2018 (9) TMI 1703 - HC - Income Tax

Court upholds Assessing Officer's right to reopen assessment for undisclosed capital gains

ABHA VINAYKUMAR JAIN Versus INCOME TAX OFFICER WARD 4 (1) (4)

The court declined to interfere with the notice of reopening issued by the Assessing Officer for the assessment year 2011-12 regarding the non-disclosure ... Reopening of assessment - non disclosure of capital gain arising out of the sale transaction in question - Held that:- The return filed by the petitioner was accepted without scrutiny. It is by now well settled that in such a situation, the Assessing Officer would have much wider latitude to reopen the assessment. Since in the original assessment no scrutiny was undertaken, the Assessing Officer cannot be stated to have formed an opinion. The principle of change of opinion therefore would not apply. Whether there is prima facie evidence suggesting transfer of capital asset or whether the petitioner is correct in contending that the entire transaction was fraudulent and no sale actually took place, are the issues we are not inclined to go into in the present petition. The petitioner must submit to the jurisdiction of the Assessing Officer who alone can ask relevant questions in this respect and take a final decision while framing re-assessment. If the Assessing Officer is prevented from carrying out assessment, the serious question of such assessment getting time barred by the time the petitioner's litigation before the Civil Court achieves finality. This is not a case where the very liability or in the present case, the question of gain is under litigation. What is under litigation is the factum of the transfer of capital asset. If eventually the petitioner losses in her challenge to the sale deed, the situation would be that the sale of the land by virtue of such deed, did actually take place as is recorded in the document, in which case, the petitioner must surrender the capital gain arising out of such transaction of capital asset to tax during the assessment year relevant to financial year when the transaction took place. Petition dismissed. Issues:Challenge to notice of reopening by Assessing Officer for assessment year 2011-12 based on non-disclosure of capital gain arising from sale transaction of non-agricultural land.Analysis:The petitioner, an individual, challenged a notice of reopening issued by the Assessing Officer for the assessment year 2011-12. The petitioner's return of income was accepted without scrutiny initially. However, it was discovered that a sale deed of non-agricultural land belonging to the petitioner was registered, indicating a sale for Rs. 20 lakhs to a buyer. The Assessing Officer made inquiries, but the petitioner claimed not to have received the notice. Subsequently, the Assessing Officer issued the notice for reopening based on reasons provided, alleging that the petitioner failed to disclose short-term capital gains from the sale transaction. The petitioner objected to the notice, claiming the sale deed was fraudulent and that no actual sale took place. The petitioner filed a civil suit regarding the disputed transaction.The petitioner contended that the sale transaction was bogus, no consideration was received, and she remained in possession of the land. The petitioner argued that pending litigation prevented the assessment of capital gains, citing the real income theory principle. The court noted that since the original assessment was not scrutinized, the Assessing Officer had the authority to reopen the assessment without the 'change of opinion' principle applying. The court referred to relevant Supreme Court decisions in this regard.The court declined to interfere at the reopening stage, emphasizing that the Assessing Officer should assess the transfer of the capital asset and determine the tax liability. The court highlighted that the issue of gain was not under litigation, but the fact of the transfer of the asset was. The court dismissed the petition, stating that the Assessing Officer should address the petitioner's contentions during reassessment. The court clarified that it had not expressed an opinion on the taxability of the amount in question, leaving all contentions open for consideration by the Assessing Officer during assessment proceedings.