2018 (12) TMI 1151 - HC - Income Tax

Reopening of assessment - wrongful computation of the capital gain - petitioner s contention that the execution of the sale deed by virtue of the judgment of the High Court would relate back to the original agreement to sale - Held that - Assessee had entered into an agreement for purchase of the property in the year 1992. The sale deed could not be executed only because the appropriate authority refused to grant no objection certificate and instead, ordered compulsory acquisition thereof. This order was declared as illegal and ab initio void by the High Court. The sale deed was ordered to be executed in favour of the petitioner. There is no reason for us not to accept the petitioner s contention that the execution of the sale deed by virtue of the judgment of the High Court would relate back to the original agreement to sale. The petitioner was, thus, entitled to claim the benefit of cost indexation from the said date. The entire basis of the department in the reasons recored in order to dispute the petitioner s computation of the capital gain, therefore, is rendered invalid. In the result, the impugned notice is set aside. - decided in favour of assessee.

Issues Involved:
1. Validity of the notice for reopening the assessment.
2. Correctness of the computation of long-term capital gains (LTCG).
3. Determination of the date of acquisition for the purpose of indexation.

Issue-wise Detailed Analysis:

1. Validity of the Notice for Reopening the Assessment:
The petitioner challenged the notice of reopening of assessment dated 28.3.2018. The petitioner argued that the reasons recorded by the assessing officer lacked validity and were based on incorrect factual premises. The assessing officer issued the notice for reopening after recording reasons, which stated that income chargeable to tax had escaped assessment. The court noted that since the return was accepted without scrutiny, the assessing officer had greater latitude in reopening the assessment. However, it was emphasized that the requirement for the assessing officer to have a reason to believe that income chargeable to tax had escaped assessment must be satisfied. The court examined whether the reasons recorded demonstrated prima facie material suggesting the escapement of income.

2. Correctness of the Computation of Long-term Capital Gains (LTCG):
The entire controversy revolved around the computation of capital gain arising out of the sale of a residential property. The petitioner had shown the year of acquisition as 1992 and worked out the indexed cost of acquisition accordingly. The department argued that the petitioner should have taken 2007 as the year of acquisition, as the property was transferred to the petitioner in 2007-08 following a High Court judgment. The assessing officer claimed that the petitioner wrongly computed the indexed cost of acquisition, leading to the suppression of LTCG by ?1,52,49,842/-. The court examined the facts and reasons recorded by the assessing officer and found that the petitioner was entitled to claim the benefit of cost indexation from the original agreement date in 1992.

3. Determination of the Date of Acquisition for the Purpose of Indexation:
The petitioner argued that the agreement to sell executed in 1992 should be considered the date of acquisition for indexation purposes. The court referred to the Supreme Court's judgment in the case of Sanjeev Lal & Ors. Vs. CIT, which held that the transfer of property would relate back to the original date of the agreement to sell if the sale was delayed due to legal disputes. The court noted that the sale deed could not be executed earlier due to the appropriate authority's refusal to grant a no objection certificate and the subsequent order of compulsory acquisition, which was later declared illegal and void by the High Court. The court concluded that the execution of the sale deed by virtue of the High Court's judgment would relate back to the original agreement to sell in 1992, and the petitioner was entitled to claim the benefit of cost indexation from that date.

Conclusion:
The court set aside the impugned notice for reopening the assessment, holding that the entire basis of the department's reasons to dispute the petitioner's computation of the capital gain was invalid. The court adopted the logic used by the Supreme Court in the case of Sanjeev Lal (supra), allowing the petition and disposing of the case.

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