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2021 (9) TMI 329 - AT - Income TaxValidity of reopening of assessment u/s 147 - valid satisfaction recorded by the Ld. JCIT under section 151 or not? - mandation of approval of the competent authority i.e; JCIT - addition of capital gain - HELD THAT - As relying on Shri Satnam Singh, Jalandhar 2021 (6) TMI 1060 - ITAT AMRITSAR approval given by the JCIT, Range-1, Bathinda, it is clear that the satisfaction has been recorded in a mechanical manner, without applying the mind, for issuing the notice under section 148 of the Act - reopening of the assessment under section 147 of the Act by issuing the notice under section 148 of the Act is quashed - Decided in favour of assessee.
Issues Involved:
1. Validity of proceedings under Section 147/148 of the Income Tax Act, 1961. 2. Satisfaction recorded by the Joint Commissioner of Income Tax (JCIT) under Section 151 of the Act. 3. Applicability of Section 45(3) of the Income Tax Act, 1961. 4. Adoption of the fair market value of the land as on 01.04.1981. Issue-wise Detailed Analysis: 1. Validity of Proceedings under Section 147/148 of the Income Tax Act, 1961: The assessee challenged the validity of the proceedings under Section 147/148 on several grounds, including improper service of notice, the reasons recorded by the Assessing Officer (AO) being mere suspicions rather than beliefs, and the status of the land being ancestral but assessed in individual capacity. The AO initiated proceedings based on the transfer of ancestral land as capital to a partnership firm, considering it a capital asset within municipal limits. The AO's rejection of the assessee's objections and subsequent assessment was upheld by the Commissioner of Income Tax (Appeals) [CIT(A)], who found the objections to be without merit. 2. Satisfaction Recorded by the JCIT under Section 151 of the Act: The assessee argued that the JCIT's satisfaction, required under Section 151(2) for issuing a notice under Section 148, was not properly recorded and was mechanical. The JCIT's approval merely stated, "Yes, it is a fit case to issue notice under section 148 of the Income Tax Act," which the Tribunal found to be a mechanical and non-application of mind, thereby invalidating the reopening of the assessment. This was supported by precedents from various High Courts and the Supreme Court, emphasizing that satisfaction must be recorded with application of mind. 3. Applicability of Section 45(3) of the Income Tax Act, 1961: The AO assessed the long-term capital gains by invoking Section 45(3), which the assessee contested, arguing that no real income arose from the transfer of land to the partnership firm as capital contribution. The AO's stance was that the land was indeed transferred to the firm, and the value recorded in the firm's books should be considered the full value of the consideration. The CIT(A) upheld this view, rejecting the assessee's argument that Section 45(3) creates a fiction only for fixing the year of transfer and consideration, not for accrual of profits and gains. 4. Adoption of the Fair Market Value of the Land as on 01.04.1981: The assessee contended that the value adopted by the CIT(A) was on the lower side and should have been based on the fair market value rather than the registered value. The AO and CIT(A) did not accept the valuation reports submitted by the assessee, leading to the dispute over the correct valuation. The Tribunal admitted additional evidence regarding comparable sale instances, which were not furnished earlier due to reasonable cause, to determine the correct fair market value. Conclusion: The Tribunal quashed the reopening of the assessment under Section 147/148 due to the mechanical manner in which the JCIT's satisfaction was recorded. This decision was based on established legal precedents requiring a proper application of mind for such approvals. Consequently, the Tribunal did not address the other grounds on merit, as the legal issue was decided in favor of the assessee. The appeals were allowed, and the reassessment proceedings were invalidated.
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