2022 (12) TMI 187 - HC - Income Tax

Reopening of assessment u/s 147 - Capital gain on sale of property - year of assessment - crux of the objections of the assessee to the proposed reopening was that firstly the transaction was not of the sale, but was an agreement for development. Secondly, the transfer did not take place in the previous year corresponding to the assessment year 2015-16, but the transfer took place during previous year 2015-16, that is, relevant to assessment year 2016-17 and it was the case that the gain arising out of the transaction was offered to tax for the assessment year 2016-17 and that no tax had thus escaped assessment - HELD THAT - When the amount received by the petitioner assessee by way of cash was pursuant to development agreement and the transfer had not taken place in the year of receipt, when the sale deed was executed in the subsequent year, the transfer took place at that point of time. The assessee had offered the amount of capital gains to tax in the next corresponding assessment year, that is, 2016-17. The income by way of capital gain is chargeable in the year of capital assessment even though the consideration may be realised earlier or later or or there may not be realisation at all. In the present case, as explained above, the execution of development agreement with Gokulesh Infra did not give rise to transfer within the meaning of section 2(47)(v) of the Act in the year 2014-15. Therefore, the entire basis of reopening was erroneous of facts and misconceived in law. In such working of facts, the opinion formed by the assessing that he had reasons to believe about escapement of income in the assessment year 2015-16 was misconceived and without foundation of facts and without foundation in law. The present petition deserves to be allowed. Notice issued by the respondent under section 148 of the Act, is set aside. - Decided in favour of assessee.

Issues Involved:
1. Validity of the notice issued under Section 148 of the Income Tax Act for reopening the assessment.
2. Determination of whether income had escaped assessment within the meaning of Section 147 of the Income Tax Act.
3. Evaluation of the timing and nature of the transaction in question.
4. Examination of the legal principles governing the assessment of capital gains.

Issue-wise
Detailed Analysis:

1. Validity of the Notice Issued Under Section 148:
The petitioner challenged the notice dated 31.03.2021 issued under Section 148 of the Income Tax Act, which sought to reopen the assessment for the assessment year 2015-16. The assessing officer believed that the petitioner's income had escaped assessment. The petitioner argued that no capital gain had escaped tax and that the information regarding cash received was erroneous.

2. Determination of Escaped Income:
The assessing officer claimed that the petitioner received Rs. 43,54,876/- in cash and Rs. 44,16,000/- by cheque from a development agreement with Gokulesh Infra. The officer believed that the cash component was unreported in the tax return for the assessment year 2015-16. However, the petitioner contended that the transaction was a development agreement, not a sale, and the capital gain was offered to tax in the assessment year 2016-17.

3. Timing and Nature of the Transaction:
The petitioner argued that the development agreement did not result in a transfer of ownership in the financial year 2014-15. The transfer took place in the subsequent year, relevant to the assessment year 2016-17, when all obligations under the agreement were fulfilled. The petitioner had declared the capital gain in the assessment year 2016-17, which was subjected to scrutiny under Section 143(3) of the Act.

4. Legal Principles Governing Capital Gains Assessment:
The court examined the provisions of Section 45 and Section 2(47) of the Income Tax Act, which deal with capital gains and the definition of transfer, respectively. The court referred to the Supreme Court's decision in Commissioner of Income Tax vs. Balbir Singh Maini, which clarified that a development agreement does not amount to a transfer under Section 2(47)(v) unless the agreement is registered and possession is transferred.

Conclusion:
The court found that the assessing officer's belief that income had escaped assessment was based on erroneous facts and misconceived in law. The development agreement did not result in a transfer in the assessment year 2015-16. The capital gain was correctly offered to tax in the assessment year 2016-17. The court set aside the notice dated 31.03.2021 issued under Section 148 and the order dated 08.12.2021 rejecting the petitioner's objections. The petition was allowed, and the rule was made absolute.

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