2014 (8) TMI 1087 - AT - Income Tax

Validity of the order passed u/s 263 - capital gain computation - income was divided between both the assessees as per the provisions of Sec. 5A of the Income Tax Act - Held that - We have gone through the provisions of section 2(47). This section defines the term transfer for the purpose of charging the capital gain. Section 45 mandates that the capital gain is chargeable to tax in the year in which the capital asset is transferred. The assessing officer in our opinion was bound to inquire into the transaction which the assessee has entered into with M/s Emgee Housing Pvt Ltd on the basis of the seized material A/EB/21 dated 25.2.10.The AO, in this case, we noted, except asking for the note on the transaction with details, assessee entered into with M/s Emgee Housing P Ltd did not examine whether the provision of section 2(47) are applicable on these transaction or not during the year. Not only this, this an disputed fact that the assessee did not file any note or details on the transactions entered into by the assessee with M/s Emgee Housing P Ltd, even though the said information was duly asked for by the assessing officer, yet the assessing officer passed the assessment ignoring whether any income arises during the year. It is not a case where the AO has allowed the deduction by taking one of the possible views. It is also not a case of inadequate inquiry but a case where no inquiry has been conducted by the AO on the applicability of section 2(47) of the Income Tax Act for the gain arising on the transaction which the assessee had with M/s Emgee Housing P Ltd. Lack of enquiry will tantamount to be that the order is erroneous and prejudicial to the interest of Revenue. Our aforesaid view is duly supported by the decision of Full Bench of Guwahati High Court in the case of CIT vs Jawahar Bhattacharjee, (2012 (4) TMI 222 - GAUHATI HIGH COURT ) in which Hon‟ble High Court took the view Not holding such inquiry as a normal and not applying the mind to the relevant material in making an assessment would be an erroneous assessment warranting exercise of revisional jurisdiction. The CIT has already restored this issue to the file of the Assessing Officer and the Assessing Officer, after giving proper opportunity to the assessee has to re-decide the issue whether any capital gain arise during the year. We therefore, cannot entertain the ground relating to the merit of the issue as CIT(A) has not decided the issue on merit. We, therefore, do not find any illegality or infirmity in the order of CIT invoking the jurisdiction u/s 263 of the Income Tax Act in all the cases. - Decided against assessee

Summary

Issues Involved:
1. Validity of the order passed under Section 263 of the Income Tax Act.
2. Allegation of lack of inquiry by the Assessing Officer (AO) regarding the transaction under Section 2(47) of the Income Tax Act.
3. Determination of whether the transaction constituted a transfer under Section 2(47) during the relevant assessment year.

Issue-wise Detailed Analysis:

1. Validity of the order passed under Section 263 of the Income Tax Act:

The primary issue in the appeals is the validity of the order passed under Section 263. The Commissioner of Income Tax (CIT) invoked jurisdiction under Section 263, deeming the AO's order erroneous and prejudicial to the interest of the revenue. The CIT's contention was based on the AO's failure to consider the transaction related to the sale of property during the assessment year 2006-07, despite evidence indicating that the assessee received a significant portion of the consideration. The CIT issued a show cause notice and, after considering the assessee's submissions, concluded that the AO's order was erroneous and prejudicial to the revenue's interest, thus justifying the invocation of Section 263.

2. Allegation of lack of inquiry by the AO regarding the transaction under Section 2(47) of the Income Tax Act:

The CIT argued that the AO did not adequately inquire into the transaction involving the sale of property to M/s. Emgee Housing Pvt. Ltd. The AO had asked the assessee to furnish a detailed note on the transaction, but the assessee did not comply. The tribunal noted that the AO's failure to make the necessary inquiries or to examine whether the transaction constituted a transfer under Section 2(47) indicated a lack of inquiry. The tribunal emphasized that an AO must not remain passive and should ascertain the truth of the facts stated in the return, especially when circumstances provoke an inquiry.

3. Determination of whether the transaction constituted a transfer under Section 2(47) during the relevant assessment year:

The CIT's position was that the transaction constituted a transfer under Section 2(47) of the Income Tax Act, which includes any transaction involving the allowing of possession of immovable property in part performance of a contract as referred to in Section 53A of the Transfer of Property Act, 1882. The CIT argued that the transaction met the conditions for a valid contract and thus should be taxed in the year the agreement was entered into, i.e., the assessment year 2006-07. The tribunal agreed with the CIT, noting that the AO did not examine the applicability of Section 2(47) to the transaction.

Conclusion:

The tribunal concluded that the AO's order was indeed erroneous and prejudicial to the interest of the revenue due to the lack of inquiry into the transaction. The tribunal upheld the CIT's invocation of Section 263, directing the AO to reconsider the transaction in accordance with the provisions of the Income Tax Act after giving the assessee an opportunity to be heard. The appeals filed by the assessees were dismissed, affirming the CIT's decision to set aside the original assessment order and mandate a fresh assessment.