2023 (11) TMI 131 - HC - Income Tax

Reopening of assessment - validity of notice u/s 148A - computation of capital gain - As per AO petitioner has receipts in the AY which is applied towards incurring certain expenditure but has not declared the same by filing ITR, and therefore, there is escapement of tax - HELD THAT - The petitioner, in furnishing details of the cost of improvement as expenses incurred , has referred to the cost of construction incurred by the builder. If the petitioner could indeed justify that there was no actual income/ receipt or expenditure but has claimed the cost incurred by the builder towards the construction of the units allotted to him under the Joint Development Agreement and sold for deduction u/s 148, such justification be specifically considered and reasoned why, despite there being no income, there would be escape of income justifying reopening of the assessment u/s 147 and 148 - This Court must opine that the petitioner is categorical that he has not received any income in the AY 2016-17 but has claimed a notional expenditure in the next Assessment Years while declaring capital gain, the merit of such claim should be considered before concluding that there is escapement of tax. FAA has not considered this material circumstance, and therefore, there must be interference by this Court to restore the proceedings for reconsideration. The petition is allowed, and the impugned order u/s 148A d is quashed. The proceedings are restored for consideration.

Summary

Issues involved:
The judgment concerns a challenge to an order under Section 148A[d] of the Income Tax Act, 1961 for the Assessment Year 2016-17, involving the petitioner's Joint Development Agreement and subsequent partition deeds, along with the re-assessment reasons provided by the first respondent.

Details of the Judgment:

1. The petitioner, along with family members, entered into a Joint Development Agreement for land in Bengaluru. Subsequently, partition deeds were executed, and residential units were transferred during the financial years 2016-17 and 2017-18.

2. The first respondent issued a notice under Section 148A[b], citing lack of clarifications on improvement details and non-compliance with tax provisions related to the Joint Development Agreement. The undisclosed amount was to be taxed for AY 2016-17.

3. The first respondent's order indicated that income had escaped tax in 2016-17 due to the petitioner claiming expenses without filing Income-tax Returns for that year. However, the petitioner's response highlighted the cost of construction incurred by the builder and rectified fair market value claims.

4. The petitioner emphasized that the low claim in the original return was misinterpreted by the official, leading to the assumption of income escapement. The petitioner asserted no actual income in 2016-17 but claimed expenditure in subsequent years.

5. The Court noted the need for specific consideration of the petitioner's justifications before concluding income escapement, directing a reevaluation of the proceedings based on the observations made.

6. The judgment allowed the petition, quashing the impugned order under Section 148A[d] and restoring the proceedings for reconsideration. The notice under Section 148 of the IT Act was also quashed, granting the petitioner the liberty to file additional replies within a specified timeframe.