2016 (1) TMI 71 - AT - Income Tax

Reopening of assessment - addition of capital gain - Held that - Return of income was duly processed and accepted u/s 143(1). Later on, ITO, E 20(3)(4) Mumbai issued a letter dated 03.07.2008 requiring the assessee to furnish certain information which included details of transaction of sale and purchase made by the society in respect of immovable property. In reply, the assessee had submitted the entire details vide letter dated 18th July,2008 and 4th August, 2008 giving the entire details of permission sought from Dy. Registrar Co-op Society authorizing the sale of FSI, and also gave the copy of direction of the Dy Registrar to utilize the fund for specific purpose . After having received this information, the assessee s case was not selected for scrutiny and time limit for issuance of notice u/s 143(2) had expired on 30.09.2008. Again a summon was issued by the Investigation on 27.01.2010, mainly requiring the assessee to furnish copy of income-tax return furnished for the last five years and bank statement. Again in response to said summon, the assessee submitted all the requisite details. Now, after all these exercise of seeking information which was already there on record and without there being any tangent material coming on record, the assessee s case was sought to be reopened on the ground that assessee has received ₹ 1 crore during the relevant financial year from sale of FSI and the entire amount claimed as deduction cannot be allowed. There is no reference in the reasons recorded about any material or information coming on record to show that assessee s claim for deduction is either not tenable or is incorrect and therefore, income chargeable to tax has escaped assessment. Here it is not a question of purely change of opinion , on the ground that earlier assessment was completed u/s 143(3) albeit the issue is, when the assessee has made full disclosure in the return of income which has been enquired upon by the Department twice and no further action has been taken, then, without there being any contrary or adverse material on record, reopening u/s 147 can be made without any tangent material indicating escapement of income. There cannot be reason to believe on the same set of facts and record, which has been subjected to examination by different Departmental authorities. - Decided in favour of assessee

Summary

Issues Involved:
Validity of reopening of the case under section 147/148 of the Income Tax Act, 1961 and addition of long-term capital gain to the total income.

Detailed Analysis:

1. Validity of Reopening under Section 147/148:
The appellant, a cooperative industrial society, challenged the reopening of its case under section 147/148. The appellant had disclosed long-term capital gains in its return of income, which was duly processed under section 143(1). Despite providing detailed information and responses to departmental queries, the case was reopened based on the claim of deduction of the entire amount received from the sale of FSI. The appellant argued that no new material or adverse information had emerged to justify the reopening. The Tribunal held that without any tangible material indicating income escapement, the reopening lacked jurisdiction. It emphasized that the Assessing Officer must have a valid "reason to believe" supported by relevant and rational material, which was absent in this case. As a result, the Tribunal deemed the reopening and subsequent assessment as void ab initio and quashed the assessment order.

2. Addition of Long-Term Capital Gain:
The appellant justified the deduction of long-term capital gain by asserting a diversion of income by overriding title due to urgent repairs needed in the society's building. The appellant contended that the funds from the sale of FSI were earmarked for specific repairs as per the permission granted by the Dy. Registrar of Cooperative Societies. Citing relevant case laws, the appellant argued that the amount received was not liable for inclusion in the total income due to the overriding title. However, both the Assessing Officer and the CIT(A) rejected these contentions. The Tribunal, while allowing the appeal on the validity of reopening itself, did not delve into the merits of the long-term capital gain addition due to the lack of jurisdiction for the reopening.

In conclusion, the Tribunal allowed the appeal of the appellant solely on the ground of the invalidity of the reopening under section 147/148, leading to the quashing of the assessment order. The judgment underscores the importance of a valid "reason to believe" supported by tangible material for reopening assessments, highlighting the jurisdictional aspect crucial in such cases.