2015 (10) TMI 1093 - HC - Income Tax

Reopening of assessment - determination of the capital gains in place of the loss - Held that - The revised return of income filed on 17/11/2000 wherein the appellant had specifically mentioned that the profit and loss account and the balance sheet was enclosed to the original return of income filed on 22/09/1997. The Assessing Officer had on 20/11/2000 called upon the appellant to produce the balance sheet and profit and loss account for the assessment year 1996-97 as the same were not attached to the return of income filed on 17/11/2000. In case the Revenue had in its possession the 1997 Return of Income then it would have had relied upon the annexures filed with the original return of income and no occasion to call for it from the appellant could arise. The absence of record is prima facie evident from the letter dated 20/11/2000 addressed by the Assessing Officer to the appellant merely 7 days after the issuing of the impugned notice. This aspect has not at all been considered by the authorities under the Act, including the Tribunal. The impugned order of the Tribunal while rejecting the appellant s plea of the notice being without jurisdiction has not dealt with the appellant s above contention but merely upheld the order of the CIT(A). In view of the above the impugned order of the Tribunal holding that the notice dated 13/11/2000 was issued under Section 148 of the Act was within jurisdiction has to be set aside. However, the same is being restored to the Tribunal to consider afresh the contentions of the appellant as well as the Revenue with regard to the existence of the original return of income filed on 22/09/1997 in the record of the Assessing Officer at the time when the notice dated 13/11/2000 was issued. It is admitted position that there is no difference in the amount of income returned in the return of income filed on 17/11/2000 and the one filed originally on 22/09/1997. The appellant in fact need not have filed a return of income and as such could have relied only upon its earlier return of income.

Issues Involved:
1. Determination of capital gains.
2. Family arrangement and its impact on capital gains.
3. Deductibility of Rs. 66 lakhs from the consideration for transfer.
4. Validity of the assessment reopening under Section 147.

Issue-wise Detailed Analysis:

1. Determination of Capital Gains:
The Tribunal affirmed the determination of capital gains at Rs. 72,28,175 instead of the loss shown in the return filed under Section 148. The appellant contended that there was no transfer of property under Section 2(47) of the Income Tax Act, and thus, no capital gains should be assessed. However, the Assessing Officer (AO) concluded that the transfer had occurred based on the agreement dated 08/08/1995 with M/s. Sapna Real Estate, which involved handing over possession of the property. Consequently, the AO determined a capital gain of Rs. 72.28 lakhs.

2. Family Arrangement and Capital Gains:
The appellant argued that the family arrangement, which was intended to resolve civil litigation among family members, should negate any capital gains liability. The CIT(A) and the Tribunal rejected this argument, holding that the agreement and the subsequent possession transfer constituted a transfer under Section 2(47) of the Act, thereby attracting capital gains tax.

3. Deductibility of Rs. 66 Lakhs:
The appellant alternatively argued that Rs. 66 lakhs paid to some partners should either be deducted from the consideration received or enhance the cost of acquisition of the land. The AO, CIT(A), and the Tribunal held that the Rs. 66 lakhs were indeed part of the consideration received by the appellant-firm and not paid to the partners in their individual capacity. The books of the appellant-firm reflected this receipt, thus it was included in the computation of capital gains.

4. Validity of the Assessment Reopening under Section 147:
The appellant challenged the reopening notice dated 13/11/2000, arguing it was without jurisdiction as the original return filed in 1997 was not available with the AO at the time of issuing the notice. The appellant contended that without the original return, the AO could not have had a reason to believe that income had escaped assessment. The Tribunal and CIT(A) dismissed this objection, assuming the original return might have been available when the notice was issued. However, the High Court noted that mere participation in proceedings does not confer jurisdiction if it was absent initially. The High Court highlighted that the AO's request for the balance sheet and profit and loss account on 20/11/2000 indicated the original return was not available. Thus, the High Court set aside the Tribunal's order and remanded the case for fresh consideration on the jurisdictional issue of the reopening notice.

Conclusion:
The High Court set aside the Tribunal's order and remanded the case for fresh consideration on whether the original return was available when the reopening notice was issued. The Tribunal was directed to re-examine all issues, including the validity of the reopening notice and the determination of capital gains, considering the appellant's and Revenue's contentions and any additional evidence. The Tribunal was instructed to expedite the disposal of the appeal due to its age.

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