2019 (4) TMI 375 - HC - Income Tax

Reopening u/s 147 - Notice u/s 148 - assessee is a builder - Applicability of Section 50C on sale of Stock in trade - statement in survey partner never admitted that the flats were sold at a price higher than what was reflected in the document. In other words, he did not admit to any cash payment not recorded in the documents. - HELD THAT - However, in absence of voluntary surrender by the assessee of any additional income, it was simply not possible for the Revenue to make any addition on the ground of the difference between the stamp valuation and the sale price of the property in question. As noted, Section 43CA of the Act was inserted w.e.f 1.4.2014 and therefore, had no applicability to the assessment year in question. The attempt on the part of the Assessing Officer to make the addition with the aid of the statement of the partner of the assessee and reference to the correct stamp valuation, is simply invalid. What the Assessing Officer wishes to do is to adopt a stamp valuation for the properties in question, superimpose the statement of the partner of the assessee of the declaration of certain additional income and extrapolate such statement to fit within the scheme of Section 43CA of the Act - notice of reopening of assessment is set aside

Summary

Issues:
1. Reopening of assessment and order of assessment challenged by petitioner.
2. Grounds for reopening assessment: under-valuation of flats and discrepancy in unsold flats.
3. Objections raised by petitioner against reopening.
4. Assessment order passed before allowing four weeks post objection disposal.
5. Challenge focused on notice of reopening.
6. Discrepancy in unsold flats unsubstantiated by Revenue.
7. Reopening based on under-valuation of flats.
8. Incorrect approach by Assessing Officer regarding under-valuation.
9. Application of Section 50C and Section 43CA.
10. Partner's statement during survey regarding under-valuation.
11. Invalidity of assessment order due to incorrect application of provisions.

Analysis:
1. The petitioner, a partnership firm in real estate, challenged a notice of reopening and subsequent assessment order. The notice was issued based on discrepancies found during a survey, including under-valuation of flats and unsold flats.
2. The Assessing Officer sought to reopen the assessment citing under-valuation of flats and a discrepancy in unsold flats. However, the Revenue failed to substantiate the discrepancy in unsold flats, rendering that ground unsubstantiated.
3. The petitioner objected to the reopening of assessment, which was rejected by the Assessing Officer, who then passed the assessment order prematurely.
4. The assessment order was passed before allowing the mandatory four-week period post objection disposal, raising procedural concerns.
5. The focus of the challenge was primarily on the notice of reopening, rather than the premature assessment order.
6. The Revenue could not provide evidence to support the claim of a discrepancy in unsold flats, weakening the grounds for reopening the assessment.
7. The main ground for reopening was the under-valuation of flats, based on discrepancies between sale prices and stamp valuations.
8. The Assessing Officer's approach to under-valuation was deemed incorrect, as statutory provisions like Section 50C and Section 43CA govern such assessments for builders.
9. Section 50C and Section 43CA were highlighted as relevant provisions governing the taxation of capital gains and income arising from the sale of stock.
10. The partner's statement during the survey acknowledged under-valuation of flats, but did not admit to undisclosed cash payments, highlighting the lack of evidence for additional income.
11. The incorrect application of provisions and invalid extrapolation of partner's statement led to the setting aside of the notice of reopening and rendered the assessment order invalid.