2019 (2) TMI 735 - HC - Income Tax

Reopening of assessment - addition of capital gain - Held that - On the basis of the agreement-to-sell produced by the assessee the A.O. came to the conclusion that the assessee had divested herself of all rights in the property. The assessee had received full sale consideration. The assessee had handed over the possession of the property to the proposed purchasers. It was the purchasers who would be responsible for any defects in the title. The purchasers would deal with the pending litigations. A.O. therefore taxed the entire consideration in the hands of the assessee as her capital gain . The assessee did not challenge this order and the order of the A.O. thus became final. Any action on the part of the A.O. to tax the capital gain in the hands of the assessee for the A.Y. 2014-15 on the strength of the subsequent sale-deed would amount to shifting his stand from transfer of property being complete upon execution of the agreement to sale to transfer of property taking place only now upon execution of the sale-deed. It is not the case of the revenue that at the time of execution of the sale-deed the Petitioner received any further sale consideration. Under these circumstances the impugned notice is set aside. - Decided in favour of assessee.

Summary

Issues Involved:
1. Validity of the notice for reopening the assessment under Section 148 of the Income Tax Act, 1961.
2. Determination of the year of transfer of property for capital gains tax purposes.
3. Applicability of Section 50C of the Income Tax Act, 1961 to the transaction.

Issue-wise Detailed Analysis:

1. Validity of the Notice for Reopening the Assessment under Section 148 of the Income Tax Act, 1961:

The Petitioner challenged the notice issued by the Assessing Officer (A.O.) on 30th October 2018 for reopening the assessment for the Assessment Year (A.Y.) 2014-15. The notice was based on the information received from the Additional Director of Income Tax indicating that the Petitioner had sold an immovable property for ?3.51 Crores, while the market value as per Stamp Duty Authorities was ?40.62 Crores. The A.O. believed that income to the tune of ?40.62 Crores had escaped assessment.

The Petitioner objected to the reopening, arguing that the A.O.'s reasons lacked validity. The Petitioner had previously executed an agreement-for-sale in 2007, receiving full consideration of ?3.80 Crores, and the A.O. had earlier assessed this amount as capital gains for A.Y. 2008-09. The A.O. now could not claim that the transfer was complete only upon execution of the sale-deed in 2013.

The Court held that the A.O.'s action to reopen the assessment was impermissible. Since the Petitioner had not filed a return for A.Y. 2014-15, the A.O. had no occasion to form any opinion on the issue. However, the requirement that the A.O. must have a reason to believe that income had escaped assessment must exist. The reasons recorded by the A.O. lacked validity, making the notice invalid.

2. Determination of the Year of Transfer of Property for Capital Gains Tax Purposes:

The Petitioner had executed an agreement-for-sale on 31/08/2007, receiving full consideration of ?3.80 Crores. The A.O. had assessed this amount as capital gains for A.Y. 2008-09, concluding that the Petitioner had divested all rights in the property, handed over possession, and the purchasers would handle any defects in the title and pending litigations.

The Petitioner did not challenge this assessment, making the A.O.'s order final. The A.O. now sought to tax the 'capital gain' for A.Y. 2014-15 based on the subsequent sale-deed executed in 2013. The Court held that this would amount to shifting the A.O.'s stand from the transfer being complete upon execution of the agreement to sale to the transfer taking place upon execution of the sale-deed. The Petitioner had not received any further consideration at the time of the sale-deed execution.

3. Applicability of Section 50C of the Income Tax Act, 1961 to the Transaction:

The A.O. invoked Section 50C, which considers the stamp duty value of the property as the sale consideration for computing capital gains. The A.O. believed that the capital gain should be taxed based on the market value of ?40.62 Crores instead of the declared sale consideration of ?3.80 Crores.

However, the Court noted that the Petitioner had already been assessed for capital gains for A.Y. 2008-09 based on the agreement-for-sale executed in 2007. The A.O. had previously determined that the transfer was complete in 2007, and the consideration received then was taxed. Therefore, invoking Section 50C for the subsequent sale-deed in 2013 was not justified.

Conclusion:

The Court set aside the impugned notice for reopening the assessment for A.Y. 2014-15, as the A.O.'s reasons lacked validity. The Writ Petition was allowed, and the notice was deemed invalid. No order as to costs was made.