2020 (12) TMI 601 - AT - Income Tax

Reopening of assessment u/s 147 - Gain on sale of land - assessee is the power of attorney and signed the document on behalf of the owner of the land - HELD THAT- Undisputedly, in this case, the assessee is the power of attorney and signed the document on behalf of the owner of the land but claimed that no consideration was received by him. But as per the AO, in the clause of the agreement, it is clear that the power of attorney holder will receive the sale consideration in respect of transfer/sale of the land. Since in the original assessment, this was not discussed, the AO reopened the assessment on the ground that income has escaped assessment. Whether the sale consideration of the land belonging to Shri Pradeep Kumar Sethy will be taxed in the hands of the assessee who is only a power of attorney holder? - AO has observed that the assessee has failed to substantiate his claim with any legally admissible evidence that he has not received any consideration with regard to transfer of land. It is not in dispute that the assessee being the power of attorney holder has executed the sale deed before the Sub-Registrar, Khurda and acted as an agent of the owner of the land. Nothing was brought on record by the ld D.R. to substantiate that the assessee has received the sale consideration, which has not been declared as income of the assessee. D.R. could not controvert that the issue under consideration is not similar to the decision rendered by Jaipur bench of ITAT in the case of Shri Gyan Chand Agarwal 2017 (8) TMI 557 - ITAT JAIPUR . Hence, facts being identical, we respectfully following the same direct the AO to delete the addition with the rider that the AO is free to take action against real owner of the land Shri Pradeep Kumar Sethy as per law. - Appeal of the assessee is allowed

Issues Involved:
1. Validity of reopening of assessment under Section 147.
2. Validity of notice issued under Section 148.
3. Addition of long-term capital gain in the hands of the assessee.
4. Ownership and transfer of property rights.
5. Principles of natural justice in the assessment process.

Detailed Analysis:

1. Validity of Reopening of Assessment under Section 147:
The assessee contended that the CIT(A) erred in not quashing the assessment order, arguing that the reopening under Section 147 was based on "reason to suspect" rather than "reason to believe" regarding income escapement. The reopening was initiated after the AO noticed unreported capital gains from a land transaction. The tribunal upheld the reopening, noting that the AO had valid grounds based on the Sub-registrar's report indicating a significant land transaction by the assessee.

2. Validity of Notice Issued under Section 148:
The assessee argued that the notice under Section 148 was invalid as there was no valid satisfaction of the Range Head before issuing the notice, which could not be rectified by subsequent affidavits. The tribunal found that the AO had sufficient grounds to issue the notice based on the information available, thus upholding the validity of the notice.

3. Addition of Long-term Capital Gain in the Hands of the Assessee:
The assessee contended that the addition of ?81,71,835/- as long-term capital gain was erroneous since he acted merely as a power of attorney holder without receiving any sale consideration. The tribunal examined the clauses of the power of attorney, which authorized the assessee to receive sale consideration. However, the tribunal found no evidence that the assessee received any consideration and directed the AO to delete the addition, allowing the AO to take action against the real owner, Shri Pradeep Kumar Sethy, as per law.

4. Ownership and Transfer of Property Rights:
The tribunal reviewed whether the sale consideration should be taxed in the hands of the power of attorney holder (the assessee) or the actual owner (Shri Pradeep Kumar Sethy). Citing precedents from the ITAT Jaipur Bench and the Hon'ble Madras High Court, the tribunal concluded that the power of attorney does not equate to ownership transfer or enjoyment of property rights. Thus, the tribunal directed the deletion of the addition in the assessee's hands, emphasizing that the real owner should be taxed.

5. Principles of Natural Justice in the Assessment Process:
The assessee claimed that the AO did not follow the principles of natural justice. The tribunal did not find substantial evidence to support this claim but focused on the merits of the case, particularly the lack of evidence showing that the assessee received the sale consideration.

Conclusion:
The tribunal allowed the appeal, directing the AO to delete the addition of ?81,71,835/- from the assessee's income while permitting the AO to take appropriate action against the real owner of the property. The judgment emphasized the importance of substantiating claims with legally admissible evidence and upheld the principle that a power of attorney holder is not liable for capital gains tax in the absence of ownership transfer or receipt of sale consideration.

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