2015 (2) TMI 371 - HC - Income Tax

Reopening of assessment - re-computation of the capital gain on the basis of the 'Will' - Held that - No reason to believe that true and full disclosure was not made by the assessee to come out from the bar of four years as provided by first proviso to section 147 of the Act. For an asset acquired prior to 1.4.1981 the indexed cost of acquisition would be the cost of acquisition multiplied by the ratio of the Cost Inflation Index in the year in which assessee's asset is transferred to the Cost of Inflation Index for the year beginning on 1.4.1981. It was therefore, that the Tribunal in our opinion correctly held that the indexed cost of acquisition shall have to be worked out with reference to 1.4.1981 since in the present case the asset was acquired by the previous owner of the property. There is nothing on record to show on what basis the Assessing Officer adopted the cost of acquisition of the property at 15.63 lakhs as on 23.5.1995. In the assessment year there is no indication whatsoever on what basis the Assessing Officer arrived at such a figure. Counsel doing some guess work submitted that the said figure may have been indicated in the sale deed itself or may have been the amount on which necessary stamp duty for the purpose of registration of the gift deed might have been computed. In absence of any provision in the Act enabling the Assessing Officer to adopt either of the said figures as the cost of acquisition of the property on the date of gift, simply cannot be accepted. - Decided in favour of assessee.

Summary

Issues Involved:
1. Reopening of assessment after four years.
2. Requirement of full and true disclosure by the Assessee.
3. Validity of reasons recorded for reopening the assessment.
4. Interpretation of Section 147 and its proviso.
5. Application of Section 49 and Section 48 regarding capital gains.

Detailed Analysis:

1. Reopening of Assessment After Four Years:
The Court noted that the period of four years from the end of the assessment year had expired when the assessment was proposed to be reopened. According to proviso (1) to Section 147 of the Income Tax Act, assessment can be reopened after four years only if there was a failure on the part of the Assessee to disclose fully and truly all material facts necessary for the assessment.

2. Requirement of Full and True Disclosure by the Assessee:
The Assessee had mentioned the statement of long-term capital gain, including the date of purchase and the sale deed, in the return of income. The Court observed that the details pertaining to the transaction of the sale of the property were produced during the original assessment. The Court emphasized that for invoking the powers under Section 147, it is necessary for the competent authority to record reasons for the opinion that there was escapement of income. No such specific reasons were recorded by the respondent.

3. Validity of Reasons Recorded for Reopening the Assessment:
The Court found that the reasons recorded by the respondent did not clearly express that there was escapement of income. The re-computation of the capital gain based on the 'Will' was considered as the basis. The Court highlighted that the competent authority must record reasons that there was a failure on the part of the Assessee to declare true and material facts for the assessment, which was not done in this case.

4. Interpretation of Section 147 and Its Proviso:
The Court referred to the case of Sky Diamonds Vs. Assistant Commissioner of Income Tax, which dealt with the bar of four years provided by the first proviso to Section 147. The Court reiterated that unless the case falls within the exceptional category of "failure to disclose fully and truly all material facts necessary for the assessment," the action after the expiry of four years for reopening the assessment is not permissible. The Court found that the Assessee had made full and true disclosures, and therefore, the bar of four years would apply.

5. Application of Section 49 and Section 48 Regarding Capital Gains:
The Court referred to the decision in Commissioner of Income Tax Vs. Rajesh Vithalbhai Patel, which interpreted the deeming fiction of Section 49. The Court concluded that when the property is acquired through modes specified under Section 49(2) by gift or 'Will,' the cost of acquisition shall be the date on which the property was acquired by the previous owner. The Court found that the indexed cost of acquisition should be worked out with reference to 1.4.1981, as the asset was acquired by the previous owner. The Court concluded that there was no escapement of income for assessment on merits.

Conclusion:
The Court held that the action for reopening the assessment after four years was without jurisdiction as there was no failure on the part of the Assessee to disclose fully and truly all material facts necessary for the assessment. The impugned Notice and the subsequent actions were quashed and set aside. The petition was allowed, and no order as to costs was made.