2022 (2) TMI 477 - AT - Income Tax

Reopening of assessment u/s 147 - whether or not the AO was justified in reopening the case of the assessee u/s 147? - Long term capital gain (LTCG) was determined after applying the provisions of section 50C - entitlement of the assessee for claim of deduction u/s 54F - HELD THAT - Though the AO had applied the deeming provision of section 50C of the Act for computing the LTCG in the hands of the assessee, but in our considered view, the entitlement of the assessee for claim of deduction u/s 54F of the Act continues to remain dependent on the amount of the net consideration that was received by him on the transfer of the property in question. As stated by the ld AR, and rightly so, the AO without applying his mind had in a mechanical manner reopened the case of the assessee u/s 147 of the Act. Although, we are not oblivious of the fact that an AO at the time of reopening of the case of assessee is not required to conclusively prove that the income of the assessee chargeable to tax had escaped assessment, and is only required to have with him a bonafide reason to believe that the income of the assessee chargeable to tax had escaped assessment, but then, where in the totality of the facts of the case before him it can safely be gathered that no income of the assessee chargeable to tax had escaped assessment, there would be no justification on his part in reopening the case of the assessee by taking recourse to the provisions of section 147 - we not being able to persuade ourselves to uphold the very basis on which the case of the assessee had been reopened u/s 147 of the Act, thus, set aside the assessment framed by him u/s 143(3) r.w.s. 147 of the Act, dated 16.11.2011. Assessee appeal allowed

Summary

Issues:
1. Justification of reopening the case u/s 147 of the Income Tax Act, 1961.
2. Assessment of long term capital gain under section 50C of the Act.

Issue 1: Justification of Reopening the Case u/s 147:
The appeal challenged the order passed by the CIT(A) and the assessment order by the AO under section 143(3) for Assessment Year 2004-05. The controversy revolved around whether the AO was justified in reopening the case under section 147 of the Act. The AO reopened the case based on a survey conducted at the business premises of a firm where the assessee was a partner. The AO's reasons to believe were that the assessee had not provided documents to ascertain the year of division or purchase of a plot, leading to alleged income escaping assessment. However, the Tribunal observed that the entire sale proceeds were deposited by the assessee in a Capital Gain Account, making it unclear how income could have escaped assessment. The Tribunal held that the AO had mechanically reopened the case without proper justification, leading to the assessment being set aside.

Issue 2: Assessment of Long Term Capital Gain under Section 50C:
The AO, in the assessment order under section 143(3) r.w.s 147, determined the long term capital gain (LTCG) after applying section 50C of the Act. The assessee had deposited the sale proceeds in a Capital Gain Account with a bank. The AO allowed a deduction under section 54F, resulting in a net LTCG amount. The Tribunal noted that the assessee's deposit of the entire sale proceeds in the Capital Gain Account made him eligible for deduction under section 54F. While the AO applied section 50C for LTCG computation, the Tribunal emphasized that the entitlement to claim deduction under section 54F depended on the net consideration received. The Tribunal found that the AO's assessment, based on the reopening of the case, lacked justification, and set aside the assessment.

In conclusion, the Tribunal allowed the assessee's appeal, setting aside the assessment order due to the lack of proper justification for reopening the case under section 147 and highlighting the eligibility of the assessee for deduction under section 54F based on the deposit of sale proceeds in the Capital Gain Account.