2018 (3) TMI 1743 - AT - Income Tax

Reopening of assessment u/s 148 - entitled to the benefit of deduction u/s 54EC - HELD THAT - Admittedly the assessee did not offer the amount for taxation in the return of income for the assessment year 2008-09. Whereas as per the agreement the assessee had transferred his shareholding in the company. AO got the knowledge of the receipt of additional amount on the basis of the audit objections raised by the audit party for assessment year 2010-11. Therefore the factum of the said receipt of the additional consideration in relation to the transfer of shares came for the first time into the knowledge of the AO pursuant to the said audit object ions. Since as per the Assessing officer the transfer had taken place in the financial year 2007-08 relevant to assessment year 2008-09 and he was of the view that the said amount was liable for taxation in the year 2008-09 hence he was of the genuine and reasonable belief that the income of the assessee for assessment year 2008-09 had escaped assessment. Whether the said amount had actually accrued to the assessee or not was a matter of evidence / discussion and deliberation which could have been done during the assessment proceedings. In view of the above we do not find any infirmity in the action of the Assessing officer so far as the reopening of the assessment is concerned. Ground No.1 & 2 of the assessee s appeals are therefore dismissed

Summary

Issues:
1. Reopening of assessment under section 147/148 for assessment year 2008-09.
2. Taxability of capital gains on share transfer in assessment year 2008-09.
3. Claim of exemption under section 54EC for investment in bonds.
4. Interpretation of deeming provisions of section 45 of the Income Tax Act.
5. Initiation of penalty proceedings under section 271(1)(c) of the Act.

Reopening of Assessment (Grounds 1 & 2):
The Assessing officer reopened the assessment for assessment year 2008-09 based on audit objections raised for assessment year 2010-11, revealing additional consideration received by the assessee related to the transfer of shares in the financial year 2007-08. The tribunal found the reopening justified as the Assessing officer had a genuine belief that income had escaped assessment, considering the transfer year and the new information. The tribunal dismissed the appeal on this ground.

Taxability of Capital Gains (Grounds 3 & 4):
The Assessing officer found that the assessee did not disclose part of the capital gain from the sale of shares in the assessment year 2008-09, although the Long Term Capital Gains were declared in 2010-11. The tribunal analyzed the Escrow Account details and the subsequent settlement of disputes, concluding that the amount did not accrue to the assessee until 2010. Therefore, the tribunal held that the capital gains were taxable in the year of actual receipt, i.e., 2010-11, and allowed the deduction claimed under section 54EC.

Claim of Exemption under Section 54EC:
The tribunal considered the investment in Rural Electrification Corporation Ltd. Bonds made by the assessee upon receiving the amount in 2010. As the investment was made in the same year as the taxability of capital gains, the tribunal allowed the deduction under section 54EC, overturning the Assessing officer's decision to deny the exemption.

Interpretation of Deeming Provisions (Ground 4):
The tribunal reviewed the interpretation of section 45 of the Income Tax Act concerning the taxability of capital gains. The tribunal found that the capital gains accrued to the assessee only when ascertained, aligning with legal precedents. The tribunal emphasized that the rights and liabilities were determined at the end of litigation, leading to the inclusion of capital gains in the subsequent year.

Penalty Proceedings (Ground 5):
The tribunal noted the initiation of penalty proceedings under section 271(1)(c) by the Assessing officer. As the penalty issue was deemed consequential and premature for adjudication at that stage, the tribunal did not delve into this matter in the current appeal.

Conclusion:
The tribunal partially allowed the appeal, dismissing the grounds related to the reopening of assessment while ruling in favor of the assessee on the taxability of capital gains and the claim of exemption under section 54EC. The tribunal emphasized the timing of actual receipt and investment in bonds for determining tax liabilities, aligning with legal principles and precedents.

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