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2020 (5) TMI 675 - AT - Income TaxValidity of the re-assessment proceedings - protective assessment done - assessee had not offered any capital gain to tax on 50% of right of land transferred to the developer and has offered capital gain to tax only for the flats sold during the relevant AY i.e. AY 2007-08 - HELD THAT - AO has made the protective assessment in order to save the interest of the revenue if it fails before the higher forums. The Hon ble Bombay High Court in the case of DHFL Venture Capital Fund 2013 (6) TMI 575 - BOMBAY HIGH COURT has held that it would be impermissible for the AO to make protective assessment by reopening an assessment on the ground that a contingency may arise in future resulting in escapement of income. In this case also, the AO had reopened the assessment on the hypothesis that if the Tribunal were to grant relief to the assessee, it would escape assessment. Thus, it can be seen that an assessment completed u/s. 143(3) of the Act, cannot be reopened on a presumption that it may escape assessment in future, if the revenue failed in its litigation before the Hon ble High Court. Thus, we are satisfied that the reassessment proceedings initiated and completed on protective basis are null and void. - Decided in favour of assessee.
Issues Involved:
1. Validity of Re-assessment Proceedings 2. Doctrine of Merger 3. Protective Assessment 4. Computation of Capital Gains 5. Reference to the District Valuation Officer (DVO) Issue-wise Detailed Analysis: 1. Validity of Re-assessment Proceedings: The primary issue was whether the re-assessment proceedings initiated by the Assessing Officer (AO) under Section 147 of the Income Tax Act, 1961, were valid. The AO reopened the assessment for the Assessment Year (AY) 2007-08, arguing that the development agreement dated 24.07.2003 necessitated the charging of capital gains to tax in the year the land was given for development. The AO concluded that the first stage of capital gain arose in AY 2004-05, as there was a transfer within the meaning of Section 2(47) during the Previous Year 2003-04. The Tribunal found that the AO had reopened the assessment on the hypothesis that if the Tribunal were to grant relief to the assessee, it would escape assessment. The Tribunal held that an assessment completed under Section 143(3) of the Act cannot be reopened on a presumption that it may escape assessment in the future. Thus, the reassessment proceedings initiated and completed on a protective basis were declared null and void. 2. Doctrine of Merger: The assessee argued that the assessment order dated 24.12.2009 had already merged with the order of the Commissioner of Income Tax (Appeals) [CIT(A)], and therefore, it could not be reopened subsequently. The Tribunal agreed, noting that the original assessment order had merged with the appellate order, and thus, reopening the assessment was not permissible. 3. Protective Assessment: The AO made a protective assessment to safeguard the interest of the revenue if it failed before higher forums. The Tribunal referred to the Bombay High Court's decision in DHFL Venture Capital Fund vs. ITO, which held that it is impermissible to make a protective assessment by reopening an assessment based on a future contingency. The Tribunal concluded that the reassessment proceedings initiated on a protective basis were null and void. 4. Computation of Capital Gains: The AO had adopted the cost of acquisition based on the directions of the Tribunal in the case of Dr. Maya Shenoy, treating it as the second stage of capital gain. The CIT(A) had directed the AO to follow the case of Smt. Radhika and others. The Tribunal noted that the assessee had not taken any advantage towards the cost of the built-up area incurred by the developers for the construction of flats, and therefore, there was no loss to the revenue on account of the development agreement. 5. Reference to the District Valuation Officer (DVO): The assessee contended that the CIT(A) erred in upholding the addition of ?8,63,463/- without referring the matter to the DVO as per the directions of the Tribunal. The Tribunal did not specifically address this issue in detail, as the reassessment proceedings were already declared null and void. Conclusion: The Tribunal allowed the appeal in part, declaring the reassessment proceedings null and void, thus rendering the other grounds on the merits of the addition academic. The appeal of the assessee was partly allowed.
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