2016 (3) TMI 43 - AT - Income Tax

Reopening of assessment - eligibility of deduction u/s 54F - Held that - As held by the Supreme Court in the case of Sun Engineering Works P. Ltd (1992 (9) TMI 1 - SUPREME Court ), the re-assessment proceedings is for bringing to tax item which are escaped assessment, it would be open to an assessee to put forward claims for deduction of any expenditure in respect of that income or the non-taxability of the items at all. Keeping in view of the object and purpose of the proceedings u/s 147 of the Act which is for the benefit of the Revenue not an assessee, an assessee cannot be permitted to convert the re-assessment proceedings as revision or review . Claims which have been disallowed in the original assessment proceedings cannot be permitted to be re-agitated on the re-assessment proceedings. A matter not agitated in the concluded original assessment proceedings also cannot be permitted to be agitated in the re-assessment proceedings unless relatable to the item sought to be taxed has escaped assessment. Even in cases, where the claims of the assessee during the course of re-assessment proceedings relating to the escaped assessment are accepted, still the allowance has to be limited to the extent to which they reduce the income to that originally assessed. The income for the purpose of re-assessment cannot be reduced from the income originally assessed. Being so, in our opinion, the claim of the assessee with regard to the cost of improvement and deduction u/s 54F are relating to the capital asset which is subject to tax in the reassessment proceedings is justified. Accordingly, we direct the Assessing Officer to consider the plea of the assessee in the light of the judgment of the Supreme Court in the case of Sun Engineering Works P. Ltd. (1992 (9) TMI 1 - SUPREME Court ) and decide afresh. - Decided partly in favour of assessee for statistical purposes.

Summary

Issues:
Assessment of Long Term Capital Gains, Indexed Cost of Acquisition, Deduction u/s 54F, Validity of Fresh Claims in Reassessment Proceedings, Interpretation of Sec. 147 of the Act.

Analysis:

1. Assessment of Long Term Capital Gains:
The assessee contested the Long Term Capital Gains assessed by the AO, claiming that the indexed cost of acquisition and deduction u/s 54F were not properly considered. The AR provided details of improvements made to the property and investments in a new asset to support the claim. The AO, however, disallowed these claims, leading to an increased Long Term Capital Gain. The CIT(A) upheld the AO's decision, prompting the assessee to appeal.

2. Indexed Cost of Acquisition and Deduction u/s 54F:
The assessee argued that the AO failed to acknowledge the indexed cost of acquisition and deduction u/s 54F correctly. The AR presented evidence of improvements and investments, but the AO deemed these claims as an afterthought to reduce the capital gain. Despite citing relevant case laws, the AO disallowed the claims, resulting in a higher Long Term Capital Gain assessment.

3. Validity of Fresh Claims in Reassessment Proceedings:
The AO contended that fresh claims made during reassessment proceedings, including cost of improvements and deductions, were impermissible. The AR argued that the reassessment aimed to bring escaped income for taxation, allowing the assessee to claim deductions related to the income under reassessment. The Tribunal referenced the Supreme Court's decision in Sun Engineering Works P. Ltd. to support the assessee's right to claim expenses or non-taxability of items during reassessment.

4. Interpretation of Sec. 147 of the Act:
The Tribunal emphasized that reassessment proceedings under Sec. 147 were primarily for the benefit of the Revenue, not the assessee. It clarified that claims disallowed in the original assessment could not be re-agitated during reassessment unless relating to escaped assessment items. The Tribunal directed the AO to reconsider the assessee's claims in line with the Supreme Court's ruling in Sun Engineering Works P. Ltd., allowing the plea for cost of improvement and deduction u/s 54F.

In conclusion, the Tribunal partially allowed the assessee's appeal for statistical purposes, instructing the AO to reassess the claims considering the Supreme Court's judgment.