(1.) THIS is a petition under N 226 of the Constitution for writ of certiorari quashing the notice u/s. 147 of the Income -tax Act, 1961 (hereinafter referred to as 'the Act') dated 28th July 1975 issued by the Income -tax Officer, Award Circle 2 Varanasi and for a writ of mandamus directing the respondents not to enforce the same.
(2.) LAXMI Kant Gupta was a member of a Hindu Undivided Family. For the assessment year 1973 -74 ending on 31st March, 1973, the petitioner filed a return. During the assessment year in question the assessee sold house No. 62 Baratalla Street, Calcutta -7 by two sale -deeds dated 29th September, 1972 for Rs. 40,000/ - each to one Shrimati Taradevi Chaurasiya wife of Kamla Prasad Chaurasiya. In return, the petitioner claimed that as the value of the property was assessed under Wealth -Tax Act at Rs. 1,26,000/ - and since the same was sold only for a sum of Rs. 80,000/ - the petitioner suffered a capital loss of Rs. 40,000/ - from the sale of this house. During the assessment proceedings the Income -tax Officer concerned gave a notice on February 17, 1975 calling upon the petitioner to show cause why the figure of Rs. 80,000/ -shown as the price of the house No. 62 Baratalla Street, Calcutta be not fixed at Rs. 2,65,260/ -. The petitioner submitted a reply dated 4th March, 1975 explaining the circumstances under which the property fetched only Rs. 80,000/ -. It was also mentioned in the said reply that the petitioner, had, if fact, entered into an agreement of sale before selling the same to Shrimati Taradevi Chaurasiya, with one Noor Karan Chaudhri and that the latter had paid a sum of Rs. 5,000/ - by way of earnest money as well but subsequently he defaulted and did not purchase the same. It was thereupon that since the petitioner was not getting a purchaser that he was compelled to sell it for Rs. 80,000/ - to Shrimati Taradevi Chaurasiya. It was also stated that for the purposes of capital gains or loss the cost of acquisition of this property was to be taken at Rs. 84,500/ - which was the value determined on the date of partition under which the petitioner received this property. In this connection the petitioner further pointed out that S. 52 of the Act, under which the Income -tax Officer could determine the fair market value did not apply in as much as there is no relationship direct or indirect with the purchaser. The deal was made through a broker. It appears that after the receipt of the aforesaid explanation, the Income -tax Officer accepted that the sale consideration of the house in Calcutta was Rs. 80,000/ - besides Rs. 4,322/ - which had been forfeited by the petitioner. Thus the total sale proceed was Rs. 84,322/ - and as the cost of the acquisition of the said house shown in the partition of 1 -9 -1958 was Rs. 84,000/ -, the capital gains arising from its sale being below Rs. 5,000/ - was not assessable. In this view of the matter, the Income -tax Officer competed the assessment on 17th July, 1975.
(3.) THE writ petition has been contested by the respondent. Shri M. M. Lal, the Income -tax Officer, A ward Circle II, Varanasi, who had issued the notice under S. 147, has filed a counter -affidavit stating that the notice was neither invalid not illegal. Explaining the circumstances in which the assessment order was passed by him, stated that the price of the house at which it was alleged to have been sold by the petitioner was inadequate in as much as the letting value of the said house itself was Rs. 16,000/ - per year and that the difference between the apparent consideration for the sale and the fair market value of the property could be brought to tax as capital gain under sub -S. (2) of S. 52 of the Act. Shri M. M. Lal stated in his affidavit that the sale value of the house had been arrived by him at Rs. 2,65,260/ - on the basis of the annual letting value of the property. But at the time when he made the assessment order on 17th July, 1975, he did not know that the difference between the apparent consideration for the sale and the fair market value of the property could be brought to tax as capital gains under sub -s. (2) of S. 52 of the Act. In this connection he further stated the, 'deponent had read S. 52 but stopped short at what is now sub -S. (1) thereof and did not read sub -s. (2) which was added by Act No. V of 1964 with effect from 1 -4 -1964 and believed that S. 52 was applicable only to a case where the person who acquires a capital asset from an assessee is directly or indirectly connected with him. The deponent was advised of the correct legal position with regard to the applicability of S. 52 in the course of a casual discussion with Sri S. Prasad who happens to be the Appellate Assistant Commissioner of Income -tax at Varanasi on the 28th July 1975'. It was there upon that the Income tax Officer realized his mistake in believing that S. 52 did not apply to the facts of the present case. Then he put the following reasons on the record : - 'The A had sold one property No. 62 Bartala Street Calcutta for Rs. 80,000/ - the A.L.V. of the property is Rs. 12,695/ -; after adjusting taxes and repairs taking the multiple value of the property at 20 times the fair market value comes to Rs. 2,53,900/ - against Rs. 80,000/ - sold. The case attracts provisions of S. 52(2) under which with the prior approval of the I.A.C. market value be estimated. The capital gains arising out of sale thus escaped assessment. Issue notice under S. 147 of the Income -tax Act as the income has been underassessed and the capital gains escaped assessment.' on these allegations the respondent has alleged that the notice issued was valid and that the same could not be quashed under the law. The question that now arises for our consideration relates to the jurisdiction of the Income -tax Officer to reopen the assessment order. As already pointed out above, the first point raised was that since the Income -tax Officer had already assessed the petitioner to the capital gains after applying the provisions of S. 52 of the Act, he had no jurisdiction to re -open the same.