2021 (10) TMI 63 - AT - Income Tax

Reopening of assessment u/s 147 - notice issued beyond six years - Capital receipt on flat - HELD THAT - The assessee has received flat of 1536 sq.ft. in lieu of old flat of 645 sq.ft. in addition to said hardship allowance. It has not been controverted that the said agreement was undertaken between the said two parties and assessee was also one of the beneficiary/flat owner in the said society - assessee has not pointed out any fact that the assessee has declared the said transaction before the department, therefore, the allegation levelled by the AO that the assessee has not declared fully and truly the income chargeable to tax for A.Y. 2010-2011 relevant to A.Y.2011-2012. At the time of initiation of proceedings, the assessee has to draw a prima facie inference and satisfaction that the income has escaped assessment but the AO has not debarred or stopped from granting relief to the assessee by dropping the reassessment proceedings if during the course of reassessment proceedings the assessee exclusively established and substantiate that there was no income chargeable to tax has escaped. Without commenting on merits of the case, we are of view that the initiation of reassessment proceedings and proceedings u/s.147 of the Act by pressing into service clause (b) of Explanation 2 to Section 147 of the Act and issuance of notice u/s.148 of the Act is valid and has been based on sound legal principle and provisions of the Act. Capital or revenue receipt - benefits received by the assessee from a bigger size of flat - HELD THAT - The orders passed by the ITAT Mumbai Bench in case of Smt. Delilah Raj Mansukhani 2021 (3) TMI 252 - ITAT MUMBAI , Jitendra Kumar Soneja 2016 (8) TMI 1087 - ITAT MUMBAI and Kushal K Bangia 2012 (2) TMI 29 - ITAT MUMBAI it is amply clear that where the assessee being a flat owner in a housing society receives certain sum from developer as corpus fund towards hardship caused to flat owners on redevelopment, impugned amount has to be treated as capital receipt simplicitor which as per Section 2(24)(vi) of the Act is not taxable as income of the assessee Benefit received by the assessee in the form of bigger size of flat and amount received as hardship allowance from the developer is a capital receipt, which cannot be treated as revenue receipt for taxing as income. - Appeal of assessee partly allowed.

Summary

Issues:
1. Reopening of the case under Section 147 of the Act
2. Determination of total income and addition of Hardship Compensation

Issue 1: Reopening of the case under Section 147 of the Act
The appeal was filed against the order passed by the CIT(A)-I, Indore for the assessment year 2011-2012. The AO initiated reassessment proceedings under Section 147 of the Act based on information received regarding a substantial receipt. The assessee challenged the reopening, arguing it was unwarranted and illegal. The AO treated the compensation received as income from other sources, leading to a dispute.

The Tribunal upheld the initiation of reassessment proceedings, noting that the AO had valid reasons to believe income had escaped assessment. The Tribunal emphasized that the initiation was based on sound legal principles and provisions of the Act. The assessee's failure to declare the transaction before the department was a key factor in the decision. The Tribunal dismissed the appeal on this ground.

Issue 2: Determination of total income and addition of Hardship Compensation
The CIT(A) confirmed the AO's determination of total income, which included adding Hardship Compensation as revenue receipt. The assessee contended that the compensation should be treated as a capital receipt, citing relevant case law. The ITAT Mumbai Bench decisions supported the assessee's argument that such compensation should not be taxed as income.

The Tribunal agreed with the assessee, ruling that the benefits received, including the larger flat and hardship allowance, constituted capital receipts. Citing precedents, the Tribunal held that these receipts were not taxable as income under Section 2(24)(vi) of the Act. Therefore, the Tribunal directed the AO to delete the addition related to the Hardship Compensation.

In conclusion, the appeal was partly allowed, with the Tribunal dismissing the first ground regarding the reopening of the case and directing the deletion of the addition related to the Hardship Compensation based on the nature of the receipts being capital in nature.

Note: The judgment was pronounced by SHRI C.M.GARG, JM and SHRI MANISH BORAD, AM on 29/09/2021.