2013 (7) TMI 407 - AT - Income Tax

Re opening of assessment second time - illegalities committed in the first reassessment - AO initiated proceedings for consideration of provisions of section 2(22)(e) - deemed dividend - tax the capital gains on sale of property - reference of matter to valuation officer - Held that - The assessee objected to for considering this head of income in that proceedings which the AO, vide detailed discussion rejected in that order. Therefore, as far as the issue of capital gains is concerned this also was subject matter of assessment vide order dated 24.03.2006. There is also no dispute that the AO referred the value of property sold to the DVO and left a note in the order itself that the sale consideration will be revised after receipt of DVO s report. This order of the AO was, however, quashed by the CIT(A) on 07.02.2007 on the reason that there are no valid reasons for reopening the assessment. This order of the CIT(A) was not challenged and was accepted by the Revenue. Therefore reopening the assessment again on 13.03.2007 (within two months or so of CIT(A) order) and issuance of notice dated 26.03.2007, just before the limitation of time getting barred, is only to overcome the first proceedings which were not held to be valid. Thus as seen from the facts of the case it is only to circumvent the illegality committed by the AO in the fist assessment proceedings he has recorded the reasons for initiating second time on an issue which was subject matter of assessment in the first reassessment proceedings. Once a proceeding in respect of an item other than the one mentioned in the notice u/s 148 has been taken into consideration and the same is subsequently not upheld in appeal, it is not possible to restart the proceedings in respect of the same item afresh. See Smt. Anchi Devi vs. CIT 2008 (3) TMI 49 - HIGH COURT PUNJAB AND HARYANA & Durgamba 1997 (7) TMI 49 - MADRAS High Court . There is merit in assessee s contention that the AO cannot refer the matter to substitute fair market value for full value of consideration received in the assessment order as provisions of section 50C are not applicable. Be that as it may, since the entire proceedings are considered to be bad in law, there is no need to adjudicate the grounds on merits and the additional grounds raised & the consequential order under section 154 by AO to substitute valuation officer s fair market value. In favour of assessee.

Summary

Issues Involved:
1. Jurisdiction of the Assessing Officer (AO) under sections 143(3) r.w.s. 147 and section 154.
2. Validity of the second reassessment proceedings.
3. Computation of capital gains and the applicability of section 50C.
4. Powers of the AO to refer the matter for revaluation.
5. Jurisdiction to rectify the order under section 154.

Issue-wise Detailed Analysis:

1. Jurisdiction of the Assessing Officer (AO) under sections 143(3) r.w.s. 147 and section 154:
The assessee filed a return of income declaring a loss, which was processed under section 143(1). The AO initiated proceedings under section 147 for examining deemed dividend under section 2(22)(e) and disallowance of interest, issuing a notice under section 148. The AO also examined capital gains on the sale of property, leading to a reassessment. The CIT(A) quashed the reassessment proceedings due to invalid reasons for reopening, which the Revenue did not appeal. Subsequently, the AO issued another notice under section 148 for the same capital gains issue, which the assessee contested.

2. Validity of the second reassessment proceedings:
The AO's second reassessment was initiated on the same issue of capital gains, which was already considered in the first reassessment. The CIT(A) upheld the second reopening, stating that the first reopening was not adjudicated on merits. However, the Tribunal found that the second reassessment was an attempt to circumvent the quashed first reassessment. Citing judgments like CIT vs. Rao Thakur Narayan Singh and Manoo Lal Kedarnath vs. Union of India, the Tribunal held that reopening the assessment on the same grounds was invalid.

3. Computation of capital gains and the applicability of section 50C:
The AO computed capital gains by allowing indexation and brought the gains to tax. The AO noted that the sale price would be modified based on the DVO's valuation report. The CIT(A) confirmed the capital gains calculation. However, the Tribunal found that since the second reassessment proceedings were invalid, there was no need to adjudicate the capital gains issue. Additionally, the Tribunal noted that section 50C was not applicable for the impugned assessment year.

4. Powers of the AO to refer the matter for revaluation:
The AO referred the property valuation to the DVO, which was contested by the assessee. The Tribunal found merit in the assessee's contention that the AO could not substitute 'fair market value' for 'full value of consideration received' as per section 50C, which was not applicable. However, since the entire proceedings were invalid, this issue became academic.

5. Jurisdiction to rectify the order under section 154:
The AO received the DVO's valuation report and modified the capital gains under section 154. The CIT(A) upheld this modification, stating that the assessee had accepted the note in the assessment order. The Tribunal, however, found that since the second reassessment proceedings were invalid, the rectification under section 154 was also invalid. Additionally, the Tribunal noted that the AO did not have the power to refer the matter to the valuation officer for the relevant assessment year.

Conclusion:
The Tribunal set aside the orders of the AO and CIT(A) on the issue of jurisdiction, holding the second reassessment proceedings to be invalid. Consequently, there was no need to adjudicate the merits of the capital gains and the reference to the valuation officer. Both appeals of the assessee were allowed.

Order pronounced in the open court on 8th May, 2013.