1986 (3) TMI 133 - AT - Income Tax

Issues Involved:
1. Validity of reassessment under Section 147(a) and Section 147(b).
2. Assessability of capital gains and quantum of capital gains.
3. Levy of interest under Section 139(8).

Detailed Analysis:

1. Validity of Reassessment under Section 147(a) and Section 147(b):

The primary issue in the appeal was whether the reassessment proceedings initiated by the Income Tax Officer (ITO) under Section 147(a) were valid. The assessee had filed a return of income on 17th Dec., 1974, which included a statement showing the computation of capital gains from the sale of land and claimed exemption for the capital gain of Rs. 42,290 and agricultural income of Rs. 3,000. The original assessment was completed on 20th Dec., 1979, under Section 143(1) without assessing the capital gains or agricultural income.

The Revenue Audit Party later opined that the capital gains should have been taxed, prompting the ITO to issue a notice under Section 154, which was subsequently dropped. Another notice under Section 148 was issued under Section 147(a), leading to reassessment. The ITO recomputed the total income, including the capital gains, as per the order dated 20th Dec., 1979.

The AAC concluded that there was no case for action under Section 147(a) since the assessee had disclosed all relevant facts in the original return and statement. The ITO's action was seen as an attempt to rectify a mistake from the original assessment, which is not permissible under Section 147(a). The AAC, therefore, canceled the reassessment order.

The Revenue argued that even if Section 147(a) was not applicable, Section 147(b) should be considered, as the ITO had received information post-assessment indicating that income had escaped assessment. The assessee contended that all material facts were disclosed initially, and a change of opinion on the same facts could not justify reassessment under Section 147(b).

Upon review, it was held that the reassessment could be upheld under Section 147(b). The ITO had informed himself of the correct position from the facts already on record, which constituted "information" under Section 147(b). The reassessment was thus deemed valid.

2. Assessability of Capital Gains and Quantum of Capital Gains:

The reassessment included the computation of capital gains from the sale of land. The ITO recomputed the total income by including the capital gains of Rs. 42,290 after deducting the cost of land and development charges. The assessee had initially claimed the cost of land at Rs. 6 per sq. yard based on a government valuer's certificate. The ITO, however, included the capital gains in the reassessment order.

The AAC did not address the merits of the capital gains assessability or the quantum assessed, as the reassessment itself was struck down as invalid. With the reassessment restored as valid, these objections were remitted back to the AAC for fresh consideration and disposal in accordance with the law.

3. Levy of Interest under Section 139(8):

The issue of interest levy under Section 139(8) was also raised. Since the AAC had invalidated the reassessment, this issue was not adjudicated. However, with the reassessment restored, the AAC was directed to consider this objection afresh, along with the assessability and quantum of capital gains.

Conclusion:

The Revenue's appeal was allowed, validating the reassessment under Section 147(b). The objections raised by the assessee regarding the assessability and quantum of capital gains, and the levy of interest under Section 139(8), were remitted back to the AAC for fresh adjudication. The Cross Objection of the assessee was deemed allowed for statistical purposes.

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