2020 (11) TMI 949 - HC - Income Tax

Reopening of assessment u/s 147 - assessee has not disclosed the fact regarding handing over of possession of the property to the developer pursuant to JVA - tribunal holding that disclosure of JVA and advance receipt from JVA amounts to disclosure - whether handing over of possession which would amount to transfer under Section 2(47) liable for capital gains was not disclosed by the assessee? - HELD THAT - From perusal of the reasons recorded by the Assessing Officer while re opening the assessment, it is evident that Assessing Officer has recorded a finding that due to non disclosure of transaction of joint development agreement entered into by the assessee with M/s Godrej Properties Ltd. on 22.01.2004, towards transfer of land, the income has escaped assessment. AO has recorded reasons for arriving at the conclusion that income has escaped assessment. Once the Assessing Officer records the reasons that he has reason to believe that income has escaped assessment, it confers jurisdiction to re open the assessment. However, the tribunal in a cryptic and cavalier manner without adverting to the reasons assigned by the Assessing Officer held that AO has not mentioned therein anywhere that the assessee has failed to disclose truly and fully all material facts necessary for computing its income due to which the income has escaped tax. Thus, from the perusal of the order passed by the tribunal, it is evident that the order passed by the tribunal suffers from the vice of non application of mind and the finding recorded by it referred to supra is perverse. Decided in favour of the revenue.

Summary

Issues:
1. Failure to disclose material facts in income tax assessment.
2. Interpretation of joint development agreement for tax implications.
3. Jurisdiction to reopen assessment based on non-disclosure.

Issue 1: Failure to disclose material facts in income tax assessment:
The appeal under Section 260A of the Income Tax Act, 1961 was filed by the revenue regarding the Assessment Year 2004-05. The Assessing Officer reopened the assessment as the assessee had not disclosed the fact of handing over possession of land pursuant to a joint development agreement. The Commissioner of Income Tax (Appeals) upheld the reopening, but the tribunal set it aside, stating that the assessee did not fail to disclose all material facts. The revenue argued that non-disclosure of handing over possession amounted to failure to disclose fully and truly all material facts necessary for income assessment. The tribunal's finding was deemed contrary to the factual position on record.

Issue 2: Interpretation of joint development agreement for tax implications:
The dispute revolved around whether the joint development agreement triggered capital gains tax liability. The revenue contended that possession transfer under the agreement constituted a taxable event under Section 2(47) of the Act. They argued that since the assessee failed to disclose this transaction, it escaped assessment. The revenue emphasized that the agreement transferred risks and rewards to the developer, making it liable for capital gains tax. The assessee, on the other hand, argued that the agreement did not constitute a contract under Section 2(45) of the Act, as there was no delivery of possession as per the Transfer of Property Act, and the agreement was not registered.

Issue 3: Jurisdiction to reopen assessment based on non-disclosure:
The Assessing Officer re-opened the assessment citing non-disclosure of the joint development agreement. The tribunal set aside the re-assessment, stating that the reasons did not mention the failure to disclose all material facts. However, the High Court found that the tribunal's decision was flawed, as the reasons recorded by the Assessing Officer clearly indicated that income had escaped assessment due to non-disclosure. The High Court held that once the Assessing Officer has reason to believe income escaped assessment, it confers jurisdiction to re-open the assessment, and remitted the matter to the tribunal for fresh decision.

In conclusion, the High Court allowed the appeal, quashed the tribunal's order, and remitted the matter for fresh consideration in accordance with law.