2011 (7) TMI 54 - HC - Income Tax

Reassessment - u/s 147 read with Section 148 - Capital gains - Held that - that there was inordinate delay in obtaining commencement certificate and, therefore, the petitioner once again terminated the Development Agreement dated 17th September 2004 n- Thereupon, Matoshree Properties filed a Suit in the High Court being Suit No.2863 of 2010, which was ultimately settled on 2nd May 2011, wherein the consideration was enhanced from Rs.4 crores to Rs.7.5 crores - As per the consent terms filed on 2nd May 2011, the amount of Rs.7.5 crores are to be paid in installments upto 31st December 2011 - It is also on record that the commencement certificate in the present case was issued on 29th December 2009 - Hence, it cannot be said that there was any reason to believe that income chargeable to tax has escaped assessment in assessment year 2005-06 so as to initiate reassessment proceedings u/s 147 read with Section 148 of the Ac - So long as the consent terms filed on 2nd May 2011 hold the field, the question of bringing to tax the capital gains under the Development Agreement dated 17th September 2004 in assessment year 2005-06 does not arise at all - Decided in favour of assesee.

Summary

Issues:
Challenge to notice under Section 148 of the Income Tax Act, 1961 and rejection of objections against reopening of assessment for assessment year 2005-2006.

Analysis:
The Writ Petition was filed to challenge a notice dated 25th March 2010 issued under Section 148 of the Income Tax Act, 1961, and the subsequent order dated 2nd December 2010 rejecting objections against the reopening of the assessment for the year 2005-2006. The notice sought to reopen the assessment for the year 2005-2006 based on the alleged failure of the assessee to offer capital gains on a development agreement with Matoshree Properties. The assessing officer believed that capital gains had accrued to the assessee in that year due to the transfer of development rights as per the agreement dated 17th September 2004.

Upon examination of the Development Agreement, it was revealed that certain payments were to be made by the developer to the assessee in installments. Due to delays in obtaining the commencement certificate, the agreement was terminated and later restored. Subsequently, a lawsuit was filed by Matoshree Properties, leading to a settlement in May 2011, where the consideration amount was increased. The commencement certificate was issued in December 2009. The court opined that there was no basis to believe that income had escaped assessment in the year 2005-2006, especially considering the settlement terms. Therefore, the initiation of reassessment proceedings under Section 147 read with Section 148 was deemed unnecessary.

Consequently, the High Court quashed and set aside the impugned notice dated 25th March 2010 and the order dated 2nd December 2010. The judgment ruled in favor of the petitioner, and no costs were awarded in the matter.