2014 (4) TMI 537 - HC - Income Tax

Validity of reopening of assessment Sale of residential property Claim u/s 54 of the Act Held that - Assessment previously framed after scrutiny is sought to be reopened within a period of four years from the end of relevant assessment year - There is nothing conclusive on record to suggest that the question of assessee s claim for exemption from capital gain under section 54 was examined by the AO - reference u/s 54E was not an error and it is manifest from the reasons recorded - This was not a mere typographical error but a conscious decision on the part of the AO to disallow the exemption claimed - Relying upon Aayojan Developers vs. Income-tax Officer 2011 (2) TMI 738 - Gujarat High Court the reason on which the notice for reopening is issued lacks validity - Section 54E of the Act was neither applicable nor sought to be applied by the assessee - The question of denying any such claim under the provision for breach of condition did not arise - notice for reopening has to be sustained and supported only on the basis of reasons recorded by the assessing officer and not with the help of extraneous ground, material or possible improvement the notice is set aside Decided in favour of Assessee.

Summary

Issues involved:
Challenging notice for reopening dated 25.3.2014 based on incorrect reference to the Income Tax Act sections for exemption claim under section 54, not 54E.

Analysis:
The petitioner filed a return of income for the assessment year 2008-09, claiming exemption under section 54 of the Income Tax Act for the sale of a residential property. The assessing officer conducted scrutiny and passed an assessment order without making any additions to the total income. However, the assessing officer later sought to reopen the assessment within four years from the end of the relevant assessment year based on the petitioner's investment in State Bank of India term deposit for less than three years, citing a provision from section 54E of the Act, which was not applicable to the petitioner's claim. The petitioner raised objections, clarifying that the claim was under section 54, not 54E, but the assessing officer did not address this contention.

Upon reviewing the documents and submissions, it was established that the assessing officer erroneously referred to section 54E instead of section 54 for the exemption claim. The court noted that the reference to section 54E was not a typographical error but a conscious decision to disallow the exemption claimed by the petitioner for not meeting the conditions of section 54E. However, the petitioner's claim fell under section 54, which required different conditions for exemption. The court emphasized that the notice for reopening must be supported solely by the reasons recorded by the assessing officer and not based on extraneous grounds.

Consequently, the court concluded that the reasons for issuing the notice lacked validity as section 54E was inapplicable to the petitioner's claim. The court referred to a previous decision emphasizing the importance of sustaining the notice for reopening solely on the grounds recorded by the assessing officer. As a result, the court quashed the notice dated 25.3.2014 and allowed the petition, making the rule absolute.