2016 (9) TMI 1568 - AT - Income Tax

Reopening of assessment u/s 147 - Capital gain computation - reference to the provisions of Section 50C - HELD THAT - Section 50C(1) specifically provides that where the consideration received qua transfer of land is less than the value adopted by the Stamp Valuation Authority, the value so adopted shall, for the purposes of Section 48, be deemed to be the full value of the consideration received as a result of the transfer. Section 48 of the Act provides the mode of computation of capital gains. A conjoint reading of Sections 50C and 48 of the Act shows that the deeming provisions of Section 50C are only for such computation. That being so, as rightly contended, the valuation adopted by the Stamp Valuation Authority cannot, by itself, be made the basis for reopening the concluded assessment. A mere adoption of higher value of the property by the Stamp Valuation Authority cannot lead to a formation of belief of escapement of income, particularly when the value so adopted is adopted for stamp duty purposes only. It is nowhere the case of the department that the AO had brought on record any tangible material whatsoever to suggest escapement of income, which could have, besides the Inspector s report, led to the formation of belief of escapement of income. It is trite, as also considered in the case of Income Tax Officer Vs. Shiv Shakti Build Home (P) Ltd. 2011 (2) TMI 760 - ITAT, JODHPUR that there has to be a nexus between the formation of the belief and the alleged escapement of income. In the absence of any positive material brought on the record by the Assessing Officer to suggest escapement of income, no such nexus exists herein. - Decided in favour of assessee.

Summary

Issues:
1. Validity of reassessment proceedings under Section 147.
2. Addition of long-term capital gain under Section 50C.
3. Addition of cash deposited in the bank account.

Issue 1: Validity of reassessment proceedings under Section 147:

The appellant contested the initiation of reassessment proceedings under Section 147, arguing that the Assessing Officer lacked tangible material to suggest income escapement. The appellant relied on a precedent where it was held that the Stamp Valuation Authority's valuation alone cannot justify income escapement. The Tribunal agreed, emphasizing the necessity of a nexus between the belief of income escapement and tangible evidence. As no substantial material was presented besides the Inspector's report, the reassessment proceedings were deemed invalid, following the precedent. Consequently, the reassessment proceedings were quashed, and the appeal was allowed.

Issue 2: Addition of long-term capital gain under Section 50C:

The Assessing Officer reopened the assessment based on information regarding the sale of a property at a lower value compared to the Stamp Valuation Authority's assessment. The appellant challenged this action, citing a precedent emphasizing the need for a valid reason to suspect income escapement. The Tribunal reiterated that Section 50C's deeming provisions are limited to computation and cannot solely justify reassessment. As the department failed to provide substantial evidence supporting income escapement beyond the valuation, the Tribunal accepted the appellant's argument and quashed the reassessment proceedings.

Issue 3: Addition of cash deposited in the bank account:

The appellant contested the addition of cash deposited in the bank account. However, this issue was not extensively discussed in the judgment, and the Tribunal's decision primarily focused on the validity of reassessment proceedings under Section 147 and the addition of long-term capital gain under Section 50C. Consequently, no specific details or analysis were provided regarding the addition of cash deposited in the bank account.

In conclusion, the Tribunal allowed the appellant's appeal, quashing the reassessment proceedings under Section 147 and rejecting the addition of long-term capital gain under Section 50C due to insufficient evidence supporting income escapement. The judgment highlighted the importance of tangible material and a direct nexus between the belief of income escapement and the evidence presented by the Assessing Officer.