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2010 (3) TMI 761 - AT - Income TaxReopening of assessment - LTCG or STCG - Condonation of delay - Addition - According to the assessee, Assessing Officer traveled much beyond the reason for which the assessment was reopened and this is against law. - there is no dispute that the reason for reopening was variance in the rental income as shown by assessee in its return and as reflected in the TDS certification filed by it - Held that - the law as it stands today could not be interpreted in such a way to hold that in the circumstances of this case, the Assessing Officer had traveled beyond the reason for which reopening was made. Thus in our opinion, the Assessing Officer had power to consider such capital gains in the reassessment proceedings if it was exigible to tax. Transfer of capital assets - section 45(4) - Held that - The expression otherwise appearing in sub-section (4) has not to be read ejusdem generis with the expression dissolution of a firm or body of AOP - CIT(A) fell in error when he held that there was no exigibility to capital gains tax on dissolution of a firm Computation of capital gain - Held that - total consideration received for both land and building has to be bifurcated between value of land and value of building and the gains arising out of land need to be treated as long term capital gain whereas the gain arising out of buildings has to be considered as short term capital gain, for the simple reason that the assessee was claiming depreciation on such building - Just because in the impugned Assessment Year assessee had not claimed depreciation for building would not make any impact on the method to be followed for working out the capital gain.
Issues Involved:
1. Jurisdiction of the Assessing Officer for making an assessment beyond the reason for reopening. 2. Nature of capital gains on the sale of a flat (long term vs. short term). 3. Condonation of delay in filing cross objections by the assessee. 4. Applicability of Section 45(4) of the Income-tax Act, 1961. 5. Validity of reassessment on grounds different from the one on which proceedings were initiated. Detailed Analysis: 1. Jurisdiction of the Assessing Officer for Making an Assessment Beyond the Reason for Reopening: The assessee contended that the Assessing Officer (AO) had traveled beyond the reason specified for reopening the assessment, which was the variance in rental income shown in the return and reflected in the TDS certificate. The AO had also assessed short-term capital gains arising from the dissolution of the firm. The Tribunal referred to Explanation 3 to Section 147, which allows the AO to assess any income that comes to his notice during reassessment proceedings, even if it was not included in the reasons recorded for reopening. Thus, the Tribunal held that the AO had the power to consider such capital gains in the reassessment proceedings. 2. Nature of Capital Gains on the Sale of a Flat: The assessee argued that the gains on the sale of land should be treated as long-term capital gains, as the AO had allowed indexation on the cost of land. The Tribunal agreed with the assessee, noting that if the AO allowed indexation, it indicated that the land was considered a long-term capital asset. The Tribunal directed the AO to bifurcate the total consideration received for both land and building and treat the gains from land as long-term capital gains and the gains from the building as short-term capital gains due to depreciation claims. 3. Condonation of Delay in Filing Cross Objections by the Assessee: The assessee filed cross objections with a delay of 265 days, citing her lack of awareness of business proceedings and tax implications following her husband's death. The Tribunal found merit in the affidavit submitted by the assessee, acknowledging her lack of knowledge about her husband's business dealings and the advice she received from a Chartered Accountant. The Tribunal condoned the delay in the interest of justice. 4. Applicability of Section 45(4) of the Income-tax Act, 1961: The AO had invoked Section 45(4) to tax the capital gains arising from the dissolution of the firm. The CIT(A) had relied on decisions relevant to the period before the amendment to Section 2(47) and the introduction of subsections (3) and (4) of Section 45. The Tribunal noted that these decisions were not applicable post-amendment. The Tribunal held that the CIT(A) erred in concluding that there was no exigibility to capital gains tax on the dissolution of the firm, as the amendments aimed to tax transactions involving the distribution of capital assets on dissolution. 5. Validity of Reassessment on Grounds Different from the One on Which Proceedings Were Initiated: The assessee argued that the AO's reassessment on grounds different from the one for which proceedings were initiated was invalid. The Tribunal referred to Explanation 3 to Section 147, which permits the AO to assess any income that comes to his notice during reassessment proceedings, regardless of the initial reason for reopening. The Tribunal concluded that the AO had the authority to consider the capital gains in the reassessment proceedings. Summary of Directions: 1. The cross objection that the AO traveled beyond the reason for reopening is dismissed. 2. Other grounds assailing reopening are dismissed. 3. The ground that the sale of land should be assessed as long-term capital gain is accepted, and the matter is remitted back to the AO for correct calculation. 4. The Revenue's appeal against the CIT(A)'s holding that capital gains were not exigible to tax is allowed. Conclusion: The cross objections of the assessee are partly allowed, while the appeal of the Revenue is allowed in full.
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