1994 (11) TMI 50 - HC - Income Tax

Tax Provisions Applicability & Assessment Validity Dispute: Assessee Prevails, Revenue Findings Upheld

The case involved issues regarding the applicability of tax provisions, validity of assessment reopening, nature of transactions, and cost refixation. The ... Appeal To AAC, Assessment Proceedings, Burden Of Proof, Capital Gains, Computation Of Capital, Cost Of Acquisition Of Capital Asset, Failure To Disclose, Finding Of Fact, Gift Tax Act, Income Tax Act, Market Value, Question Of Law, Reassessment Proceedings Issues Involved:1. Applicability of Section 52(2) of the Income-tax Act, 1961.2. Validity of the reopening of the assessment under Section 147 of the Income-tax Act.3. Nature of transactions between the assessee and K and K Trust (sham or genuine).4. Refixation of the cost of acquisition by the Income-tax Officer.5. Validity of proceedings under Section 16(1)(a) of the Gift-tax Act, 1958.Issue-wise Detailed Analysis:1. Applicability of Section 52(2) of the Income-tax Act, 1961:The Tribunal's decision to apply Section 52(2) was based on the Kerala High Court's decision in ITO v. K. P. Varghese [1973] 91 ITR 49 [FB], which was later reversed by the Supreme Court in K. P. Varghese v. ITO [1981] 131 ITR 597. The Supreme Court held that Section 52(2) applies only when there is an understatement of the consideration actually received. The burden of proving such understatement is on the Revenue. Since there was no case from the Revenue that the actual consideration received was more than what was declared, Section 52(2) was inapplicable. Therefore, the Tribunal's decision to apply Section 52(2) was unjustified, and the question was answered in favor of the assessee.2. Validity of the Reopening of the Assessment under Section 147:The Tribunal found the reopening of the assessment under Section 147 for the year 1973-74 to be invalid. There was no reference from the Revenue questioning this finding, making the reassessment for 1973-74 not open to challenge. Consequently, the Tribunal's finding on the invalidity of the reopening was upheld.3. Nature of Transactions between the Assessee and K and K Trust:The Tribunal concluded that the transactions between the assessee and K and K Trust were genuine and not sham. The Tribunal provided adequate reasons, noting that there was no evidence to show that the trust was not a real entity or that the assessee received more consideration than declared. This finding was binding and upheld, answering the question in favor of the assessee.4. Refixation of the Cost of Acquisition by the Income-tax Officer:For the year 1973-74, the Income-tax Officer had no jurisdiction to refix the cost of acquisition at Rs. 900 per tree, as the Tribunal had already fixed it at Rs. 2,000. However, for the years 1974-75 and 1975-76, the Income-tax Officer was justified in refixing the cost at Rs. 900 per tree, as there was no appellate order for these years, and adequate materials supported this refixation. The Tribunal's order for 1973-74 was binding only for that year and not for the subsequent years.5. Validity of Proceedings under Section 16(1)(a) of the Gift-tax Act, 1958:The Gift-tax Officer initiated proceedings under Section 16(1)(a) based on the belief that the transfers were for inadequate consideration. For the years 1974-75 and 1975-76, the Tribunal found this belief to be valid, as the Income-tax Officer had not considered the transactions sham for these years. The Tribunal's decision was upheld, and no referable question of law was found. For the year 1973-74, despite the Income-tax Officer's initial finding that the transaction was sham, the subsequent uncertainty justified the Gift-tax Officer's belief that a taxable gift might have escaped assessment. Therefore, the notice under Section 16(1)(a) was not vitiated.Conclusion:- Income-tax References Nos. 109 and 110 of 1983: Answered in favor of the assessee.- Income-tax References Nos. 7 to 9 of 1993 (First Question): Answered in favor of the assessee.- Income-tax References Nos. 7 to 9 of 1993 (Second Question): Answered in favor of the Revenue for the years 1974-75 and 1975-76; in favor of the assessee for the year 1973-74.- Income-tax Reference No. 189 of 1988: Answered in favor of the Revenue.- Original Petitions Nos. 860 and 861 of 1985: Dismissed.There was no order as to costs, and a copy of the judgment was to be communicated to the Income-tax Appellate Tribunal, Cochin Bench.