2018 (4) TMI 572 - AT - Income Tax

Withdrawal of the LTCG in the return filed in response to the notice u/s 148 - Reopening of assessment - transfer of property - Held that - It is seen that the assessee, under a mistaken understanding, that there is a transfer of property has offered the LTCG. However, Article 265 of the Constitution of India mandates that the tax can be collected only in accordance with law. When there is no transfer and there is no capital gain arising to the assessee, the same cannot be brought to tax even if the assessee offered it for taxation in his return of income. Revenue s objection that the assessee cannot claim a benefit in a return filed in response to the notice u/s 148 is not sustainable, because the assessee is not making a claim in the return filed in response to the notice u/s 148 of the Act but is withdrawing a mistaken claim already made in the original return of income. Further, the AO and the CIT (A) have not disallowed the assessee s withdrawal of LTCG on this ground. Therefore, such an objection cannot be raised before this Tribunal in the second appeal and in the second round of litigation. In view of the same, we are of the opinion that the assessee s withdrawal of the LTCG in the return filed in response to the notice u/s 148 is justified as there is no transfer of property and therefore, there is no long term capital gains be brought to tax. - Decided in favour of assessee.

Summary

Issues:
1. Assessment order passed by CIT (A) under section 143(3) rws 254 of the Income Tax Act, 1961.
2. Failure to decide the issue on merits and dismissal of assessee's appeal by CIT (A).
3. Taxing hypothetical income without actual sale consideration received by the assessee.
4. Treatment of demarcation between co-owners as a transfer.
5. Consideration of ownership share in the property since 1985.
6. Disallowance of assessee's withdrawal of long term capital gain.
7. Existence of transfer of property and taxation of capital gains.

Analysis:
1. The assessee appealed against the order of CIT (A) for the A.Y 2005-06, challenging the assessment order passed under section 143(3) rws 254 of the Income Tax Act, 1961. The grounds of appeal included errors in facts and law by CIT (A) in passing the assessment order.

2. The dispute arose from the failure of CIT (A) to decide the issue on merits and dismissing the assessee's appeal. The assessee contended that no actual sale consideration was received, and the assessing officer erred in treating demarcation between co-owners as a transfer, despite no relinquishment or extinguishment of rights over the property.

3. The assessing officer taxed hypothetical income without any sale consideration being received by the assessee. The issue revolved around the treatment of demarcation between co-owners as a transfer, despite the ownership share remaining constant since 1985.

4. The ITAT remitted the matter back to the AO to verify facts related to the property and the entity involved. The AO observed a transfer of property and taxed the gain as long term capital gain, leading to the assessee's appeal before the ITAT.

5. The ITAT found that no actual transfer of property occurred, and the dissolution of the partnership firm did not result in any capital gain. The assessee's withdrawal of long term capital gain was justified as there was no transfer of property.

6. The ITAT held that the assessee's withdrawal of long term capital gain in response to the notice u/s 148 was valid, as there was no actual transfer of property, and no capital gains were realized.

7. Ultimately, the ITAT allowed the assessee's appeal, emphasizing that no transfer of property occurred, and hence, no long term capital gains were taxable. The judgment highlighted the importance of tax collection in accordance with the law and upheld the assessee's withdrawal of the long term capital gain.