2017 (3) TMI 268 - HC - Income Tax

Reopening of assessment - capital gain addition - transfer of land - Held that - The sale deed has been executed by the petitioners on 27.03.2008. The sale consideration has been received by the petitioner on 27.03.2008 and the possession has also been handed over on 27.03.2008. Thus, the transfer of land has been taken place on 27.03.2008 when the sale deed has been executed. Therefore, it can be said that income has arisen in the AY 2008-09 and therefore, if at all any income has escaped assessment, the same can be said to be in AY 2008-09. By impugned notice, assessment for AY 2009-10 is sought to be reopened on the ground that income chargeable to tax has escaped assessment in 2009-10. When, it was pointed out to AO that the transfer had taken place on 27.03.2008 and therefore, it can be said that the income has arisen in the year 2008-09 and therefore, there cannot be any escapement of income in the year 2009-10, while disposing of the objection raised by the assessee against the reasons recorded, the AO has overruled the said objection by observing that as the document was registered with the SubRegistrar on 25.07.2008 and the payment of ₹ 5,23,000/- with regard to said transfer was received by assessee vide cheque no. 193533 on 3.4.2008, the transfer of land as well as sale consideration has been received by the assessee in AY 2009-10 and therefore, impugned notice is valid. However, from the sale deed dated 27.03.2008, it appears that entire sale consideration has been paid vide cheque dated 27.03.208.. Even otherwise, as per the decision of the Full Bench of this Court in the case of Hormasji Mancharji Vaid (2001 (6) TMI 58 - GUJARAT High Court ), the capital gain under Section 45 of the Act arises in the year of execution of deed and not when the same was registered with the office of the Sub-Registrar. Under the circumstances also, the AO has materially erred in forming the opinion that any income chargeable to tax has escaped assessment for the year 2009-10.Thus impugned proceedings for reopening of the assessment for AY 2009-10 and the impugned notices cannot be sustained and same deserve to be quashed and set aside. - Decided in favour of assessee.

Summary

Issues Involved:
1. Legality of reopening the assessment for AY 2009-10 under Section 148 of the Income Tax Act, 1961.
2. Validity of the Assessing Officer's (AO) belief that income chargeable to tax has escaped assessment for AY 2009-10.
3. Determination of the assessment year in which the income should be taxed.
4. Reliance on the "Sauda Chittihi" and other documents seized during the search.
5. Consideration of statements made by third parties in forming the AO's belief.

Issue-wise Detailed Analysis:

1. Legality of Reopening the Assessment for AY 2009-10:
The petitions challenged the legality of the notice dated 23.03.2016 issued under Section 148 of the Income Tax Act, 1961, for reopening the assessment for AY 2009-10. The AO sought to reopen the assessment on the grounds that income chargeable to tax had escaped assessment. The petitioners argued that the reopening was bad in law as there was no tangible material available to form a reasonable belief that income had escaped assessment. The court found that the AO's belief was based on surmise and conjecture, which cannot be the basis for reopening an assessment under Section 147 of the Act.

2. Validity of the AO's Belief:
The AO formed the belief that income chargeable to tax had escaped assessment based on a "Sauda Chittihi" and the statement of Shri Rajesh Vaghani. The court noted that the petitioners were not parties to the "Sauda Chittihi" and that there was no tangible material to support the AO's belief that the petitioners received unaccounted income. The court held that the AO's belief was vitiated as there was no valid reason or material to conclude that income had escaped assessment.

3. Determination of the Assessment Year:
The petitioners argued that the transfer of land occurred on 27.03.2008, and thus, any income arising from the transfer should be assessed in AY 2008-09, not AY 2009-10. The court referred to the Full Bench decision in CIT vs. Hormasji Mancharji Vaid, which held that capital gains are to be assessed in the year of execution of the deed, not the year of registration. The court found that the AO erred in forming the opinion that income chargeable to tax had escaped assessment for AY 2009-10.

4. Reliance on "Sauda Chittihi" and Other Documents:
The AO relied on a "Sauda Chittihi" dated 12.03.2008 and other documents seized during a search to form the belief that income had escaped assessment. The court noted that the petitioners were not signatories to the "Sauda Chittihi" and that the document was executed by persons who were not the owners of the land. The court held that the AO could not have formed a reasonable belief based on the "Sauda Chittihi" and other seized documents.

5. Consideration of Third-Party Statements:
The AO also relied on the statement of Shri Rajesh Vaghani, who stated that a significant amount was spent on converting agricultural land to non-agricultural land and evicting unauthorized occupants. The court found that this statement did not support the AO's conclusion that the petitioners received unaccounted income. The court held that there was no tangible material to form a reasonable belief that income chargeable to tax had escaped assessment.

Conclusion:
The court quashed and set aside the impugned notice dated 23.03.2016 issued under Section 148 of the Income Tax Act and the reassessment proceedings for AY 2009-10. The court found that the AO's belief that income chargeable to tax had escaped assessment was vitiated and that there was no valid reason or material to support the reopening of the assessment. The petitions were allowed, and the rule was made absolute to the extent of quashing the impugned notice and reassessment proceedings.