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2016 (5) TMI 408 - AT - Income TaxReopening of assessment - exemption u/s. 54F disallowed - Held that - As from the provisions of section 54F(4) of the Act that in any case the claim of exemption u/s. 54F could not be disturbed in A.y 2005-06 even if the construction of residential house has not been completed by the assessee within 3 years from the date of transfer. Accordingly, the basic reason on an issue for which the assessment was re-opened fails. Hence, any addition made other than the reason for which the assessment was reopened would also automatically fail as the assumption of jurisdiction itself fails on the part of the ld.AO. This issue is now well settled by the decision of the Hon ble Bombay High Court in the case of CIT Vs. Jet Airways (I) Ltd reported in (2010 (4) TMI 431 - HIGH COURT OF BOMBAY ) Respectfully following the aforesaid judicial precedents, we have no hesitation to quash the re-assessment proceedings on the ground that there was no tangible material with the ld.AO for initiation of re-assessment proceedings. We also find that in view of provisions of section 54F(4) r.w. proviso thereon, there is no scope for making any addition in A.y 2005-06. Hence, there could not be any reason to believe that income has escaped assessment for the A.y 2005-06. - Decided in favour of assessee
Issues Involved:
1. Validity of reassessment proceedings initiated under section 147/148 of the Income Tax Act, 1961. 2. Denial of exemption under section 54F of the Income Tax Act, 1961. 3. Addition towards deemed dividend under section 2(22)(e) of the Income Tax Act, 1961. Issue-wise Detailed Analysis: 1. Validity of Reassessment Proceedings Initiated Under Section 147/148: The first issue pertains to the validity of reassessment proceedings initiated under section 147 of the Income Tax Act, 1961. The assessee argued that the reassessment proceedings were without jurisdiction, illegal, and void ab initio. The reassessment was initiated based on the observation that the assessee claimed exemption under section 54F for the purchase of land, which was not permissible as the exemption is granted for buying or constructing a house. The Assessing Officer (AO) reopened the case under section 147 on the grounds that the construction of the house was not completed within three years. The assessee contended that the AO did not possess any fresh tangible material or information subsequent to the original assessment under section 143(1). The Tribunal found that the AO merely reviewed the assessment folder without any new tangible material, which is impermissible as per the decision of the Hon’ble Delhi High Court in CIT vs. Orient Craft Ltd. The Tribunal concluded that there was no valid reason to reopen the assessment for the year 2005-06, and hence, the reassessment proceedings were quashed. 2. Denial of Exemption Under Section 54F: The second issue involves the denial of exemption under section 54F of the Income Tax Act, 1961. The AO denied the exemption on the grounds that the assessee did not complete the construction of the house within three years from the date of sale of shares. The assessee argued that the investment in land and initial payment to the developer for constructing a house were made within the stipulated time. The Tribunal noted that even if the construction was not completed within three years, the exemption under section 54F could not be disturbed for the assessment year 2005-06. The Tribunal referred to the provisions of section 54F(4) and the decision of the Hon’ble Delhi High Court in CIT vs. Kuldip Singh, which support the view that the exemption cannot be withdrawn merely because the construction was not completed within the specified period. Consequently, the Tribunal held that the denial of exemption under section 54F was not justified. 3. Addition Towards Deemed Dividend Under Section 2(22)(e): The third issue concerns the addition towards deemed dividend under section 2(22)(e) of the Income Tax Act, 1961. The AO made an addition of ?3,40,049/- towards deemed dividend. The assessee contended that the amount was transferred by Allahabad Bank from the cash credit account of Hollywood Textiles Pvt. Ltd. to the assessee’s savings account, and it was not a loan or advance. The Tribunal observed that the assessee failed to produce any documentary evidence from Allahabad Bank confirming the submission. As a result, the Tribunal upheld the addition towards deemed dividend. Conclusion: The Tribunal allowed the appeal of the assessee, quashing the reassessment proceedings on the grounds of lack of tangible material for initiating reassessment. Consequently, the other grounds on merits became infructuous. The Tribunal’s order was pronounced in open court on 29-03-2016.
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