2018 (2) TMI 48 - AT - Income Tax

Validity of the reassessment - capital gain computation u/s 45 arising from the transfer of capital asset - Held that - CIT(A) while deciding the appeal of the assessee directed the AO to assess the long term capital gain of ₹ 61,53,470/- in the assessment year 2008-09 where part of it already stood assessed at ₹ 22,50,190/-. Against this finding of CIT(A), the Revenue has not preferred any appeal. Therefore, it can be safely inferred that the Revenue has accepted that income which escaped assessment was pertaining to the A.Y. 2008-09. As per the notice for reopening the assessment year for opening is taken as assessment year 2009-10. In our view, this is not permissible under the law, in view of the explanation to section 2(47) wherein it clarifies that transfer includes and shall be deem to have always included disposing of or parting with an asset or any interest therein or creating any interest in any asset in any manner whatsoever, directly or indirectly, absolutely or conditionally voluntarily or involuntarily, by way of an agreement or otherwise notwithstanding that such transfer of rights has been characterised as being effected or dependent upon or flowing from the transfer of a share or shares of a company. Hence, under the facts of the present case the transfer of capital asset took place in the financial year 2007-08, relevant to A.Y. 2008-09. AO is empowered as per section 147 if the assessing officer has reason to believe that any income chargeable to tax has escaped assessment or any assessment year, he may subject to the provisions of sections 148 to 153 assess or reassess such income and also any other income chargeable to tax which has escaped assessment and which comes to his notice subsequently in the course of the proceedings. Therefore, the assessing officer should form a belief in respect of the escapement of income pertaining to a particular assessment year in the given case, the income escaped relates to the earlier year and notice is issued u/s 148 for the subsequent year. - Decided in favour of assessee.

Summary

Issues involved:
1. Validity of reassessment for A.Y. 2009-10.
2. Application of section 50C to compute Long Term capital Gain.
3. Retrospective application of amendment to section 50C.
4. Direction to assess Long Term Capital Gain for A.Y. 2008-09.

Issue 1: Validity of reassessment for A.Y. 2009-10:
The assessee challenged the reassessment for A.Y. 2009-10, arguing that the transaction was completed in the previous year, A.Y. 2008-09, as per the agreement to sale executed on 31.05.2007. The Revenue contended that the transaction was completed in the year under appeal. The Tribunal noted that the transfer of the capital asset took place in the financial year 2007-08, relevant to A.Y. 2008-09. The Assessing Officer's reopening of the assessment for A.Y. 2009-10 based on income escaped from A.Y. 2008-09 was deemed impermissible under the law. Consequently, the Tribunal quashed the assessment order, emphasizing the need for the assessing officer to form a belief regarding income escapement pertaining to a specific assessment year.

Issue 2: Application of section 50C to compute Long Term capital Gain:
The Assessing Officer, during reassessment for A.Y. 2009-10, adopted the value of an agricultural land sold by the assessee as per the stamp duty valuation authority, resulting in a recomputed capital gain. The assessee contested this computation, arguing that the provisions of section 50C were wrongly invoked. The Tribunal did not delve into this issue as the reassessment itself was deemed invalid.

Issue 3: Retrospective application of amendment to section 50C:
The assessee disputed the retrospective application of the amendment to section 50C from 01.10.2009 to a transaction that occurred in A.Y. 2008-09. The Tribunal did not provide a detailed analysis of this issue due to the primary focus on the reassessment's validity.

Issue 4: Direction to assess Long Term Capital Gain for A.Y. 2008-09:
The Ld. CIT(A) directed the assessing officer to assess the long term capital gain for A.Y. 2008-09, which had already been partly assessed, resulting in an increase in capital gain. The Revenue did not appeal this decision, implying acceptance that the income escapement related to A.Y. 2008-09. However, the Tribunal quashed the assessment order due to the improper foundation of the reassessment, rendering the other grounds raised in the appeal moot.

In conclusion, the Tribunal ruled in favor of the assessee, quashing the reassessment order for A.Y. 2009-10 due to the improper application of the law regarding income escapement and the relevant assessment year. The Tribunal emphasized the necessity for the assessing officer to adhere to the provisions of the Income Tax Act when initiating reassessments based on income escapement.