2014 (11) TMI 88 - AT - Income Tax

Capital Gain Assessed in A.Y. 2002-03, Reopening Valid for Undeclared Sale

The Tribunal held that the capital gain should be assessed in A.Y. 2002-03, with the property transfer deemed effective from the date of possession and ... Validity of reopening of assessment u/s 148 – Notice issued within prescribed limit - Held that:- On receiving of an information the AO had proceeded u/s.148 of the Act by issuing a notice dated 6.12.2006 relevant for A.Y. 2004-05 - The time limit prescribed for issuance of notice u/s.149 is four years from the end of the relevant assessment year and if four years have elapsed, then not more than six years from the end of the relevant assessment year unless the income chargeable to tax which has escaped assessment amounts to ₹ 1 lac or more - Since the notice was within the prescribed limit, the reopening of assessment is valid. Correct year of assessment of the capital gain – Held that:- Following the decision in Kalyan Ala Barot Versus. MH Rathod [2010 (6) TMI 282 - Gujarat High Court] - the AO had issued notice u/s 148 for assessing the income which was excluded from the total income of the petitioner by the AY 1984-85, to assess such income for the AY 1983-84 - the case fell within the ambit of the provisions of section 150 as well as section 153(3)(ii) read with Explanation 2 to section 153 of the Act – thus, the AO is directed to compute the capital gain in AY 2002-03 as per law after issuing a notice of hearing prescribed under the provisions of the Act - a co-joint reading with section 153(3) a reassessment may be compelted at any time where the reassessment is made in consequence or to give effect to any finding/direction of an order passed u/s 254(1). Application of section 50C – Held that:- While computing the capital gain for AY 2002-03, the AO is directed to take into account the sale consideration as noted in the sale-deed - The AO is not expected to take the shelter of the provisions of section 50C of IT Act for AY 2002-03 - the provisions of section 50C have come with effect from 1.4.2003 – the matter is remitted back to the AO with directions – Decided partly in favour of assessee. Issues Involved:1. Determination of the correct assessment year for taxable capital gain.2. Legality of reopening the assessment under Section 148.3. Application of Section 50C of the Income Tax Act for valuation of property.Detailed Analysis:1. Determination of the Correct Assessment Year for Taxable Capital Gain:The primary issue was whether the taxable capital gain arose in Assessment Year (A.Y.) 2004-05 or A.Y. 2002-03. The Assessee argued that the property transfer and transaction were completed on 21.05.2001, thus falling under A.Y. 2002-03. The Assessee provided evidence of receiving the sale consideration and handing over possession on 21.05.2001. The Assessee cited the case of Arundhati Balkrishna & Anr. Vs. CIT to argue that the transfer is effective from the date of execution of the document, not the date of registration.The Revenue contended that the transfer of immovable property is enforceable only from the date of registration, citing the Supreme Court decision in Suraj Lamp & Industries. However, the Tribunal found that the cited case dealt with the Transfer of Property Act and not the Income Tax Act. The Tribunal held that the capital gain should be assessed in A.Y. 2002-03, based on the Bombay High Court decision in Chaturbhuj Dwarkadas Kapadia vs. CIT, which states that transfer is effective from the date of possession and consideration transfer.2. Legality of Reopening the Assessment under Section 148:The Assessee challenged the reopening of the assessment for A.Y. 2004-05, arguing that there was no escapement of tax. The Tribunal noted that the Assessing Officer (AO) issued a notice under Section 148 within the prescribed time limit, based on information that the property was sold but not declared for A.Y. 2004-05. The Tribunal upheld the reopening as valid, dismissing the Assessee's ground.3. Application of Section 50C of the Income Tax Act:The AO applied Section 50C, adopting the market value of Rs. 22,22,000 instead of the declared Rs. 12,00,000. The Tribunal directed that while computing the capital gain for A.Y. 2002-03, the AO should consider the sale consideration as Rs. 12,00,000 as noted in the sale deed. The Tribunal clarified that Section 50C, effective from 01.04.2003, should not be applied to A.Y. 2002-03.Conclusion:The Tribunal held that the capital gain should be assessed in A.Y. 2002-03 and directed the AO to compute it accordingly. The reopening of the assessment for A.Y. 2004-05 was upheld as valid. The application of Section 50C for valuation was directed to be reconsidered for A.Y. 2002-03, taking the sale consideration as Rs. 12,00,000. The Assessee's appeal was partly allowed, with directions for reassessment in A.Y. 2002-03.