2020 (10) TMI 35 - HC - Income Tax

Reopening of assessment - Taxability on the 'Capital Gains' - Year of assessment - matter referred to Third Member - whether the notice issued u/s 148 is barred by limitation or not? - HELD THAT - The reassessment for AY 2001-02 had once been made on 30.03.2000 and again on 25.03.2013 in pursuance of Tribunal order dated 31.05.2010, whereas reassessment for AY 2003-04 and 2004-05 had been initially made on 30.03.2006 and 28.12.2006 respectively, which was very much within limitation prescribed under Section 149 - order of CIT (A) for these three years was passed on 22.07.2008, which was 'subject matter' of appeal before Income Tax Appellate Authority which held reassessment to be time barred by an obvious misreading of Section 150(2) of the Act. By deciding the question of limitation of AY 2000-01 against Revenue, and by holding that there was no tax liability for AY 2003-04 and AY 2004-05, these two sets of orders passed by learned Income Tax Appellate Authority have resulted in a serious miscarriage of justice, which we cannot permit. The manner in which the various appeals and Miscellaneous Petition have been dealt with by the learned Tribunal for all the three Assessment years in question leaves much to be desired and the change of stand allowed by the Tribunal and later withdrawal of the appeals for AY 2003-04 and AY 2004-05 under the litigation policy of the CBDT Circular dated 28.01.2016, has resulted in all this goof up. Set aside all the orders passed by the learned Tribunal for all the three Assessment Years as also all the orders passed by Lower Authorities also for all these three Assessment Years viz., AY 2001-02, 2003-04 and 2004-05. We are dealing with the appeal for AY 2001-02 only but since the Tribunal's order dated 31.05.2010 for AY 2003-04 and AY 2004-05 is at the root of the order of Tribunal dated 18.03.2016, by majority of 2 1 for AY 2001-02 and Appeal under Section 260A against that order dated 31.05.2010 already stands withdrawn by Revenue, we deem it appropriate to set aside even the order dated 31.05.2010 in the present appeal in these peculiar circumstances. We restore the matter back to the Assessing Authority to re-examine the whole issue of taxaility of the Capital Gains de novo, including the question of levy of capital gains Tax on sale of flats, the year of taxability and computation of Fair Market Value for computing such tax liability - we direct that the Assessing Authority will be free to impose the appropriate 'Capital Gain Tax Liability' by undertaking the fresh reassessment proceedings under Section 150(1) of the Act in pursuance of our directions, in terms of Section 150(1) of the Act, for all the three Assessment Years AY 2001-02, AY 2003-04 and AY 2004-05, de novo. - Decided in favour of the Revenue and against the Assessee,

Summary

Issues Involved:
1. Taxability of capital gains in AY 2001-02, AY 2003-04, and AY 2004-05.
2. Validity of reassessment proceedings under Section 147/148.
3. Limitation period for issuing reassessment notices under Section 149 and applicability of Section 150.
4. Computation of fair market value for capital gains.
5. Disallowance of business expenditure and business loss.
6. Levy of interest under Sections 234A, 234B, and 234C.

Issue-Wise Detailed Analysis:

1. Taxability of Capital Gains:
The primary issue was the taxability of capital gains arising from the sale of flats by the Assessee. The Assessee entered into a Joint Development Agreement (JDA) in December 2000, and the flats were sold in March 2003. The Tribunal initially held that no capital gains were taxable in AY 2003-04 and AY 2004-05, as the transfer occurred in December 2000. However, this was challenged, and it was argued that the capital gains should be assessed in AY 2001-02.

2. Validity of Reassessment Proceedings:
The reassessment proceedings for AY 2001-02 were initiated under Sections 147/148 based on the Tribunal's observations. The Assessee contended that these proceedings were time-barred. The Tribunal, by a majority of 2:1, held that the reassessment for AY 2001-02 was indeed time-barred, as there was no specific direction from the Tribunal to assess the income for AY 2001-02.

3. Limitation Period and Section 150:
The Tribunal's decision hinged on whether the reassessment notice for AY 2001-02 was within the limitation period. Section 150(1) allows reassessment at any time if it is in consequence of a finding or direction by a higher authority. However, Section 150(2) restricts this if the assessment was already time-barred when the original order was passed. The Tribunal found that the reassessment notice for AY 2001-02 was not based on a specific finding or direction and was thus barred by limitation.

4. Computation of Fair Market Value:
The Assessee and the Revenue disagreed on the fair market value to be adopted for computing capital gains. The Assessee claimed a higher value, while the Assessing Officer adopted a lower guideline value. The CIT(A) directed a middle ground, but the Tribunal's decision on the taxability timeframe rendered this a secondary issue.

5. Disallowance of Business Expenditure and Business Loss:
The Assessee claimed business expenditure and business loss, arguing a temporary lull in business activity. The CIT(A) disallowed these claims, and the Tribunal's subsequent decisions did not alter this outcome.

6. Levy of Interest under Sections 234A, 234B, and 234C:
The Assessee challenged the levy of interest under these sections, but this was not a primary focus in the Tribunal's decisions. The Tribunal's primary concern was the taxability and timing of capital gains.

Conclusion:
The High Court found that the Tribunal erred in its handling of the appeals, particularly in allowing the Assessee to change its stand and in its interpretation of the limitation provisions. The High Court set aside all Tribunal orders for AY 2001-02, 2003-04, and 2004-05, and remanded the matter back to the Assessing Authority for a de novo assessment. The Assessing Authority was directed to reassess the capital gains tax liability without the Assessee being able to challenge it on the ground of limitation. The High Court emphasized the importance of correcting errors and ensuring justice in tax assessments.