2021 (5) TMI 953 - AT - Income Tax

Reopening of assessment u/s 147 - transaction of sale of immovable property for the specified consideration - as argued notice issued U/s 148 of the Act was without jurisdiction and bad in law - HELD THAT - From perusal of the record, we noticed that in the present case, the A.O. had recorded the reasons for reopening of assessment by mentioning that the assessee has not field its return of income. Later on, it was noticed that the assessee has sold a property of Jaipur to Smt. Meena Sharma during the F.Y. 2008-09 for sale consideration of ₹ 18,75,000/-, however of the Sub-Registrar had adopted final face value of such property at ₹ 16,37,653/- for the purpose of charging of stamp duty. But on verification of the department portal it was noticed that the assessee had not shown capital gain. We have a reason to believe that the income to the extent of ₹ 18,75,000/- has escaped assessment with in meaning u/s 147/- of the IT Act. After having gone through the facts of the present case, we noticed that the A.O. had recorded the reasons for reopening of assessment in the case of assessee on wrong facts as according to records put forth before us, it is reflected that the assessee was regularly income tax assessee and filing here return of income as well as for the year under consideration also. As the assessee had filled her return of income and disclosed the said transaction and despite the material available on record which had not been taken in to consideration before recording the reasons by the A.O. which shows that the notice has been issued by the A.O. only on factually incorrect facts and on the presumption, assumption and suspicion and without any material on record. Therefore, we are of the view that the very basis of reopening of assessment is based on incomplete or wrong facts available on record as the said transaction of sale of the property has already been duly disclosed by the assessee in her return of income and the assessee had also filed her return of income. All these facts reflect non-application of mind by the A.O. while recording the reasons and it cannot be held that there is the nexus between the material available on record and formation of belief that the income has escaped assessment. where the very foundation for reopening the case is vitiated given that the assessee has filed her return of income disclosing the transaction of sale of immovable property for the specified consideration and offering the same to tax, therefore, there cannot be any reason to believe that income has escaped assessment for the very same transaction. The assumption or jurisdiction u/s 147 of the Act cannot be sustained and thus, the subsequent proceedings are also liable to be set-aside and is therefore, set aside - Decided in favour of assessee.

Issues Involved:
1. Validity of the assessment order under sections 143(3)/148.
2. Legality of the action under section 147.
3. Taxation of Long Term Capital Gain (LTCG) of ?5,17,894.
4. Reduction of the indexed cost of acquisition.
5. Disallowance of legal expenses.
6. Charging of interest under sections 234A, 234B, and 234C.
7. Condonation of delay in filing the appeal.

Detailed Analysis:

1. Validity of the Assessment Order under Sections 143(3)/148:
The assessee challenged the validity of the assessment order dated 30/11/2016, arguing that the notice issued under section 148 was without jurisdiction and based on incorrect facts. The Tribunal found that the Assessing Officer (AO) had issued the notice on the incorrect assumption that the assessee had not filed her return of income, whereas she had indeed filed it on 08/05/2009, declaring a total income of ?1,78,250, including a loss from Long Term Capital Gain of ?1,190. The Tribunal concluded that the notice was issued on the basis of incorrect facts and without proper application of mind, leading to the reopening of assessment being invalid.

2. Legality of the Action under Section 147:
The Tribunal examined whether the AO had "reason to believe" that income had escaped assessment. The AO's belief was based on the incorrect assumption that the assessee had not filed her return of income and had not disclosed the sale transaction. The Tribunal referenced the Gujarat High Court's decision in Mumtaz Hazi Mohmad Memon v/s ITO, which held that reopening based on incorrect facts is invalid. The Tribunal found that the AO's reasons for reopening were factually incorrect and based on assumptions, leading to the conclusion that the reopening was invalid.

3. Taxation of Long Term Capital Gain (LTCG) of ?5,17,894:
The AO had added ?5,17,894 as LTCG, which was disputed by the assessee. The Tribunal noted that the property in question was a parental property acquired before 1981 and was under litigation, which was settled in 2006. The AO had incorrectly calculated the cost of acquisition and legal expenses, leading to an inflated LTCG. The Tribunal found that the AO's calculation was not justified and needed to be reconsidered.

4. Reduction of the Indexed Cost of Acquisition:
The AO had allowed a reduced indexed cost of acquisition of ?55,548 as against ?4,71,245 claimed by the assessee. The Tribunal found that the AO's calculation was based on an incorrect comparable case and did not consider the actual facts of the assessee's case. The Tribunal directed that the correct indexed cost of acquisition should be allowed.

5. Disallowance of Legal Expenses:
The AO had allowed legal expenses of ?51,558 as against ?1,54,674 claimed by the assessee. The Tribunal found that the AO had not provided a justifiable basis for the reduced allowance and directed that the full amount of legal expenses claimed by the assessee should be allowed.

6. Charging of Interest under Sections 234A, 234B, and 234C:
The assessee disputed the charging of interest under sections 234A, 234B, and 234C. The Tribunal did not provide a specific ruling on this issue, as the primary grounds for the appeal were decided in favor of the assessee, rendering this issue moot.

7. Condonation of Delay in Filing the Appeal:
The Tribunal considered the assessee's application for condonation of a 178-day delay in filing the appeal, citing medical reasons and lack of communication with her counsel. The Tribunal, referencing the Supreme Court's liberal approach in such matters, found the reasons for the delay to be bona fide and condoned the delay, allowing the appeal to be heard on merits.

Conclusion:
The Tribunal allowed the appeal, finding that the reopening of the assessment was based on incorrect facts and invalid. The Tribunal directed that the correct indexed cost of acquisition and legal expenses should be allowed and set aside the additions made by the AO. The appeal was allowed partly, and the assessment order was quashed.

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