2019 (7) TMI 1948 - AT - Income Tax

Reopening of assessment u/s 147 - undisclosed capital gain - DIT(Investigation) received an information that the assessee had sold a land - revised capital gain filed in response to 148 notice - HELD THAT - AO has not referred any information which has goad him to form a belief that the income has escaped the assessment. He has just narrated details of transaction and thereafter observed that the assessee shown a capital gain which in his assumption far less on such transaction. In order to eliminate his apprehension or suspicion, he reopened the assessment. But he is not authorized to reopen on such assumption. He has to form his concrete opinion demonstrating the escapement of income. Had he visualized the return filed by the assessee, probably he would not have formed the opinion. Therefore, reopening of the assessment is not in accordance with law, and we quash the reassessment. Capital gain computation - FMV determination - We find that the assessee has calculated long term capital by taking cost of acquisition as on 1.4.1981 on the basis of registered valuer s report. In the case of CIT Vs. Gauranginiben S. Shodhan, Indl 2014 (2) TMI 78 - GUJARAT HIGH COURT has observed that if value declared by an assessee as on 1.4.1981 is more than the fair market value assumed by the AO for making a reference to the DVO, then he cannot make a reference under section 55A. In the present case, with help of DVO s report, the ld.AO wants to reduce the cost of acquisition which he cannot do. The second aspect which probably may arise is that section 55A has been amended w.e.f. 1.7.2012 and the assessment proceedings was in seisin when this amendment came. Report of the DVO was of July 17, 2016. Therefore, its cognizance can be taken, but this aspect has also been considered in the case of Shri Babulal S. Solanki 2019 (6) TMI 1680 - ITAT AHMEDABAD wherein by relying upon the judgment of Hon ble Bombay High Court 2014 (1) TMI 764 - BOMBAY HIGH COURT , it has been held that this aspect is applicable on the transaction which has taken place after 1.7.2012. In the present case, the assessee has transferred his land on 8.7.2011. Since the assessee has transferred his land prior to 1.7.2012, even the amended proviso is not applicable on merit also. Addition by reducing the cost of acquisition on the basis of DVO s report cannot be made. In view of the above discussion, we allow the appeal of the assessee and quash the re-assessment order. Appeal of the assessee is allowed.

Summary

Issues Involved:
1. Condonation of delay in filing the appeal.
2. Legitimacy of reopening the assessment under Section 147.
3. Validity of the reference to the DVO under Section 55A.
4. Determination of long-term capital gain and the cost of acquisition.

Detailed Analysis:

1. Condonation of Delay in Filing the Appeal:
The Tribunal noted that the appeal filed by the assessee was time-barred by three days. The assessee submitted an application for condonation of delay, citing medical reasons and attaching a certificate from Samata Hospital. After reviewing the application, the Tribunal was satisfied that the delay was due to reasonable cause and thus condoned the delay, allowing the appeal to proceed on its merits.

2. Legitimacy of Reopening the Assessment under Section 147:
The assessee challenged the reopening of the assessment. The facts revealed that the assessee filed a return of income declaring a total income of Rs. 11,93,640, which was processed under Section 143(1). The AO reopened the assessment based on information from the DIT(Investigation) indicating that the assessee sold land for Rs. 9.57 crores and received Rs. 1.59 crore but disclosed only Rs. 2,54,566 as capital gain. The Tribunal found that the AO did not verify the records or form a concrete opinion demonstrating the escapement of income. The AO's belief was based on mere suspicion and apprehension, which is not sufficient for reopening an assessment. Thus, the Tribunal quashed the reassessment, stating it was not in accordance with the law.

3. Validity of the Reference to the DVO under Section 55A:
The AO referred the matter to the DVO, who determined the cost of acquisition at a lower value than claimed by the assessee. The Tribunal referenced the Gujarat High Court's decision in CIT Vs. Gauranginiben S. Shodhan, which held that if the value declared by the assessee as on 1.4.1981 is more than the fair market value assumed by the AO, a reference under Section 55A cannot be made. The Tribunal also noted that the amendment to Section 55A effective from 1.7.2012 does not apply retrospectively. Since the assessee's transaction occurred before this date, the AO's reference to the DVO was invalid.

4. Determination of Long-Term Capital Gain and the Cost of Acquisition:
The assessee calculated the long-term capital gain by adopting the cost of acquisition based on a registered valuer’s report. The Tribunal noted that the AO's attempt to reduce the cost of acquisition using the DVO’s report was not permissible. The Tribunal directed the AO to re-compute the capital gain using the fair market value as declared by the assessee based on the registered valuer’s report. The Tribunal cited the ITAT Ahmedabad Bench decision in Shri Babulal S. Solanki Vs. ITO, which reinforced that the amended provisions of Section 55A do not apply to transactions before 1.7.2012.

Conclusion:
The Tribunal allowed the appeal of the assessee, quashing the reassessment order and directing the AO to re-compute the capital gain in accordance with the assessee's declared cost of acquisition. The appeal was thus decided in favor of the assessee.