2017 (3) TMI 734 - HC - Income Tax

Reopening of assessment - undisclosed income on sale of land - one sauda chittihi seized during the search of the premises of one Shri Rajesh Vaghani - year of assessment - Held that - It is required to be noted that as such the sauda chittihi upon which the reliance has been placed the assessee is not the signatory. Even the concerned persons who signed and / or executed the said sauda chittihi were not even the owners of the land in question. It has also come on record that even the said sauda chittihi was not acted upon. Even thereafter the assessee has sold the property to one Shri Popatbhai Kakadia who is also not signatory to sauda chittihi . There does not appear to be any other tangible material available with the AO to even prima facie show that the assessee had received any on money in cash and / or sale consideration of 8, 92, 77, 830/-. Similarly on the basis of the amount mentioned in the sauda chittihi to which neither assessee nor even the purchasers Shri Popatbhai Kakadia were signatory the formation of the opinion by the AO that the assessee has sold the land at 8, 92, 77, 830/-( 4601 per yard multiply by 14397.328 sq yard 8, 92, 77, 830/-) is only on surmises and conjectures and for which there is no tangible material available with the AO. Thus AO has materially erred in forming the opinion that assessee had received the sale consideration of 8, 92, 77, 830/-and thereby has wrongly considered the difference of 8, 62, 68, 330/-as undisclosed income and thereby has materially erred in holding that any income chargeable to tax has escaped assessable for AY 2009-10. There is no other tangible material with the AO by which it can prima facie be considered that 8, 92, 77, 830/-has been received by the assesseesellers as sale consideration. 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. Even otherwise as per the decision in the case of CIT vs. 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.- Decided in favour of assessee

Summary

Issues Involved:
1. Validity of the notice under Section 148 of the Income Tax Act for reopening the assessment.
2. Tangible material for forming a reasonable belief that income chargeable to tax has escaped assessment.
3. Assessment year in which the income from the sale of land should be taxed.

Detailed Analysis:

1. Validity of the notice under Section 148 of the Income Tax Act for reopening the assessment:

The petitioner-assessee challenged the notice under Section 148, which aimed to reopen the assessment for AY 2009-10 on the grounds that income chargeable to tax had escaped assessment. The Assessing Officer (AO) issued the notice based on a "sauda chitthi" dated 12.03.2008, alleging that the actual sale consideration of the land was ?8,92,77,830, whereas the registered sale deed showed ?30,09,500. The petitioner contended that there was no tangible material to justify the reopening and that the notice was based on surmise and conjectures.

2. Tangible material for forming a reasonable belief that income chargeable to tax has escaped assessment:

The AO's belief was primarily based on the "sauda chitthi" and the statement of Shri Rajesh Vaghani. However, the court noted that the petitioner was not a signatory to the "sauda chitthi," and the persons who signed it were not the owners of the land. The court emphasized that there was no material evidence to show that the petitioner received any on-money in cash. The court found that the AO's formation of opinion was based on surmises and conjectures without any tangible material, making the reopening of the assessment unjustified.

3. Assessment year in which the income from the sale of land should be taxed:

The court observed that the sale deed was executed on 27.03.2008, and the petitioner claimed the short-term capital gain in AY 2008-09. The AO argued that since the document was registered on 11.07.2008, the transaction pertained to AY 2009-10. However, the court referred to the Full Bench decision in CIT vs. Hormasji Mancharji Vaid, which held that the capital gain arises in the year of execution of the deed, not the year of registration. Therefore, the court concluded that any income arising from the sale should be assessed in AY 2008-09, not AY 2009-10.

Conclusion:

The court held that the AO had materially erred in forming the opinion that income chargeable to tax had escaped assessment for AY 2009-10. The court quashed and set aside the impugned notice dated 23.03.2016 issued under Section 148 and the proceedings for reopening the assessment for AY 2009-10. The petition was allowed, and the rule was made absolute to the extent of quashing the notice and proceedings. No costs were awarded.