2017 (5) TMI 773 - AT - Income Tax

Reopening of assessment - denying the claim of exemption u/s. 54F by assessing the capital gains in respect of the sale of property - assessment re-opened by an erroneous reason - Held that - Once the applicability of provisions of section 53A of the Transfer of Property Act fails, there cannot be no transfer of capital asset within the provisions of section 2(47)(v) of the Act and accordingly no capital gains could arise for the assessee in assessment year 2007-08. Admittedly, the sale deeds were executed by the assessee in favour of four purchasers on 31.10.2007 and 30.05.2008 on which date only, the purchasers were placed in possession of the property by the assessee. In these facts and circumstances, the capital gains, if any, could arose only in assessment years 2008-09 and 2009-10 as the case may be and not in the year under appeal i.e., assessment year 2007-08. Merely because the assessee had erroneously admitted the capital gains in Asst Year 2007-08 and had claimed exemption u/s 54F in respect of reinvestment in property at Kodaikanal and had filed a return in response to notice u/s 148 of the Act, this very action alone would not strengthen the reasons recorded by the ld AO and confer him power to frame the reassessment. Though the assessee based on mistaken understanding of provision of Income Tax Act had filed the return in response to notice u/s. 148 of the Act disclosing capital gains and claiming exemption us 54F of the Act for the assessment year 2007-08, that mere act alone could not be treated as a reason fastening unwarranted tax liability by the assessee for the year under appeal. It is well settled that there is no estoppel against the statute and reliance in this regard placed on the decision in the case of Maynak Poddar (HUF) Vs. WTO 2003 (2) TMI 45 - CALCUTTA High Court is very well founded. Thus we deem it fit and appropriate to admit the additional grounds raised by the assessee as it goes into the root of the matter and does not involve any investigation of facts in the light of the decision of National Thermal Power Corporation Ltd. (1996 (12) TMI 7 - SUPREME Court ). The re-assessment framed by the Ld. AO for the assessment year 2007-08 is not sustainable in law. - Decided in favour of assessee.

Issues Involved:
1. Validity of assumption of jurisdiction under Section 147 for reopening the assessment.
2. Assessment of capital gains for the assessment year 2007-08.
3. Reliance on Power of Attorney (POA) and its implications under the Transfer of Property Act.
4. Admissibility of additional grounds of appeal.
5. Application of judicial precedents.

Issue-wise Detailed Analysis:

1. Validity of Assumption of Jurisdiction under Section 147:
The assessee challenged the validity of the assumption of jurisdiction under Section 147 for reopening the assessment for the assessment year 2007-08. The Tribunal noted that the assessee did not file the original return of income for the assessment year 2007-08. Based on information from the Registration Department regarding the sale of property, the Assessing Officer (AO) issued a notice under Section 148 after recording reasons for reopening the assessment. The Tribunal found that the AO's reasons for reopening were based on erroneous assumptions, as the document executed on 15.12.2006 was only a registered POA and did not mention any consideration amount or involve the transfer of possession. Consequently, the Tribunal held that the AO's assumption of jurisdiction based on these erroneous reasons was void ab initio and not sustainable in law.

2. Assessment of Capital Gains for the Assessment Year 2007-08:
The primary issue was whether the capital gains on the sale of the property should be assessed in the assessment year 2007-08. The Tribunal found that the assessee executed the POA on 15.12.2006 without transferring possession or entering into a written agreement of sale. The actual sale deeds were executed in subsequent assessment years (2008-09 and 2009-10). The Tribunal held that the provisions of Section 53A of the Transfer of Property Act, which relate to part performance of the contract, were not applicable as there was no written agreement. Therefore, no transfer of capital asset occurred in the assessment year 2007-08, and capital gains could only arise in the subsequent years when the sale deeds were executed.

3. Reliance on Power of Attorney (POA) and its Implications under the Transfer of Property Act:
The Tribunal referred to the decision of the Hon'ble Supreme Court in the case of Suraj Lamp and Industries Pvt. Ltd. vs. State of Haryana, which clarified that a POA is not an instrument of transfer and does not convey any right, title, or interest in an immovable property. The Tribunal emphasized that the POA executed by the assessee did not result in the transfer of the property as it did not include any consideration amount or transfer of possession. Therefore, the provisions of Section 2(47)(v) of the Income Tax Act, which relate to the transfer of capital assets, were not applicable.

4. Admissibility of Additional Grounds of Appeal:
The Tribunal admitted the additional grounds of appeal raised by the assessee, which challenged the jurisdiction under Section 147. The Tribunal found that the additional grounds went to the root of the matter and did not involve any investigation of facts. The Tribunal relied on the decision of the Hon'ble Supreme Court in the case of National Thermal Power Corporation Ltd., which allowed the admission of additional grounds if they were purely legal and did not require further investigation.

5. Application of Judicial Precedents:
The Tribunal relied on various judicial precedents to support its findings. It referred to the decisions of the Hon'ble Supreme Court and High Courts, including the case of Suraj Lamp and Industries Pvt. Ltd., which clarified the legal position regarding POA transactions. The Tribunal also cited the decisions of the Hon'ble Gujarat High Court in Pr. CIT vs. Lincoln Pharmaceuticals Ltd. and the Hon'ble Delhi High Court in Dr. Ajit Gupta vs. ACIT, which held that reopening of assessments based on erroneous reasons was not sustainable in law.

Conclusion:
The Tribunal allowed the appeal of the assessee, holding that the reopening of the assessment for the assessment year 2007-08 was not sustainable in law. The Tribunal quashed the reassessment notice issued under Section 148 and held that no capital gains could be assessed for the year 2007-08. The Tribunal's decision was based on the erroneous assumptions made by the AO, the non-applicability of Section 53A of the Transfer of Property Act, and the reliance on judicial precedents. The appeal was allowed, and the reassessment was declared void ab initio.

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