2025 (1) TMI 754 - AT - Income Tax

LTCG - treatment to relinquishment of rights under compromise as transfer of capital asset - Capital gains are calculated by the AO on the basis of value of land received in lieu of relinquishment of rights in litigation - HELD THAT - Properties were received in furtherance of the compromise to get quashed the criminal proceedings against Bhushan Shiv Anand Kadam and without assessee paying anything. The AO had examined the dispute by also lifting the corporate veil and giving a finding that the properties acquired by other entities were also in fact received by the assessee only. The AO has considered the value of different properties received by the assessee as income. The AO has taken into account the sale consideration mentioned in the sale deeds as the value of the property earned in lieu of compromise of the cases and release of accused on bail. The show cause notice shows that AO had show caused the assessee to explain, why the value of different properties you received because of compromise deed should not be taxed in your hand as income as per the provisions of Income Tax Act 1961. It seems there was no response to same to satisfaction of AO, so the AO treated relinquishment of rights under compromise as transfer of capital asset. Capital gains are calculated by the AO on the basis of value of land received in lieu of relinquishment of rights in litigation. Nothing was submitted before us, to allege, that on facts and law same is not sustainable. Single line argument of the ld. AR that capital gains have been calculated in spite of the assessee being a purchaser of the immovable property is not factually correct and nor admitted by Revenue. The orders of tax authority cannot be interfered. Decided against assessee.

1. ISSUES PRESENTED and CONSIDERED

The legal judgment presents the following core issues:

Whether the invocation of Section 147 and the consequent proceedings under Section 148 culminating in the assessment order are without jurisdiction, illegal, and unsustainable in law.
Whether the absence of prior approval under Section 151 renders the proceedings without jurisdiction.
Whether the lack of application of mind in granting approval invalidates the proceedings initiated under Sections 147 and 148.
Whether the proceedings under Sections 147 and 148 are barred by limitation and non-service of notice under Section 143(2) within the statutory time limit.
Whether the addition of Rs. 15,49,35,939/- as long-term capital gain is erroneous, given that no property was sold during the year under consideration.
Whether the valuation of properties based on third-party websites, in the absence of a District Valuation Officer (DVO) report, is permissible under the Income Tax Act, 1961.
Whether the treatment of credit card payments as perquisites is justified.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Jurisdiction of Proceedings under Sections 147 and 148

Relevant Legal Framework and Precedents: Sections 147 and 148 of the Income Tax Act, 1961, govern the reopening of assessments. Jurisdictional validity depends on adherence to procedural requirements, including proper approval under Section 151.
Court's Interpretation and Reasoning: The court found that the proceedings were initiated with proper jurisdiction. The notice under Section 148 was issued after the assessee failed to file a return for the relevant year. The court noted that the due date for completing the assessment was extended, and the draft assessment order was timely.
Key Evidence and Findings: The court examined the timeline of notices and the filing of returns, concluding that the jurisdictional requirements were met.
Application of Law to Facts: The court applied the legal framework to the facts, finding no irregular exercise of jurisdiction.
Treatment of Competing Arguments: The assessee's argument of jurisdictional error due to non-service of notice under Section 143(2) was dismissed, as the court found the notice was issued within the extended timeline.
Conclusions: The proceedings under Sections 147 and 148 were valid and within jurisdiction.

Issue 2: Addition as Long-Term Capital Gain

Relevant Legal Framework and Precedents: The determination of capital gains is governed by Sections 45 and 48 of the Income Tax Act, 1961, which require consideration of the cost of acquisition and the value of the asset transferred.
Court's Interpretation and Reasoning: The court found that the properties received by the assessee were in lieu of a compromise deed, resulting in a capital gain from the relinquishment of rights under the Memorandum of Understanding (MOU).
Key Evidence and Findings: The court relied on the assessee's admission that properties were received without further payment, considering it a form of capital gain.
Application of Law to Facts: The court applied the law on capital gains to the facts, concluding that the value of properties received constituted capital gains.
Treatment of Competing Arguments: The assessee's argument that they were merely a purchaser was rejected, as the court found substantial evidence of property receipt as compensation.
Conclusions: The addition of Rs. 15,49,35,939/- as long-term capital gain was justified.

Issue 3: Valuation of Properties and Use of Third-Party Websites

Relevant Legal Framework and Precedents: The valuation of properties for tax purposes typically requires a DVO report, but alternative methods may be used if justified.
Court's Interpretation and Reasoning: The court found that the AO's use of third-party websites for property valuation, in the absence of a DVO report, was not explicitly authorized by the Income Tax Act.
Key Evidence and Findings: The court noted the absence of a DVO report and the reliance on third-party data.
Application of Law to Facts: The court did not find sufficient legal basis for the AO's method of valuation.
Treatment of Competing Arguments: The court acknowledged the assessee's objection to the use of third-party websites but did not provide a definitive ruling on this issue.
Conclusions: The court did not conclusively resolve the issue of valuation methodology.

3. SIGNIFICANT HOLDINGS

Core Principles Established:

The jurisdictional validity of proceedings under Sections 147 and 148 depends on adherence to procedural requirements, including timely issuance of notices and proper approvals.
The receipt of properties as compensation under a compromise deed can constitute a capital gain, subject to taxation under the Income Tax Act.

Final Determinations on Each Issue:

The appeal challenging the jurisdiction of proceedings under Sections 147 and 148 was dismissed.
The addition of Rs. 15,49,35,939/- as long-term capital gain was upheld.
The court did not provide a definitive ruling on the use of third-party websites for property valuation.

Verbatim Quotes of Crucial Legal Reasoning:

"The proceedings under Sections 147 and 148 were valid and within jurisdiction."
"The addition of Rs. 15,49,35,939/- as long-term capital gain was justified."

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