2013 (5) TMI 304 - AT - Income Tax

Tribunal invalidates Income Tax Act section 148 proceedings, ruling re-opening unjustified. Appeal allowed, long-term capital gains addition dismissed.

The Tribunal invalidated the proceedings initiated under section 148 of the Income Tax Act, ruling that the re-opening was based on invalid reasons and ... Re opening of assessment - addition on account of long term capital gains on treating the assets sold as commercial asset and re-working the written down value (WDV) and thereby denying the indexed cost of acquisition - Held that:- Respectfully following the proposition of law laid down in case of CIT vs. Jet Airways (I) Ltd.[2010 (4) TMI 431 - HIGH COURT OF BOMBAY] as followed by different High Courts Ranbaxy Laboratories v/s CIT, [2011 (6) TMI 4 - DELHI HIGH COURT] and the CIT v/s Mohmed Juned Dadani [2013 (2) TMI 292 - GUJARAT HIGH COURT] wherein concluded that the AO may assess or reassess the income in respect of any issue which comes to his notice subsequently in the course of the proceedings though the reason for such issue were not included in the notice, however, If after issuing the notice under section 148, the AO accepts the contentions of the assessee and holds that the income which he has initially formed a 'reason to believe' had escaped assessment, which, later on, has been found as a matter of fact that it has not escaped assessment, then it is not open to the AO independently to assess some other income. Thus the addition of Rs. 6,47,144, on account of long term capital gain as assessed by the AO is beyond the scope of income escaping assessment under section 147. Further, agreing with the contentions of the assessee the view taken by the AO in the present assessment order amounts to 'change of opinion' as not only the issue of long term capital gain but also the exemption under section 54EC and sale consideration has been examined by the AO and thereafter he accepted the Assessee's computation. There is no new material on record to show that the Assessee's computation and the claim is erroneous. Accordingly, on this count also, the re-opening under section 147 is invalid in the eyes of law. Thus, on the preliminary ground itself, the addition made by the AO in the long term capital gain gets vitiated. Consequently, the impugned order passed by the Commissioner (Appeals) is set aside and the ground raised by the Assessee is treated as allowed. Issues Involved:1. Validity of proceedings initiated under section 148 of the Income Tax Act.2. Addition on account of long-term capital gains by treating the sold asset as a commercial asset and re-working the written down value (WDV).Detailed Analysis:1. Validity of Proceedings Initiated Under Section 148:The assessee challenged the validity of the proceedings initiated under section 148 on three grounds:- The 'reasons' for re-opening were ultimately dropped by the Assessing Officer.- Similar rectification proceedings under section 154 were initiated and dropped.- The re-opening was based on a 'change of opinion.'The assessee argued that the original assessment under section 143(3) was completed after due verification of the sale of gala and exemption under section 54EC. Therefore, the re-opening amounted to a 'change of opinion.' The assessee also contended that the issues on which the re-opening was based were not assessed or added in the final order, making the entire proceedings invalid.The Departmental Representative countered that the re-opening was not a 'change of opinion' as the original assessment did not explicitly examine the capital gain computation and applicability of section 50C. The DR also argued that under Explanation 3 to section 147, the Assessing Officer could assess any other income that comes to notice during the proceedings.The Tribunal found that the original assessment had indeed considered the sale of gala and the exemption under section 54EC. The reasons for re-opening were found invalid as the valuation by the Departmental Valuation Officer accepted the sale consideration declared by the assessee, and the claim under section 54EC was correct. The Tribunal held that the addition made on account of long-term capital gains was beyond the scope of the recorded reasons, making the re-opening invalid. The Tribunal relied on the jurisdictional High Court's decision in Jet Airways, which stated that if the reasons for re-opening are found invalid, the Assessing Officer cannot independently assess other income.2. Addition on Account of Long-Term Capital Gains:The Assessing Officer re-worked the long-term capital gains by treating the sold asset as a commercial asset, using the WDV instead of the indexed cost of acquisition. The assessee argued that the gala was never a business asset, and no depreciation was claimed in earlier years, a fact accepted by the Revenue in previous assessments.The Tribunal agreed with the assessee, noting that the property was not a business asset, and no new material indicated an erroneous computation by the assessee. The Tribunal concluded that the re-opening under section 147 was invalid and amounted to a 'change of opinion.'Conclusion:The Tribunal allowed the appeal, setting aside the impugned order and invalidating the addition made on account of long-term capital gains. The Tribunal did not adjudicate the issue on merits, as the preliminary grounds were sufficient to allow the appeal.