2018 (5) TMI 1089 - AT - Income Tax

Re-opening of case after 4 years - Bringing to tax the capital gains arising in the hands of his mother in the re-assessment proceedings - Held that - We are unable to understand on what basis the assessment was reopened by the AO after four years from the end of the assessment year when a scrutiny assessment has already been completed which was also subject matter of appeal before the Ld.CIT(A). The issue of adoption of valuation of property sold by assessee during the year has already crystalised by the Ld.CIT(A) order in the earlier round. AO was prevented in re-valuing the sale consideration as the matter was already crystalised and has become final. Not only that AO also went beyond his jurisdiction to re-workout the cost of acquisition also which was not even disputed in the original order by the AO or by the assessee. Consequently, the addition of ₹ 3,92,869/- is not correct and should have been deleted by the Ld.CIT(A). We order it to be deleted. Assessee s ground on this issue stands allowed. Assessee has raised objections regarding assessing the capital gains arisen in the hands of the mother, the same was also not answered properly, except stating that she has gifted the part of consideration to assessee. On what basis this conclusion was drawn is also not available from the record, as two of the properties were sold in the next assessment year and there was a running account between the mother and son. Whether it is in the hands of assessee or in the hands of mother, the working of the capital gain is same and AO order indicates that she has filed return and paid taxes, the return of which is the basis for re-opening this assessment. In these facts of the case, we are of the opinion that the capital gains in the hands of assessee as he has gifted the property to his mother, which was accepted by the AO in first round of assessment. In view of that we hold that even the proceedings initiation u/s. 147 are bad in law. AO is directed to delete the addition so made. - Decided in favour of assessee.

Summary

Issues:
Computation of capital gains in the hands of the assessee and his mother, validity of re-assessment proceedings under Section 147, addition of capital gains in the hands of the mother to the assessee's income.

Analysis:

Computation of Capital Gains:
The appeal concerned the computation of capital gains arising in the hands of the assessee and the taxation of capital gains from the sale of properties in the re-assessment proceedings. The assessee, an NRI, had sold properties resulting in short term capital loss. The AO invoked Section 50C and made an addition due to the variance between sale consideration and SRO values. The CIT(A) accepted the assessee's contentions, directing the AO to delete the addition, a decision not appealed by the Revenue.

Re-assessment Proceedings under Section 147:
The AO initiated re-assessment proceedings under Section 147, focusing on a gift from the assessee's mother, suspecting it as a means to avoid capital gains tax. Despite objections, the AO recalculated capital gains in the mother's hands and brought it to tax in the assessee's income. The CIT(A) upheld the additions, leading to the appeal.

Addition of Capital Gains from Mother to Assessee's Income:
The Tribunal found fault with the re-assessment, questioning its basis after completion of scrutiny assessment and appeal. The CIT(A) had previously ruled on the valuation of properties, preventing revaluation. Additionally, the inclusion of capital gains from the mother in the assessee's income was deemed unjustified. The Tribunal held that the property was gifted to the mother and could not be considered an asset in the assessee's hands. The AO's failure to explain the inclusion of these gains, especially those from subsequent years, led to the direction to delete the addition.

In conclusion, the Tribunal allowed the assessee's appeal, highlighting flaws in the re-assessment proceedings and the improper inclusion of capital gains from the mother in the assessee's income. The judgment underscored the importance of adhering to procedural mandates and ensuring proper taxation based on legal ownership and transactions.