2021 (6) TMI 421 - AT - Income Tax

Reopening of assessment u/s 148 - deduction u/s 54EC - HELD THAT - In the computation of the total income the assessee has claimed deduction with respect to 2 properties claimed as a residential property located in two different cities, where the income tax act provided for a residential house property. On the basis of the computation of the total income furnished by the assessee, the learned assessing officer is of prima facie of the view that assessee has claimed deduction u/s 54 of the act with respect to 2 properties situated at two different places, which is not permissible.We find that ld AO did not err in reopening of assessment. Argument of the AR that in absence of any tangible material, the reopening cannot be made by the learned assessing officer, admittedly in this case the assessment was not made but the return was processed u/s 143 (1) of the act - the question that the learned authorised representative is posing before us is whether in case of no assessment or merely processing of the return u/s 143 (1) the learned assessing officer should have a tangible material necessarily to reopen the case of the assessee is wrong. We reject the argument of AR that even in the case where there is no assessment made by the AO or the return is processed merely u/s 143 (1) of the income tax act, there is a requirement of having any tangible material with the assessing officer to reopen the case of the assessee. We hold that in such cases, there is no requirement of tangible material for reopening of assessment. In view of this, we do not find any infirmity in the reasons recorded by the learned assessing officer for reopening of the assessment. Whether fair market value of the property sold during the year as on 1/4/1981 is required to be taken as per the report of the registered valuer produced by the assessee before the assessing officer or the value adopted by the learned assessing officer is required to be taken? - There is a stark difference between the facts before the coordinate bench as well as the facts before us. In the case before that bench, the valuation report by the registered valuer was also having the comparable sale instances. Further, in that particular case, the higher value as on 1/4/1981 was also supported by the fact that even at the time of sale, also, the property was sold at much higher rates than circle rates and the valuation as on 1/4/1981 was higher than the market rates. However, before us the learned assessing officer has given a specific instance about land rates prevailing as on 1/4/1981 which is far less then valuation rates adopted by the registered valuer and further there is no corroboration of the same with the rates at the time of sale. Further base of valuation of sale instances after four years were taken. The basis for land rates was taken on pin code Numbers. However, in principle we agree that assessing officer is not a valuation officer and departmental valuation officer is officer who is technically competent to value a property. Here in this case the valuation report of authorised valuer also does not inspire any confidence. In view of this, the decision relied upon by the learned authorised representative vehemently, we also set-aside this issue back to the file of the learned assessing officer but with a direction to refer the matter to the departmental valuation Officer for determining fair market value of the property as on 1/4/1981 and thereafter the assessing officer, based on that report, compute the fair market value of the property for indexation purposes accordingly. Assessee must be afforded an opportunity of hearing and assessee may support valuation by further evidences. In view of this Ground no 1 of the appeal is allowed with above directions. Deduction u/s 54 of the Act for more than one residential House - We hold that assessee is entitled for deduction u/s 54 of the act of more than one residential house property and lower authorities were not correct in denying the deduction of flat purchased in Mumbai. Deduction u/s 54EC - Deduction u/s 54 EC of the income tax act we find that issue is squarely covered in favour of the assessee by the above decision.Even otherwise the tax effect involved in the appeal of the ld AO is below ₹ 50,00,000/- , therefore also it is not maintainable.

Issues Involved:
1. Reopening of assessment under Section 147.
2. Fair market value of the property as on 1 April 1981.
3. Deduction under Section 54 for multiple residential properties.
4. Deduction under Section 54EC for investments in bonds exceeding ?50 lakhs.

Detailed Analysis:

1. Reopening of Assessment under Section 147:
Arguments of Assessee:
- The reopening was based on a misreading of the statute and lacked tangible material.
- The assessee cited various judicial precedents to argue that reopening requires tangible material even if the return was processed under Section 143(1).

Arguments of Revenue:
- The original return was not assessed but merely processed, thus no tangible material is required for reopening.
- The reasons recorded by the AO were sufficient to form a "reason to believe" that income had escaped assessment.

Tribunal's Decision:
- The Tribunal held that in cases where the return is processed under Section 143(1), no fresh tangible material is required for reopening.
- The AO's reasons for reopening were valid, and the additional ground raised by the assessee was dismissed.

2. Fair Market Value of the Property as on 1 April 1981:
Arguments of Assessee:
- The assessee relied on a valuation report from a registered valuer, which estimated the fair market value at ?7,710,000.
- The assessee argued that the AO should have referred the matter to the Departmental Valuation Officer (DVO) if he disagreed with the valuation.

Arguments of Revenue:
- The AO adopted the LDO rates, which were significantly lower than the valuer's estimate.
- The AO questioned the basis of the valuer's report, particularly the use of auction rates from a different area and time.

Tribunal's Decision:
- The Tribunal agreed that the AO is not a valuation expert and should have referred the matter to the DVO.
- The issue was set aside to the AO with directions to refer the matter to the DVO for determining the fair market value as on 1 April 1981.

3. Deduction under Section 54 for Multiple Residential Properties:
Arguments of Assessee:
- The assessee claimed deductions for a flat in Mumbai and a house constructed in Delhi.
- The assessee argued that the term "a residential house" should be interpreted to include multiple properties, supported by judicial precedents.

Arguments of Revenue:
- The AO contended that Section 54 allows deduction for only one residential house.
- The properties in question were in different cities, which the AO argued could not be considered a single residential unit.

Tribunal's Decision:
- The Tribunal held that the term "a residential house" includes multiple properties, following judicial precedents.
- The deduction under Section 54 was allowed for both the Mumbai flat and the Delhi house.

4. Deduction under Section 54EC for Investments in Bonds Exceeding ?50 Lakhs:
Arguments of Assessee:
- The assessee invested ?50 lakhs each in two different financial years but within six months of the transfer of the capital asset.
- The assessee argued that this was permissible under Section 54EC.

Arguments of Revenue:
- The AO disallowed the deduction, stating that the total investment exceeded the ?50 lakh limit in a single financial year.

Tribunal's Decision:
- The Tribunal found the issue covered by the decision of the Madras High Court in CIT vs. C Jaichander, which allowed such investments.
- The deduction under Section 54EC was allowed for the total investment of ?1 crore.

Conclusion:
- The reopening of the assessment was upheld.
- The fair market value issue was remanded to the AO for referral to the DVO.
- The deduction under Section 54 for multiple residential properties was allowed.
- The deduction under Section 54EC for investments exceeding ?50 lakhs was allowed.

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