2020 (2) TMI 991 - AT - Income Tax

Reopening of assessment u/s 147 - violation of provisions of Section 54F by way of withdrawing from the amount deposited under the Capital Gain Account Scheme - no addition was made by the Ld. A.O in the reassessment proceedings for the reasons recorded in the notice issued u/s 148 - HELD THAT - Assessment order passed u/s 143(3) r.w.s. 147 of the Act dated 8.11.2011 deserves to be quashed as it is illegal and bad in law since the Ld. A.O has not made any addition on the reasons to believe recorded in the notice issued u/s 148 of the Act and has himself admitted that the reasons so recorded are not coming in the purview of the escaped income because the early withdrawal of the amount deposited in the Capital Gain account before the expiry of the time period provided u/s 54F of the Act has been offered to tax by the assessee and shown as income for Assessment Year 2011- 12. Addition of ₹ 39,40,000/- made in the re-assessment proceedings was already made during the course of original assessment proceedings. The assessee has challenged the disallowance of cost of acquisition of the property denied by the Ld. A.O. in the appeal filed to Ld. CIT(A), who has still not adjudicated the issue on merit.We therefore quash the reassessment proceedings and allow the legal issue raised by the assessee in Ground No.1. Ground No.2 which is raised on merits we find it to be merely academic to adjudicate the same since we have already quashed the reassessment proceedings and impugned addition of ₹ 39,40,000/- is still pending before Ld. CIT(A) for adjudication in the appeal filed against the original assessment u/s 143(3) of the Act. We therefore dismiss Ground No.2 as infructuous.

Summary

Issues Involved:
1. Legality of reopening the case under Section 148 of the Income Tax Act.
2. Disallowance of expenses related to brokerage and transfer costs.

Detailed Analysis:

1. Legality of Reopening the Case under Section 148:

The assessee challenged the reopening of the case under Section 148, claiming it was illegal and wrong. The original assessment was completed under Section 143(3) with an addition of ?39,40,000 on account of long-term capital gains. The case was later reopened under Section 148 on the grounds that the assessee had allegedly violated Section 54F by withdrawing ?26,00,000 from the capital gain scheme. However, no addition was made on this ground in the reassessment order, and the assessed income remained the same as in the original order.

The Tribunal observed that no new addition was made in the reassessment proceedings for the reasons recorded in the notice issued under Section 148. The Tribunal cited various judgments, including those from the High Courts of Bombay and Delhi, which held that if the Assessing Officer (AO) does not assess the income for which reasons were recorded under Section 147, he cannot independently assess other income. The Tribunal concluded that the reassessment proceedings were invalid as the AO did not make any addition based on the reasons recorded for reopening the case. Consequently, the reassessment order was quashed.

2. Disallowance of Expenses Related to Brokerage and Transfer Costs:

The assessee claimed a deduction for brokerage expenses of ?38,40,000 paid to DSP Finprint Ltd. and other transfer expenses of ?1,00,000 related to the sale of land. The AO disallowed these expenses, and the CIT(A) upheld the disallowance on the grounds that the assessee had already filed an appeal against the original assessment order under Section 143(3), which was still pending.

The Tribunal noted that the brokerage amount of ?38,40,000 was assessed in the hands of DSP Finprint Ltd. and confirmed by the CIT(A) and ITAT. Since the income was assessed in the hands of the party to whom the brokerage was paid, the deduction for the same should be allowed to the assessee. However, since the reassessment proceedings were quashed, the Tribunal found it unnecessary to adjudicate this ground on merits and dismissed it as infructuous.

Conclusion:

The Tribunal allowed the appeal on the legal ground, quashing the reassessment proceedings as they were found to be invalid. The issue of disallowance of brokerage and transfer expenses was dismissed as infructuous since the reassessment proceedings were quashed, and the matter was still pending before the CIT(A) in the original assessment appeal.