2011 (3) TMI 1013 - HC - Income Tax

Notice u/s 148 - Whether indexation is allowable or not is a question to be decided on merits - The question as to whether the capital gains are liable to be assessed as long term capital gain or short term capital gain is a question to be determined on merits - The assessee cannot be said to have suppressed material facts - Development rights were available on the property in question even before the Board of Directors of the company decided to transfer the development rights - The date on which the resolution was passed for transfer of development rights has no relevance in computing the capital gains - Hence, the impugned notice for reopening the assessment and reassessment order dated 20/12/2010 are quashed and set aside.

Summary

Issues:
Challenge to notice under Section 148 of the Income Tax Act, 1961 for reopening assessment for the Assessment Year 2003-04; Objections raised against reopening assessment rejected; Validity of reassessment order dated 20/12/2010.

Analysis:
The petition was filed to challenge a notice dated 30/3/2010 issued under Section 148 of the Income Tax Act, 1961, seeking to reopen the assessment for the Assessment Year 2003-04. The petitioner also contested the order dated 2/11/2010, which rejected the objections raised against reopening the assessment. Subsequently, a reassessment order was passed on 20/12/2010, leading to an amendment in the petition to challenge this new order. The petitioner company had merged with another company that had purchased a property in 1957. The petitioner later decided to transfer the development rights of this property to a third party for a considerable amount. The assessing officer initially assessed the capital gains arising from this transfer as long term capital gains. However, the impugned notice sought to reopen the assessment, claiming that the capital gains should have been treated as short term instead of long term. The reasons given for this conclusion were the absence of land transfer and the tenure of holding the development rights being less than three years.

The assessment was sought to be reopened beyond the four-year period from the end of the relevant assessment year. According to the proviso to Section 147 of the Act, reopening beyond this period is permissible only if there is a failure on the part of the assessee to disclose all material facts necessary for assessment. The reasons recorded by the assessing officer did not allege any suppression of material facts by the assessee. Moreover, during the original assessment, the officer had obtained all relevant particulars and passed an order under Section 143(3) of the Act. The question of indexation and whether the capital gains should be treated as long term or short term are substantive issues to be decided on their merits and do not indicate any suppression of facts by the assessee. The availability of development rights before the resolution for transfer was passed also undermined the relevance of the resolution date in computing capital gains.

In conclusion, the court found that there was no failure on the part of the assessee to disclose all material facts. Consequently, the court quashed and set aside the impugned notice for reopening the assessment, the order rejecting objections, and the reassessment order. The rule was made absolute with no order as to costs.