioner's has not offered tax under the head income from house property. Dr. Shivram states that the same issue was raised during the assessment proceedings as could be seen from Item No.16 in the annexure to notice dated 8th October, 2018, issued under Section 142(1) of the Act and petitioner has replied to, the same vide petitioner's letter dated 8th November, 2021. Dr. Shivram states that this issue has not been discussed in the assessment A VK 3/7

27-WP-1164-2022.doc order but still relying on Aaroni Commercials Ltd. vs. Deputy Commissioner of Income-tax-2(1) (2014) 44 taxmann.com 304 (Bombay) submitted that once a query has been raised and it has been replied to, the Assessing Officer is deemed to have applied his mind and considered the same even if that issue has not been discussed in the assessment order.” 5 This Court, in paragraph 4 of the said order dated 27 th January 2022 in Writ Petition No.102 of 2022 has held as under : “ We have to note at the outset that the ITAT order is not binding on this court. Secondly, the judgment/order of the Delhi High Court relied upon for the reasons for re-opening has been reported in (2013) 213 Taxman 0143. Therefore, it is a judgment of 2013 or earlier. The assessment order in this case has been passed on 20 th December, 2019 and the query on this issue has been raised on 19 th October, 2019 and replied by petitioner vide its letter dated 14 th November, 2019 and 12th December 2019. Therefore, the Assessing Officer had benefit of the judgment of the Delhi High Court relied upon by the Assessing Officer wanting to re-open the assessment but still did not find anything wrong in the case made out by petitioner and proceeded to pass the assessment order.” 6 On the second issue of market value being more than the agreement value and applicability of Section 43CA(1) of the Act, A VK 4/7

27-WP-1164-2022.doc that has been a subject matter of consideration during the assessment proceedings. Mr.Suresh Kumar submitted that in the assessment order dated 20th December 2019 the Assessing Officer has not discussed this aspect. He does not have to because as held by this Court in Aaroni Commercials Ltd. vs. Deputy Commissioner of Income-tax -2(1) 1 once a query is raised during assessment proceedings and assessee has replied to it, it follows that the query raised was a subject matter of consideration of the Assessing Officer while completing the assessment. It is not necessary that an assessment order should contain reference and/or discussion to disclose its satisfaction in respect of the query raised. In this case, during the original assessment proceedings, a notice dated 19 th October 2019 was issued under Section 142(1) of the Act by which petitioner was called upon to furnish copies of Index II(s) of three flats sold during the year. Petitioner responded by its letter dated 14 th November 2019 and provided copies of Index II of flats sold during the year. Therefore, it is abundantly clear that the second issue relating to 1 (2014) 44 taxmann.com 304 (Bombay) A VK 5/7

Appellant / petitioner / assessee submissions

The judgment does not separately label this side’s submissions in an independently extractable passage. No contention is inferred; read the full record.

Revenue / respondent submissions

The judgment does not separately label the respondent’s submissions in an independently extractable passage. No contention is inferred; read the full record.

Court / Tribunal analysis and reasoning

27-WP-1164-2022.doc nine flats out of the twelve flats mentioned in the reasons for reopening was a subject of consideration of the Assessing Officer while completing the assessment. There can be no doubt in the present facts that the subject matter of the market value of nine flats as against the agreement value was a subject matter of consideration by the Assessing Officer. It would, therefore, follow that the reopening of the assessment for this reason is merely on the basis of change of opinion of the Assessing Officer. As held in Aaroni Commercials Ltd. (supra) this change of opinion does not constitute justification and/or reasons to believe that income chargeable to tax has escaped assessment. 7 In the circumstances, we allow the petition in terms of Prayer Clause (a) which reads as under : “(a) That this Hon’ble Court may be pleased to issue a Writ of Certiorari or a Writ in the nature of Certiorari or any other appropriate Writ, order or direction, calling for the records of the Petitioner’s case and after going into the legality and propriety thereof, to quash and set aside the said (i) reopening Notice dated 30 th March, 2021 u/s 148 A VK 6/7

Operative decision and relief

27-WP-1164-2022.doc for A.Y. 2017-18 (Exh. A), (ii) the impugned order dated 10/12/2021 being (Exh “B”) and (iii) Notice u/s 143(2) dated 29/12/2021 being (Exh “C”).” 8 Petition is disposed. (N. R. BORKAR, J.) (K. R. SHRIRAM, J.) A VK 7/7

Ratio and legal principle

The narrow proposition associated with Lokhandwala Construction Industries Ltd v. DCIT concerns reopening within four years – deemed rental income on stock in trade & section 43ca on difference in agreement value and stamp value – issues examined in original assessment proceedings- change of opinion – reopening is bad in law. reopening was done on two issues. the first issue was that petitioner has, in the profit and loss account and balance sheet, shown closing finished goods for two projects which has not been offered to tax under the head ‘income from house property’ as held by the delhi high court. the second issue is, that out of 12 flats sold by petitioner for 9 flats market value is more than the agreement value and therefore, provisions of section 43ca(1) of the act applies. on first issue it was observed that ao had enquired the issue of deemed rental income on closing stock in trade and ao had the benefit of delhi high court decision at the time of assessment. on second… The proposition cannot be separated from the judgment’s facts, the governing statutory version, the forum’s jurisdiction, and the exact relief recorded in WRIT PETITION NO.1164 OF 2022.

For working-paper purposes, the decision should be cited only after matching the material facts and reading the passages under the judgment-grounded record above. The editorial outcome label “Quashed / set aside” is a navigation aid; it does not replace the operative order or explain every issue in a multi-issue case.

Why this judgment matters

This decision is relevant when a file raises the same central question identified in the source headnote: Reopening within four years – deemed rental income on stock in trade & Section 43CA on difference in Agreement value and stamp value – issues examined in original assessment proceedings- change of opinion – reopening is bad in law. Reopening was done on two issues. The first issue was that petitioner has, in the profit and loss account and balance sheet, shown closing finished goods for two projects which has not been offered to tax under the head ‘Income from house property’ as held by the Delhi High Court. The second issue is, that out of 12 flats sold by petitioner for 9 flats market value is more than the agreement value and therefore, provisions of Section 43CA(1) of the Act applies. On first issue it was observed that AO had enquired the issue of deemed rental income on closing stock in trade and AO had the benefit of Delhi High Court decision at the time of Assessment. On Second… Its practical value lies in the way the Bombay High Court connected the governing provisions—147; 148; 22 & 43CA—to the procedural posture and evidence before it.

The authority level is High Court. That affects persuasive or binding weight, but authority level alone is never enough. Territorial jurisdiction, statutory period, the identity of the challenged order, and later appellate treatment must all be checked before the case is used in advice, a submission, or litigation strategy.

Practitioner action points

• Begin with the complete judgment and mark the paragraphs supporting the exact proposition relied upon.
• Match the statutory version of 147; 148; 22 & 43CA and the decision date 2022-03-29; do not assume the current text is identical.
• Compare the notice, assessment, appeal or other procedural sequence with the chronology recorded in this case.
• Verify the stated later-history status and any review, appeal, SLP, curative or rectification proceedings before citation.
• Record why the client’s evidence is materially similar, and also record any fact capable of distinguishing the result.

Does this case match your facts?

Detailed reliance and distinction analysis

Identity check. Confirm that the cited cause title is Lokhandwala Construction Industries Ltd v. DCIT, the proceeding is WRIT PETITION NO.1164 OF 2022, and the decision is dated 2022-03-29. These fields are taken from the judgment record and should appear exactly in the citation note.

Bench check. The judgment identifies the coram as K. R. SHRIRAM & N. R. BORKAR, JJ.. A later order by another bench, a larger bench, or a higher forum may alter the weight or interpretation of the proposition.

Provision check. The source associates the dispute with 147; 148; 22 & 43CA. The practitioner should place the historical statutory text next to the current text and identify every amendment, proviso, explanation, rule or notification that could change the analysis.

Fact check. The source issue is not a free-standing abstract rule. It arises from the concrete record summarized above. A reliable application note should list the common facts, the different facts, and whether each difference affects jurisdiction, admissibility, limitation, burden, computation or relief.

Remedy check. The recorded result is Quashed / set aside. Where a matter is remanded, set aside, partly allowed, or disposed with directions, the exact operative language is more important than a binary winner/loser label.

History check. The current closure state is REVIEW_APPEAL_SLP_CHECK_PENDING. If that state is pending, the page does not assert that no later case exists. It means the check remains open and must be completed at the point of professional reliance.

Section / provision impact

• 147 — apply the exact version considered in the judgment.
• 148 — apply the exact version considered in the judgment.
• 22 & 43CA — apply the exact version considered in the judgment.

Case network

• Adityaraj Builders v. State of Maharashtra — Bombay High Court · Quashed / set aside
• Sanket Vinayak Nagvekar v. ITO — Bombay High Court · Quashed / set aside
• Hero Products India Pvt. Ltd. v. NFAC — Bombay High Court · Quashed / set aside
• Pr. CIT v. Macleods Pharmaceuticals Ltd. — Bombay High Court · Quashed / set aside

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