2019 (9) TMI 557 - HC - Income Tax

Reopening of assessment u/s 147 - deduction u/s 54 - allegation that thee property which was named as 'Gupta House' was actually an 'industrial plot' and not a 'residential house' - as per the Tribunal the AO did not have 'reasons to believe' that income chargeable to tax had escaped assessment and remand back the case to CIT for fresh adjudication - HELD THAT - It is clear that an illegal set off was sought to be claimed by the respondent (which probably succeeded because of the misleading appellation of the property in the dispute viz. 'Gupta House'). We set aside the finding of the Tribunal that there were no reasons for Assessing Officer to believe that income chargeable to tax had escaped assessment. Facing this, respondent has argued that in the penultimate paragraph of the impugned order, the Tribunal had noticed that it was deciding appeal on the preliminary questions and had consequently, not decided other questions and has prayed that the matter should be remanded back to the Tribunal so that the other questions can be urged. Once the recitals made in the sale deed are not disputed, the other questions do not arise. Appeal stands allowed and the judgment of the Tribunal is set aside and the orders of the Commissioner and the Assessing Officer are upheld. - Decided in favour of revenue

Issues:
1. Maintainability of appeal based on preliminary ground without touching on merits.
2. Claim of deduction under Section 54 of the Income Tax Act.
3. Validity of initiation of proceedings under Section 147 (1) of the Act.
4. Assessment of income chargeable to tax for AY 2009-10.
5. Disputed nature of property as residential or industrial.

Analysis:

1. The appeal was filed by the Revenue against the judgment of the Income Tax Appellate Tribunal, where the appeal filed by the assessee was allowed on the preliminary ground of maintainability without addressing the merits of the case. The Tribunal remanded the case back to the Commissioner for fresh adjudication, stating that the Assessing Officer did not have sufficient reasons to believe that income chargeable to tax had escaped assessment.

2. The respondent claimed a deduction under Section 54 of the Income Tax Act, asserting that the property sold was a residential building and the proceeds were reinvested in a residential building. However, it was discovered that the property named 'Gupta House' was actually an industrial plot, not a residential house. This led to a dispute regarding the eligibility for the deduction under Section 54, as the property was not a residential building as claimed.

3. The initiation of proceedings under Section 147 (1) of the Act was challenged by the respondent, arguing that the Assessing Officer did not have the necessary 'reasons to believe' that income had escaped assessment. The Tribunal found that the Assessing Officer's reasons for initiating the proceedings were not valid, leading to the remand of the case for further examination by the Commissioner.

4. The Assessing Officer determined that income chargeable to tax had escaped assessment for AY 2009-10 due to the failure of the assessee to disclose all material facts accurately. The capital gain from the sale of the industrial property was not appropriately accounted for, leading to a reassessment of the income for that assessment year.

5. The nature of the property in question, referred to as 'Gupta House,' was disputed as being either a residential building or an industrial plot. The sale deed indicated that the property was intended for industrial use, with necessary permissions obtained for industrial construction. The misleading appellation of the property as 'Gupta House' led to confusion regarding its actual nature, impacting the eligibility for deductions under the Income Tax Act.

In conclusion, the High Court set aside the Tribunal's decision, upholding the orders of the Commissioner and the Assessing Officer. The judgment highlighted the importance of accurately disclosing all material facts for proper assessment and eligibility for tax deductions.

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