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2010 (1) TMI 828 - AT - Income TaxReopening of assessment under s. 147 - Held that -withdrawal of investment allowance the assessee was suffered only on 30th Sept. 1981 and not in the previous year relevant to the asst. yr. 1978-79 even if the provisions of s. 154 or 155 are interchangeable with the provisions of s. 147 in certain areas it cannot be held that there was any escapement of income by the grant of investment allowance provisions of s. 147 cannot be invoked to withdraw the investment allowance originally granted in the asst. yr. 1978-79 as the time-limit for such withdrawal having expired in terms of the provisions of s. 155 r/w s. 154 provisions of s. 147 cannot be invoked when the specific remedy is available under s. 155(7B) r/w s. 154 of the IT Act. Accordingly in our opinion the reopening as well as reassessment is not valid and void ab initio. Withdrawal of exemption from capital gains by invoking the provisions of s. 47A of the IT Act and bringing to tax the capital gain - properties were never treated as stock-in-trade in the course of business by the subsidiary company actual treatment of the property being stock-in-trade initiation of proceedings by the AO on the basis of book entries should have been dropped when financial statements were properly rectified as per the provisions of the Companies Act withdrawal of exemption claimed under s. 47(iv) by invoking the provisions of s. 47A is not justified and valid order of the lower authorities set aside and decide this issue in favour of the assessee.
Issues Involved:
1. Validity of reopening the assessment under Section 147. 2. Withdrawal of exemption from capital gains under Section 47A. Issue No. 1: Validity of Reopening the Assessment under Section 147 The assessee challenged the validity of the reopening and reassessment before the CIT(A), arguing that the AO had no jurisdiction to initiate proceedings under Section 147 when a specific provision under Section 155(7B) existed for this purpose. The assessee also contended that there was no concealment of income. The CIT(A) upheld the reassessment, deeming it legal and valid. Before the Tribunal, the assessee reiterated that the AO should have used Section 155(7B) instead of Section 147, as the latter provides a broader jurisdiction not intended for this specific situation. The Department argued that once the conditions under Section 47A were violated, the capital gains became taxable, justifying the reopening under Section 147. The Tribunal noted that the second reopening was based on the subsidiary company converting fixed assets into stock-in-trade, triggering the deeming provisions of Section 47A. The Tribunal highlighted that Section 155(7B) specifically addresses the recomputation of income in such cases, and the AO should have used this provision rather than Section 147. The Tribunal cited precedents from the Allahabad High Court and Cochin Bench of the Tribunal, which supported the view that specific provisions like Section 155(7B) should be used over the general provisions of Section 147. The Tribunal concluded that the AO lacked the authority to invoke Section 147 when Section 155(7B) was applicable. Therefore, the reopening and reassessment were deemed invalid and void ab initio. Issue No. 2: Withdrawal of Exemption under Section 47A The AO withdrew the exemption from capital gains, arguing that the subsidiary company converted fixed assets into stock-in-trade within eight years of transfer, violating Section 47A. The assessee contended that this was a misclassification, later rectified with revised financial statements and returns, which were accepted by the RoC. The CIT(A) upheld the AO's decision, but the assessee argued before the Tribunal that the misclassification was bona fide and rectified through proper procedures under the Companies Act. The properties remained fixed assets, and income from them was treated as "income from house property," not business income. The Department argued that the rectification was an afterthought to avoid tax, and the revised returns were filed beyond the prescribed time limit. The Tribunal, however, emphasized that mere book entries were insufficient to determine the intent of treating assets as stock-in-trade. The Tribunal noted that the properties had constraints (e.g., leasehold, secured against debentures) that prevented their treatment as stock-in-trade. The rectified accounts, approved by shareholders and accepted by the RoC, indicated that the properties remained fixed assets. The Tribunal concluded that the properties were never intended to be treated as stock-in-trade, and the AO's reliance on book entries was misplaced. The withdrawal of exemption under Section 47A was not justified, and the Tribunal set aside the lower authorities' orders, deciding in favor of the assessee. Conclusion The appeal of the assessee was allowed, with the Tribunal ruling that the reopening of the assessment under Section 147 was invalid, and the withdrawal of exemption under Section 47A was not justified.
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