2022 (5) TMI 169 - AT - Income Tax

Validity of the assessment proceedings initiated u/s 147 - addition under the provisions of section 56(2)(vii)(a) of the Act on account of the money received by the assessee without consideration - HELD THAT - As per the Revenue the amount of sale consideration received by the assessee stands at ₹3,05,010,00.00 whereas the assessee has disclosed of sum of ₹1.50 crores in the books of accounts against the sale of the property. Thus, it is apparent that the amount which has not been disclosed by the assessee represents the sale consideration of the property which can be subject to tax under the provisions of section 48 of the Act. Furthermore, the assessee has shown the sale consideration of ₹1.50 crores under the head capital gain and the amount in dispute directly relates to the same property and therefore the same can only be brought to tax under the head capital gain. In other words, the same cannot be made subject to the tax under the provisions of section 56 - In our humble understanding, the principles laid down by the ITAT in the own case of the assessee (Supra) are directly applicable to the issue on hand. Hence, we are of the view that the initiation of the proceedings under section 147 of the Act are bad in law. Hence, the ground of appeal of the assessee is allowed.

Issues Involved:
1. Validity of assessment proceedings initiated under section 147 of the Income Tax Act, 1961.
2. Treatment of unexplained cash receipts and alleged transfer of capital asset under relevant provisions of the Act.
3. Ownership status of the appellant in relation to the transferred asset.
4. Application of section 56(2)(vii)(a) and section 50C of the Act in determining tax liability.
5. Interpretation of judicial pronouncements and their applicability to the case.

Issue 1: Validity of Assessment Proceedings under Section 147:
The appeal challenged the initiation of assessment proceedings under section 147 of the Act. The AO initiated proceedings due to the alleged escapement of income from capital gains on property sale. However, the AO made an addition under section 56(2)(vii)(a) for money received without consideration, not related to the property sale. The AR argued that since no addition was made on the initial reason for reopening, no further addition could be made. Citing a previous ITAT decision, the AR contended that the proceedings were invalid due to the lack of income escapement. The Tribunal agreed, quashing the assessment as the foundation for reopening did not sustain, aligning with the legal precedent.

Issue 2: Treatment of Unexplained Cash Receipts and Capital Asset Transfer:
The AO added an amount received without consideration under section 56(2)(vii)(a), confirmed in part by the CIT (A). The Tribunal noted that the basis for reopening did not lead to any addition related to this income. The AO's addition was deemed invalid as the income source was not connected to the property sale, the reason for reopening. The Tribunal relied on a High Court judgment to support its conclusion that additions unrelated to the reopening grounds were impermissible. Consequently, the assessment proceedings were deemed invalid, and the appellant's appeal was allowed.

Issue 3: Ownership Status of the Appellant:
The appellant's status as a Power of Attorney Holder and not the owner of the transferred asset was raised. However, the Tribunal's decision focused on the technical grounds of the assessment proceedings' validity, rendering the ownership status issue inconsequential and dismissed it as infructuous.

Issue 4: Application of Relevant Provisions of the Act:
The Revenue argued for tax liability under section 56(2)(vii)(a) due to undisclosed sale consideration. However, the Tribunal found the undisclosed amount related to the property sale and should be taxed under capital gains, not section 56. The Tribunal applied principles from a prior case involving the appellant to support its decision that the proceedings under section 147 were legally flawed, leading to the allowance of the appellant's appeal.

Issue 5: Interpretation of Judicial Pronouncements:
The Tribunal referred to previous decisions, including a High Court judgment, to support its findings on the invalidity of the assessment proceedings. By aligning with legal precedents and interpreting judicial pronouncements, the Tribunal concluded that the proceedings under section 147 lacked a valid basis, leading to the partial allowance of the appellant's appeal.

In conclusion, the Tribunal invalidated the assessment proceedings under section 147 due to the absence of income escapement related to the initial reason for reopening. The Tribunal emphasized the impermissibility of making additions unrelated to the grounds for reopening, following legal precedents and judicial pronouncements to support its decision.

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