2014 (9) TMI 492 - AT - Income Tax

Validity of proceeding initiated u/s 147 Reduction in claim of exemption u/s 54 considered in original proceedings - Held that - It can be seen from the reasons recorded that basis for reopening of assessment is sale of property for ₹ 1,95,00,000/-, on which assessee earlier has claimed exemption u/s 54 of the Act - assessee during the pendency of first reassessment proceeding, in response to a notice u/s 142(1) dated 21/11/2007 has furnished the details with regard to the sale of property and in another letter dated 17/03/2008 has computed capital gain - once the information relating to sale of property on which assessee has claimed exemption u/s 54 was available in the assessment record during the first reassessment proceeding, neither it can be said that there is failure on the part of the assessee in disclosing fully and truly all material facts relating to assessment nor it can be said that the information relating to sale of the property subsequently came to the notice of the AO - information relating to the sale of property was available before the AO at the time of completion of the first assessment u/s 143(3) read with section 147 of the Act, hence there is no reason why the issue relating to reducing the exemption claimed u/s 54 from the cost of acquisition was not considered in the original assessment order passed on 03/06/2008 - when the assessee has furnished all information relating to the sale of immovable property in pursuance to enquiry conducted by department, which forms part of the assessment record at the time of completion of original assessment u/s 143(3) read with section 147 of the Act, reopening of assessment again on the very same issue after expiry of four years from the end of the relevant AY is legally unsustainable as it is against statutory mandate of section 147 - proceeding initiated u/s 147 of the Act is invalid in law and assessment order passed u/s 147 also cannot be sustained Decided in favour of assessee.

Summary

Issues Involved:
1. Validity of proceedings initiated under section 147 of the Income Tax Act.
2. Merits of the issue regarding the exemption claimed under section 54 of the Income Tax Act.

Detailed Analysis:

Validity of Proceedings Initiated Under Section 147:

The assessee filed his return of income for AY 2005-06 on 01/08/2005, declaring a total income of Rs. 6,62,633/-. Initially processed under section 143(1), the return was later reopened under section 147 by issuing a notice under section 148 on 17/01/2008, and the assessment was completed on 03/06/2008, accepting the returned income. The assessment was reopened again on 19/07/2011, as the assessee had sold a property for Rs. 1,95,00,000/- on 30/11/2004, which was jointly purchased with others. The AO noted that the exemption claimed under section 54 should be reduced from the cost of the asset if sold within three years, leading to the reopening of the assessment.

The assessee contended before the CIT(A) that all material facts were disclosed during the earlier assessment proceedings, making the reopening beyond four years invalid. However, the CIT(A) held that the information was not submitted to the AO (ACIT) but to another authority (ITO), and thus, the reopening was valid as there was a failure to disclose fully and truly all material facts.

The Tribunal noted that the information regarding the sale of the property was available in the assessment record during the first reassessment proceeding. Therefore, it cannot be said that there was a failure on the part of the assessee to disclose all material facts. The Tribunal held that reopening the assessment on the same issue after four years is legally unsustainable and against the statutory mandate of section 147. Consequently, the assessment order passed under section 147 was quashed.

Merits of the Issue Regarding the Exemption Claimed Under Section 54:

The assessee argued that after selling the original asset, he purchased another residential house within the stipulated period, making him eligible for the exemption under section 54. The AO's objection regarding the purchase of the property in the name of the assessee's wife was deemed irrelevant.

The Tribunal found merit in the assessee's submissions, noting that the investment in the new property was made within the required period, thus entitling the assessee to the exemption under section 54. However, since the proceedings under section 147 were held invalid, this issue became academic.

Conclusion:

In conclusion, the Tribunal allowed the assessee's appeal, quashing the assessment order passed under section 147 and confirming the assessee's eligibility for the exemption under section 54.

Pronounced in the open court on 05/09/2014.