2022 (8) TMI 859 - AT - Income Tax

Reopening of assessment u/s 147 - reassessment triggered on the basis of audit objection - HELD THAT - We find that the regular assessment was framed u/s 143(3) and the case was reopened within 4 years. There is nothing on record which would show that any such verification of examination was carried out by Ld. AO during regular assessment proceedings. The proceedings were triggered on the basis of Audit Objection which certainly constitutes information . As long as there is independent application of mind by Ld. AO to arrive at conclusion that there was escapement of income, this information could certainly be utilized to arrive at this formation of belief. The case laws as cited by the Ld. CIT(A) duly support the validity of reassessment proceedings. We are in complete agreement with the adjudication of Ld. CIT(A), in this regard, in the impugned order. Ground Nos. 1 to 5 stands dismissed. Deduction u/s 54 - legal impact of unregistered Joint Development Agreement - whether the assessee could be granted deduction u/s 54 merely on the basis of unregistered Agreement to Sale couple with possession which never fructified into registered Sale Deed till date? - HELD THAT - The provisions of Sec.54 enable the assessee to claim deduction of Long-Term Capital gains provided the assessee, within specified period, purchases or construct a residential house. The term purchase, in our considered opinion, has to be absolute purchase since the object of the beneficial provision is to encourage investment in housing. An agreement to sale, till it translates into conveyance of full ownership rights, by way of registered documents, is merely an agreement and do not result into transfer of ownership absolute. It only given partial rights out of bundle of rights to the parties intending to purchase the property. However, till actual conveyance happens, it could not be said that the assessee has purchased the houses property. Another fact to be noted is that the agreement has never fructified into registered sale deed till date despite the fact that the assessee has paid full consideration of Rs.165 Lacs and the document was executed on 30-03-2012. No valid circumstances which have impeded the registration of final deed have been adduced by the assessee. This agreement is unregistered one and therefore, the adjudication of Hon ble Supreme Court in the case of CIT vs. Balbir Singh Maini 2017 (10) TMI 323 - SUPREME COURT would apply wherein it was held that fulfilment of Sec.53A of Transfer of Property Act itself was not enough to consider a transfer within the meaning of Sec. 2(47) - Also after the commencement of amendment act, 2001, an unregistered agreement would have no effect in law for the purposes of Sec.53A - there is would be no agreement in the eyes of law which could be enforced u/s 53A of the Transfer of Property Act. In order to qualify as a transfer u/s 2(47)(v), there must be contract which could be enforced in law u/s 53A of Transfer of Property Act. A reading of Section 17(1A) and Sec.49 of the Registration Act shows that in the eyes of law, there is not contract which could be taken cognizance of for the propose specified in Sec.53A. Therefore, the unregistered document as entered into by the assessee could not be considered as fulfilment of requirement of Sec.54. Therefore, the adjudication of lower authorities on merits could not be faulted with.

Summary

Issues Involved:

1. Validity of reassessment proceedings under Section 147 of the Income Tax Act.
2. Denial of deduction under Section 54F of the Income Tax Act.
3. Alleged violation of principles of natural justice.

Detailed Analysis:

Validity of Reassessment Proceedings:

The appellant challenged the reassessment proceedings on the grounds that they were initiated based on audit objections, constituting a mere change of opinion. The CIT(A) rejected this argument, stating that reassessment can be based on information from an audit party if factual errors or misapplications of law by the AO are identified. This stance was supported by decisions from the Hon'ble High Court of Madras in CIT V/s First Leasing Co. of India Ltd. (241 ITR 248) and the Hon'ble Supreme Court in CIT V/s PVS Beedies Pvt. Ltd. (237 ITR 13). It was further noted that no such verification was done during the original assessment, negating the claim of a change of opinion. The Tribunal upheld this view, agreeing with the CIT(A) that the reassessment was valid as it was based on new information and involved independent application of mind by the AO.

Denial of Deduction under Section 54F:

The core issue was whether the appellant could claim deduction under Section 54F based on an unregistered Agreement to Sale coupled with possession, which had not resulted in a registered Sale Deed. The appellant had entered into an agreement for purchasing a flat but had not completed the registration process. The AO denied the deduction, relying on the Supreme Court's decision in CIT vs. Balbir Singh Maini, which clarified that an unregistered agreement has no legal effect for the purposes of Section 53A of the Transfer of Property Act post the 2001 amendments. The Tribunal concurred, stating that the term 'purchase' in Section 54 requires a registered conveyance of full ownership rights. Since the appellant's agreement remained unregistered, it did not fulfill the conditions for claiming the deduction under Section 54F. However, the Tribunal directed the AO to verify the exact amount of deduction claimed and restrict the addition accordingly.

Alleged Violation of Principles of Natural Justice:

The appellant claimed a violation of natural justice principles, arguing that they were not given a proper opportunity to present their case. The Tribunal found this claim unsubstantial, noting that adequate opportunities had been provided to the appellant during the proceedings.

Conclusion:

The Tribunal upheld the validity of the reassessment proceedings and the denial of deduction under Section 54F due to the unregistered nature of the agreement. The appeal was partly allowed to the extent of verifying and restricting the addition to the actual deduction claimed by the appellant. The claim of violation of natural justice was dismissed as baseless.

Order Pronounced:

The appeal was partly allowed, with the order pronounced on 17th August 2022.