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2021 (12) TMI 438 - AT - Income TaxRevision u/s 263 by CIT - Reopening of assessment u/s 147 - LTCG u/s 45(1) - As per CIT during the assessment proceeding the AO did not examine all the material facts of the case particularly regarding liability of the assessee for paying long term capital gain as per Sec. 45(1) of the Act in entering into a Joint Venture Agreement - HELD THAT - Considering the entire aspect of the matter the Ld. AO in the reopening proceeding under Section 143(3) r.w.s. 147 concluded the proceeding on the premise that the long term capital gain does not arise in the year under consideration i.e. when the agreement was executed but it arose later on when the assessee took possession of two flats against Joint Venture Agreement and sold the same to the third party in A.Y. 2015-16. This particular fact was ascertained from the return of income filed by the assessee for A.Y. 2015-16. Therefore, when the issue has already been decided by the Ld. AO in the previous occasion upon making enquiry and/or verification of the relevant documents in support of the submissions made by the assessee as regards the benefit of long term capital gain the same cannot be reopened under the Explanation 2 of Section 263 declaring the order passed by the Ld. AO erroneous and prejudicial to the interest of the Revenue on the plea of no enquiry and/or verification done by the AO We are fortified by the order passed by the Hon ble High Court at Calcutta in the case of PCIT vs. Infinity Infotech Parks Ltd. 2018 (9) TMI 111 - CALCUTTA HIGH COURT on this issue that has already discussed hereinabove which further approves the order passed by the Ld. AO on the count that there can be no tax payable unless there is any profit or gain has arisen. Hence, we do not support the order passed by the Ld. PCIT under Section 263 of the Act for reopening of assessment for the reason already discussed hereinabove and, thus, the same is hereby quashed. Appeal filed by the assessee is allowed.
Issues Involved:
1. Validity of the reassessment proceedings under Section 147 of the Income Tax Act, 1961. 2. Applicability of capital gains tax on the Joint Venture Agreement. 3. Legitimacy of the revisionary powers exercised under Section 263 of the Income Tax Act, 1961. Detailed Analysis: 1. Validity of the reassessment proceedings under Section 147 of the Income Tax Act, 1961: The case was reopened under Section 147 of the Act based on information that the assessee sold an immovable property worth ?1,26,90,000/- without quoting PAN during the Financial Year 2011-12 for A.Y. 2012-13. The Sub-Registrar, under Section 133(6) of the Act, provided a copy of the registry of the property sold. The notice under Section 148 was issued, and the reasons recorded for issuance of the notice were as follows: "I have a reason to believe that income to the tune of ?1,26,90,000/- chargeable to tax has escaped assessment within the meaning of section 147 of the Income tax Act, 1961 by reason of the failure on the part of the assessee to file his return of income u/s 139 for the relevant assessment year 2012-13 and to disclose fully and truly all the material facts." 2. Applicability of capital gains tax on the Joint Venture Agreement: The assessee entered into a Joint Venture Agreement with M/s. Ample Builders on 02.09.2011 for a land admeasuring 0.50 acres, with the market value determined at ?1,26,90,000/-. The agreement specified that the builder would develop the land and prepare residential apartments at his own cost, with the assessee retaining 11 flats out of the total constructed area. The assessment was finalized on 15.12.2017, accepting the return filed by the assessee to the tune of ?4,16,050/- after considering the Joint Venture Agreement. The assessee contended that no capital gain tax arose at the time of the agreement execution, as the transfer of ownership would only occur upon project completion. This was supported by the fact that the assessee declared long-term capital gains in A.Y. 2015-16 when the flats were sold. 3. Legitimacy of the revisionary powers exercised under Section 263 of the Income Tax Act, 1961: A show-cause notice under Section 263 was issued on 01.01.2020, stating that the assessment order was erroneous and prejudicial to the interest of revenue because the assessee did not offer capital gains tax on entering into the Joint Venture Agreement. The PCIT directed the AO to make a Denovo proceeding, asserting that the AO did not examine all material facts regarding the liability for paying long-term capital gains. However, the Tribunal found that the AO had duly considered and verified all relevant documents and facts during the reassessment proceedings. The Tribunal referenced judgments from the Hon'ble Delhi High Court and the Calcutta High Court, which supported the view that no capital gains tax arises until the construction is completed and the constructed area is apportioned. The Tribunal concluded that the AO's order was not erroneous or prejudicial to the interest of revenue, as the AO had made necessary inquiries and verifications. The Tribunal quashed the order passed by the PCIT under Section 263, thereby allowing the appeal filed by the assessee.
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