2022 (1) TMI 1205 - AT - Income Tax

Reopening of assessment u/s 147 - taxability of transfer of immovable property - HELD THAT - The provisions of Section 50 C of the income tax act clearly provides that fair market value of the property is required to be substituted as consideration received or accruing as a result of the transfer of a capital asset by the assessee where the actual sale consideration received or accruing is less than the value adopted or assessed by an authority of state government for the purpose of payment of stamp duty in respect of such transfer. The value so adopted or assessed shall be deemed to be the full value of the consideration received or accruing as a result of such transfer for the purposes of computation of capital gain u/s 48. Accordingly for computation of capital gain according to the provisions of Section 48 of the income tax act which is chargeable according to the provisions of Section 45 of the act, the difference between the actual sale consideration and fair market value of the property as described u/s 50C of the income tax act is required to be used. In the present case for assessment year 2005 - 06 there is no transfer of asset, and therefore, there is no chargeability of capital gain u/s 45 of the act. Thus the provisions of Section 48 are also not triggered for this year. Therefore for assessment year 2005 06 there is no implication of provisions of Section 50C. The learned dispute resolution panel in paragraph number 2.5 has noted that assessee has failed to provide evidence to substantiate its claim of transfer of possession and final receipt of money in assessment year 2004 05 and as the property was registered on 23/4/2000 for i.e. during assessment year 2005 06, therefore, it confirmed the action of the learned assessing officer to tax capital gain in the assessment year 2005 06. DRP ignored the agreement to sell entered into by the assessee. Further if the learned DRP was of the view that capital gain is chargeable to tax in assessment year 2005 06, they should have directed the learned assessing officer to make the total addition of the capital gain in assessment year 2005 06. Even for ld AO and ld DRP it cannot act as deterring fact that capital gain is offered by assessee in AY 2004-05, those authorities are required to tax correct income in right hands for right assessment year. Therefore, there is a contradiction in the direction of the learned dispute resolution panel. No reason to uphold the reopening of the assessment as well as addition on merits for the reason that - i. there was no transfer of any capital asset during assessment year 2005 06 but in assessment year 2004 05. j. The capital gain has already been charged to tax by the learned assessing officer by passing an order u/s 143 (3) of the act for assessment year 2004 05. k. The provisions of Section 50 C can be applied in the year in which provisions of Section 45, 48 read with Section 2 (47) of the act are triggered. In this case the provisions of Section 45, 48 and 2 (47) of the act are triggered in assessment year 2004 05 whereas the learned assessing officer has invoked the provisions of Section 50 C of the act for assessment year 2005 06. l. There was no failure on part of the assessee at least for AY 2005-06, in disclosing fully and truly all material facts, as there was no Transfer u/s 2 (47), nothing was chargeable u/s 45 and therefore no computation was to be made u/s 48 and therefore there is no applicability of section 50C in the year which is reopened by AO.

Summary

Issues Involved:
1. Reopening of the assessment under Section 148 of the Income Tax Act.
2. Application of Section 50C for the computation of capital gains.
3. Validity of the transfer of property under Section 2(47) of the Income Tax Act.

Issue-wise Detailed Analysis:

1. Reopening of the Assessment under Section 148:
The assessee, a branch of a foreign bank, contested the reopening of the assessment for the Assessment Year (AY) 2005-06. The reopening was based on a survey conducted on 13th May 2010, which revealed that a property sold by the assessee had a market value higher than the sale consideration as per the stamp duty law. The assessee argued that the property transfer occurred in AY 2004-05, as the agreement to sale and possession transfer happened in August 2003, and capital gains were already offered and assessed for AY 2004-05. The Tribunal noted that the reassessment notice under Section 148 was issued for AY 2005-06, based solely on the registration date of the sale deed in April 2004, without considering the actual transfer date under Section 2(47) of the Act. The Tribunal found no failure on the part of the assessee to disclose material facts for AY 2005-06, thus quashing the reopening of the assessment.

2. Application of Section 50C for Computation of Capital Gains:
The Tribunal examined whether the provisions of Section 50C, which substitute the fair market value for the actual sale consideration for stamp duty purposes, were applicable for AY 2005-06. The Tribunal concluded that since the transfer of the property occurred in AY 2004-05, the provisions of Section 50C could not be invoked for AY 2005-06. The capital gains were already assessed in AY 2004-05, and the addition made by the Assessing Officer (AO) for AY 2005-06 was merely the difference between the sale consideration and the stamp duty value, without a proper computation of capital gains for that year.

3. Validity of the Transfer of Property under Section 2(47):
The Tribunal analyzed the transfer of property under Section 2(47) of the Act, which includes any transaction involving the possession of immovable property in part performance of a contract as per Section 53A of the Transfer of Property Act. The Tribunal found that the agreement to sale, full receipt of consideration, and possession transfer occurred in AY 2004-05, thus constituting a transfer under Section 2(47). The Tribunal dismissed the Revenue's reliance on the Supreme Court's decision in Suraj Lamp & Industries (P.) Ltd. vs. State of Haryana, clarifying that the decision pertained to the Transfer of Property Act and not the Income Tax Act. The Tribunal held that the capital gains were rightly chargeable in AY 2004-05, not AY 2005-06.

Conclusion:
The Tribunal allowed the assessee's appeal, quashing the reopening of the assessment for AY 2005-06 and deleting the addition made on merits. The Tribunal emphasized that the transfer of property and the corresponding capital gains were correctly accounted for in AY 2004-05, and the provisions of Section 50C were not applicable for AY 2005-06. The order was pronounced on 27.01.2022.