2019 (8) TMI 100 - AT - Income Tax

Reopening of assessment u/s 147 - filing of non est return - HELD THAT - Return filed by the assessee on 22/10/2010 was non-est return and not a valid return in the eyes of law as per Section 139(4) of the Act. In this situation, Clause (a) of Explanation 2 would squarely apply which provide that income would be deemed to have escaped assessment in case no return was furnished by the assessee although his income exceeded the maximum amount which is not chargeable to income tax. Taking cognizance of the return filed by the assessee on 22/10/2010, we find that the income was disclosed by the assessee as capital gains as against the observation of AO that the income was to be assessed as undisclosed income which would attract higher rate of tax. Therefore, this situation would also lead us to same conclusion that there was escapement of income in terms of statutory provisions of Section 147. No arguments have been advanced in respect of ground no. 1(ii). Therefore, finding no substance in the legal pleadings, we hold that reassessment proceedings were validly initiated against the assessee and the order of Ld. first appellate authority, in this regard, would not require any interference. In result, Ground No. 1 stands dismissed. Addition of notional rental income from two flats situated at Mumbai - adoption of deemed rent as per Municipal Rateable value - HELD THAT - The issue is recurring in nature. The same has already been delved into by the co-ordinate bench of this Tribunal in assessee s own case 2018 (5) TMI 1817 - ITAT MUMBAI wherein relying upon the decision in CIT V/s Tip Top Typography 2014 (8) TMI 356 - BOMBAY HIGH COURT directed Ld. AO to adopt the deemed rent as per Municipal Rateable value and assess the income accordingly. Ground No.2 stands partly allowed. Capital Gains - sale of painting - AO alleged that PAN of M/s Art Musings was not valid - HELD THAT - It appears that the PAN has inadvertently been mentioned in the confirmation of account as AAAFA5038D which has led Ld. AO to doubt the genuineness of the transactions. There was no other reason to doubt the genuineness of the transaction. Nothing adverse is available on record. Therefore, since the evidence on record in the shape of confirmation of account, assessee s bank statement, details of PAN etc. has been placed on record and the same corroborates each other, there could no occasion now to doubt the genuineness of the transactions. Therefore, we hold that sale of painting to the extent of ₹ 38 Lacs has rightly been offered under the head Capital Gains. The ground of assessee s appeal stands allowed to that extent. So far as the balance addition AR has pleaded for restoration of matter back to the file of Ld. AO to place on record sufficient documentary evidences in support of the claim, as done by the Tribunal in earlier years. Concurring with the same, the matter stands remitted back to the file of Ld. AO with a direction to the assessee to substantiate his claim, in this regard.

Summary

Issues Involved:
1. Re-opening the assessment.
2. Annual Let Out Value.
3. Unexplained income or Long Term Capital Gains.

Issue-Wise Detailed Analysis:

1. Re-opening the assessment:
The primary issue was whether the re-opening of the assessment for AY 2008-09 was justified. The assessee contested the validity of the re-opening on several grounds:
- The CIT(A) upheld the AO's reason for re-opening, which was based on the treatment of proceeds from the sale of paintings as income from other sources in previous years, contrary to the assessee's treatment as Capital Gains.
- The notice for re-opening was within the time allowed under section 149 of the Income Tax Act, despite the assessee's objections regarding the Standard Operating Procedures of the Department of Posts.
- The AO's reasons for re-opening were contradictory, acknowledging the amount as Capital Gains in the return but later stating it had escaped assessment.

The Tribunal found that the return filed by the assessee on 22/10/2010 was non-est (invalid) as it was filed beyond the prescribed time limit under section 139(4). Thus, there was deemed escapement of income under Section 147. The Tribunal upheld the validity of the re-assessment proceedings, dismissing Ground No. 1.

2. Annual Let Out Value:
The issue here was the determination of the Annual Let Out Value of the assessee's properties:
- The CIT(A) did not allow the assessee to categorize one of his properties as 'self-occupied,' despite it being mentioned as such in the return.
- The CIT(A) upheld the Annual Ratable Value of two properties at Worli based on local enquiry rather than adopting the Municipal Ratable value.

The Tribunal noted that this issue was recurring and had been addressed in earlier years (AY 2006-07 and 2007-08). Following the precedent set by the Tribunal in those years, the Tribunal directed the AO to adopt the deemed rent as per the Municipal Rateable value. Thus, Ground No. 2 was partly allowed.

3. Unexplained income or Long Term Capital Gains:
The final issue was the treatment of income from the sale of paintings:
- The CIT(A) confirmed the AO's action of treating ?80.75 Lacs from the sale of paintings as 'Unexplained income' instead of Long-Term Capital Gains.
- The assessee argued that the paintings were gifted by his father and thus should be treated as Long-Term Capital Gains.

The Tribunal found that for ?38 Lacs worth of paintings sold through Art Musings, the transactions were genuine and supported by sufficient documentary evidence, including ledger confirmations and bank statements. Therefore, the Tribunal held that this amount was rightly offered under the head Capital Gains. For the remaining ?42.75 Lacs, the Tribunal remitted the matter back to the AO to allow the assessee to substantiate his claim with sufficient evidence. Thus, Ground No. 3 was partly allowed, with the matter remitted for statistical purposes.

Conclusion:
The appeal was partly allowed. The re-opening of the assessment was upheld, the Annual Let Out Value was to be determined based on the Municipal Rateable value, and the treatment of income from the sale of paintings was partly accepted as Long-Term Capital Gains, with a portion remitted back for further verification. The order was pronounced in the open court on 30th July 2019.