2024 (8) TMI 1081 - HC - Income Tax

Reopening of assessment u/s 147 - Capital gain on sale of land - Apportionment of income between spouses governed by Portuguese Civil Code - as argued petitioner only had a 50% share in the properties since the original petitioner and her late husband were governed by the Portuguese Civil Code applicable to the residents of Goa - HELD THAT - The husband of the original petitioner had already passed away in the year 1986 and hence there was no question of the original petitioner being governed by Section 5A of the IT Act which is applicable only to the division of incomes between the spouses who are governed by the Portuguese Civil Code. Section 5A does not deal with the division of assets. Hence, the question of stating that the original petitioner was governed by the provisions of Section 5A of the IT Act does not arise. In our view, therefore, the original petitioner could not be governed by the provisions of Section 5A of the IT Act. We find that the substantive rights of the original petitioner were governed by the provisions of the Portuguese Civil Code. The fact that the original petitioner is governed by the Portuguese Civil Code has been duly brought before the respondents. In our opinion, mere non-mention of the same in the return of income would not give rise to a situation where the tax on the sale of property beyond the share of the original petitioner could be taxed in her hands. The respondents do not appear to have disputed that the original petitioner was indeed governed by the provisions of the Portuguese Civil Code and this was already on record of the Revenue (Exhibit E/97). Moreover, the petitioner's husband had passed away way back in the year 1986 and the share of her husband had devolved from the date of his demise equally on his children. This position was also known to the Revenue when their return of income was filed. Reason cited by the Revenue for rejecting the explanation is, Copy of the Sale Deed was not available at the time of recording of reasons - We find that even such reasoning is fallacious and not tenable in law. The information from the office of the Sub-Registrar's for any registration is duly transmitted to the respondents. The execution of such Sale Deed was already on record. In such a case if the respondents fail to take note of the document which was available for transmission to the respondents from the Sub-Registrar's office, in our view, the assumption of jurisdiction will have to be regarded as erroneous. In any case, we find that at the time of passing of the order dated 16.07.2021, the Sale Deeds (which were available) ought to have been taken into consideration. Reopening notice quashed - Decided in favour of assessee.

Summary

Issues Involved:
1. Jurisdictional validity of the notice under Section 148 of the Income Tax Act, 1961.
2. Compliance with preconditions for initiating proceedings under Section 148.
3. Adequacy of material on record for reopening the assessment.
4. Disclosure of full and true material facts in the Return of Income (ROI).
5. Applicability of Section 5A of the Income Tax Act concerning the Portuguese Civil Code.

Issue-Wise Detailed Analysis:

1. Jurisdictional Validity of the Notice under Section 148:
The petitioner challenged the notice dated 28.05.2019 issued under Section 148 of the Income Tax Act, 1961, on the grounds of lack of jurisdiction. The court observed that the notice was issued without satisfying the preconditions required for initiating proceedings under Section 148, thus making it jurisdictionally invalid. The court relied on the precedent set in *Nivi Trading Ltd. V/s. Union of India*, emphasizing that the belief entertained by the Income Tax Officer must be reasonable and based on relevant and material reasons.

2. Compliance with Preconditions for Initiating Proceedings under Section 148:
The petitioner argued that the notice did not comply with the essential preconditions for initiating proceedings under Section 148. The court found that the reasons recorded for reopening the assessment contained patent errors, including the erroneous comparison of the total sale consideration and the petitioner's share. The court reiterated the legal position that reasons for reopening must be based on correct facts, as held in *Ankita A. Choksey V/s. Income Tax Officer & Ors.*

3. Adequacy of Material on Record for Reopening the Assessment:
The petitioner contended that the assessment was reopened without any substantial material on record. The court noted that the reasons recorded for reopening the assessment were based on incorrect comparisons and assumptions. The court emphasized that the validity of the notice for reopening must be examined based on the reasons recorded at the time of issuing the notice, as established in *Smt Nirupa Udhav Pawar & Anr. V/s. The Assistant Commissioner of Income Tax & Ors.*

4. Disclosure of Full and True Material Facts in the ROI:
The Revenue alleged that the petitioner failed to disclose fully and truly all material facts in her ROI. However, the court found that the petitioner had disclosed her 50% share in the properties as per the Portuguese Civil Code, and the sale consideration corresponding to her share had been duly offered in the ROI. The court concluded that there was no escapement of income, and the recorded reasons for reopening the assessment were erroneous.

5. Applicability of Section 5A of the Income Tax Act Concerning the Portuguese Civil Code:
The petitioner argued that she and her late husband were governed by the Portuguese Civil Code, which affected the division of income and assets. The court found that Section 5A of the Income Tax Act, which deals with the apportionment of income between spouses, was not applicable in this case as the petitioner's husband had passed away in 1986. The court held that the original petitioner could not be governed by Section 5A and that her substantive rights were governed by the Portuguese Civil Code.

Conclusion:
The court quashed and set aside the notice dated 28.05.2019 and the order dated 16.07.2021 due to jurisdictional errors and the failure of the respondents to consider the correct facts and material on record. The petition was allowed in terms of prayer clause (a), and no order as to costs was made.