2015 (2) TMI 548 - AT - Income Tax

Validity of reopening of assessment - assessee has offered capital gain from the sale of immovable property in the assessment year 2008-09 - Held that - Since the assessee has not filed any return of income for the assessment year under consideration despite having entered into sale agreement for the flat in question, therefore, we are of the view that the Assessing Officer had valid and cogent reason and tangible material to believe that the income chargeable to tax has escaped assessment by reasons of failure on the part of the assessee to furnish truly and fully all material facts necessary for assessment. Accordingly, we do not find any merit or substance in the objection of the assessee against the validity of reopening of assessment Capital asset in relation to the flat to be constructed in the Roshni Co-operative Housing Society - short-term capital gain v/s long-term capital gain - whether transfer by the assessee was vide agreement dated October 21, 2004, or completed only on completion of construction and handing over the possession of the said flat to the purchaser and receipt of balance sale consideration? - Held that - The assessee acquired the flat in the society on September 8, 2003 and transferred all rights in the said flat including the right to acquire the newly constructed flat vide agreement dated October 21, 2004, therefore, the capital asset has been transferred by the assessee within the period of 36 months from the date of purchase and hence the profit/gain on said asset will be short-term capital gain and not long-term capital gain. The deferment in payment of sale consideration for the reason of enforcement of the terms and conditions of the agreement and right of the parties is not material when there was no subsequent transfer of title either intended or actually taken place. In view of the above discussion and facts and circumstances of the case we hold that the transaction of transfer of capital asset in question was completed vide agreement dated October 21, 2004. It is not the case where in the case of the brother of the assessee was examined for the assessment year 2005-06 and accepted the claim that no capital gain arose in the said assessment year. In fact, there was no return of income filed by the assessee as well as no order of assessment in the case of the brother of the assessee, therefore, mere offering of the capital gain for the assessment year 2008-09 by the brother of the assessee will have no bearing or impact on the assessment in the case of the assessee for the assessment year 2005-06. The learned authorised representative has relied upon the various decisions on the point of deemed transfer under section 2(47)(v), we find that those decisions are not applicable in the peculiar facts of the case in hand. Therefore, we uphold the order of the authorities below on this issue. Applicability of section 50C - Held that - When the agreement itself is subjected to stamp duty and valuation of the capital asset being transfer then the value determined by the DVO at the request of the assessee is justified at ₹ 1.59 crores. Section 50C is applicable in the case because the agreement itself is subjected to valuation under stamp duty valuation authority. Accordingly, we do not find any merit in the objection of the assessee regarding applicability of section 50C. Levy of interest under sections 234A and 234B is mandatory and consequential and no separate finding in this regard is required. - Appeal decided against assessee.

Issues Involved:
1. Validity of reopening of assessment under section 147.
2. Assessment of total income at Rs. 49,91,250.
3. Classification of capital gain as short-term or long-term.
4. Date of allotment and its implications on capital gain.
5. Reliance on the decision of CIT v. Tata Services Ltd.
6. Fair market value determination under section 55A read with section 50C.
7. Levy of interest under sections 234A and 234B.

Detailed Analysis:

1. Validity of Reopening of Assessment under Section 147:
The assessee did not file a return of income for the assessment year 2005-06. Based on information from the Annual Information Report, the Assessing Officer (AO) found that the assessee sold/purchased immovable property valued at Rs. 1.55 crores. The AO issued a notice under section 148, recording reasons to believe that income chargeable to tax had escaped assessment due to the assessee's failure to disclose material facts. The assessee did not file the return within the requested extension period, leading the AO to frame the assessment under section 144 read with section 147, assessing the total income at Rs. 49,91,250, inclusive of short-term capital gain of Rs. 47,30,850 from the sale of immovable property. The Commissioner of Income-tax (Appeals) dismissed the objection against the reopening of the assessment. The tribunal upheld the validity of reopening, noting that the AO had tangible material and information to believe that income chargeable to tax had escaped assessment.

2. Assessment of Total Income at Rs. 49,91,250:
The AO assessed the total income at Rs. 49,91,250, which included a short-term capital gain of Rs. 47,30,850 from the sale of immovable property. The tribunal noted that the assessee did not file any return of income for the assessment year under consideration and did not dispute the transactions of sale and purchase of the immovable property.

3. Classification of Capital Gain as Short-Term or Long-Term:
The assessee purchased flat No. 3 in Roshni Co-operative Housing Society in 2003 and entered into an agreement to sell the flat in 2004. The AO assessed the gain arising from the sale as short-term capital gain. The assessee contended that the transaction was not completed during the year under consideration and declared the gain as long-term capital gain in the assessment year 2008-09. The Commissioner of Income-tax (Appeals) held that the agreement dated October 21, 2004, vested the right to conveyance in the purchaser, making the gain short-term. The tribunal agreed, noting that the capital asset was transferred within 36 months from the date of purchase, resulting in short-term capital gain.

4. Date of Allotment and Its Implications on Capital Gain:
The Commissioner of Income-tax (Appeals) held that the date of allotment (October 21, 2004) was when the right of conveyance vested, making the gain arising on the sale of the property short-term. The tribunal upheld this view, stating that the agreement gave the purchaser the right to take conveyance of the property, making it a capital asset under section 2(14) of the Act.

5. Reliance on the Decision of CIT v. Tata Services Ltd.:
The Commissioner of Income-tax (Appeals) relied on the decision of CIT v. Tata Services Ltd., which held that the word "property" in section 2(14) of the Income-tax Act includes any right which can be called property. The tribunal upheld this reliance, noting that the right to acquire a flat is a capital asset and the profit on its transfer is assessable as capital gain.

6. Fair Market Value Determination under Section 55A Read with Section 50C:
During the assessment proceedings, the AO referred the property to the Valuation Officer under section 55A. The DVO valued the property at Rs. 1.59 crores, which the AO adopted for computing the short-term capital gain. The tribunal found that section 50C was applicable as the agreement was subjected to stamp duty valuation, justifying the DVO's valuation.

7. Levy of Interest under Sections 234A and 234B:
The tribunal noted that the levy of interest under sections 234A and 234B is mandatory and consequential, requiring no separate finding.

Conclusion:
The tribunal dismissed the appeal of the assessee, upholding the validity of the reopening of the assessment, the classification of the gain as short-term capital gain, the applicability of section 50C, and the levy of interest under sections 234A and 234B. The order was pronounced in the open court on September 19, 2014.

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