2017 (8) TMI 1126 - AT - Income Tax

Reopening of assessment - capital gain addition - transfer of rights in favour of the Developer (JDA) - year of taxability - assessee contended that, in subsequent years he has paid the taxes and therefore, there was no loss to revenue or escapement of income as far as the assessee is concerned. - Held that - Having gone through the assessment order, we find that the AO, has accepted the assessee s returned income. For reopening of an assessment even within a period of 4 years, there need to be fresh material for the AO to issue a notice u/s 148. It is not sufficient if the AO believes that there is escapement of income as held by the Hon ble Supreme Court in the case of Kelvinator India Ltd (2010 (1) TMI 11 - SUPREME COURT OF INDIA). In the case before us, the issue of capital gain was very much before the AO and the capital gain has arisen on account of sale of flats coming to Assessee s share by virtue of the Development Agreement entered into by the assessee with M/s. JMR Promoters and Builders. Thus, it is clear that the AO while passing the order u/s 147 of the Act had all the material before him to compute the capital gain. The decision of the Hon ble Supreme Court in the case of Kelvinator India Ltd is, in our opinion, applicable to the facts of the case before us. Therefore, in our opinion, the reopening of the assessment is void as rightly held by the CIT (A). Thus, grounds of appeal No.1 (a) & (b) are rejected. The capital gains would not arise in the A.Y 2009-10 as in the present case also the Development Agreement is dated 12.03.2007 and the HUDA building permissions were obtained in the financial year 2007-08 relevant to the A.Y 2008-09. In view of the same, the Revenue s grounds of appeal 1(c) and (d) are rejected. Additional ground of appeal raised by the Revenue that in the alternative, the capital gain should be brought to tax in the A.Y 2007-08 is concerned, we are of the opinion that this Tribunal cannot give a direction to the AO to bring to tax any income in the A.Y which is not before us. It is left open to the AO to take remedial action, if any, if the law so permits. The additional grounds of appeal are also thus rejected.

Summary

Issues Involved:
1. Validity of the reopening of assessment under Section 148.
2. Determination of the year in which the capital gains should be taxed.
3. Disallowance of the discount claimed by the assessee.

Issue-wise Detailed Analysis:

1. Validity of the Reopening of Assessment under Section 148:

The Revenue challenged the CIT(A)'s decision that the reopening of proceedings under Section 148 was "bad in law and void" based on the Supreme Court's decision in Kelvinator India Ltd. The CIT(A) held that no new tangible material was available with the Assessing Officer (AO) for reopening the original assessment, and thus it amounted to a change of opinion. The Tribunal agreed with the CIT(A), stating that the AO had all material before him during the original assessment and that merely believing there was an escapement of income was insufficient for reopening under Section 148. Therefore, the Tribunal upheld the CIT(A)'s decision, declaring the reopening void.

2. Determination of the Year in Which the Capital Gains Should Be Taxed:

The Revenue argued that the capital gains should be taxed in the assessment year (A.Y.) 2009-10 due to the development agreement and subsequent agreements. However, the Tribunal examined the agreements dated 12.03.2007 and 17.04.2008 and concluded that the development agreement dated 12.03.2007, which included the handing over of physical possession, should be considered the actual transfer date. Referring to the jurisdictional High Court's decision in Potla Nageshwara Rao, the Tribunal held that the capital gains would arise in the year the development agreement was entered into, i.e., A.Y. 2007-08, not A.Y. 2009-10. Thus, the Tribunal rejected the Revenue's grounds of appeal on this issue.

3. Disallowance of the Discount Claimed by the Assessee:

The assessee had claimed a discount of ?15,79,000 given to customers, which the AO disallowed due to lack of evidence. The CIT(A) confirmed this disallowance. However, since the Tribunal held that the reopening of assessment was invalid and the capital gains did not arise in A.Y. 2009-10, it found no reason to adjudicate this ground at this stage. Consequently, the cross-objection of the assessee was rejected.

Conclusion:

In conclusion, the Tribunal dismissed both the Revenue's appeal and the assessee's cross-objection, upholding the CIT(A)'s decision that the reopening of the assessment was invalid and that the capital gains should be taxed in A.Y. 2007-08, not A.Y. 2009-10. The Tribunal also noted that any remedial action for taxing the capital gains in A.Y. 2007-08 should be taken by the AO if the law permits.