Relating-back of property transfer allowed original acquisition date for indexation, and reopening based on the later date failed.

Reopening of assessment based on an alleged later date of acquisition was held unsustainable where the return had been processed under section 143(1) and the recorded reasons depended on an incorrect legal premise. The assessee had agreed to buy immovable property in 1992, paid earnest money, and was later prevented from completing the conveyance only because an unlawful Chapter XX-C intervention delayed execution until a court-directed sale deed. The later deed was treated as relating back to the original agreement for capital gains purposes, so indexation ran from the original acquisition date. The reassessment notice was therefore set aside.

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Issues: Whether the notice reopening the assessment was sustainable when the assessee had treated the date of acquisition of immovable property as the date of the original agreement to sell, and whether the property could be taken to have been acquired only on the date of the later court-mandated conveyance for the purpose of computing indexed cost of acquisition and capital gains.

Analysis: The return had been processed under section 143(1) of the Income-tax Act, 1961, so reopening required the assessing officer to have reason to believe that income had escaped assessment. The dispute turned entirely on the correct date of acquisition for capital gains computation. The assessee had entered into an agreement to purchase the property in 1992, paid earnest money, and was prevented from obtaining a completed conveyance only because the Appropriate Authority under Chapter XX-C of the Income-tax Act, 1961 ordered deemed purchase by the Central Government. That order was later quashed as illegal and void, and the sale deed was directed to be executed pursuant to the court's judgment. In these circumstances, the later execution of the sale deed was held to relate back to the original agreement to sell, so the assessee was entitled to indexation from the original date. The reasons recorded by the assessing officer proceeded on an erroneous premise that acquisition occurred only in 2007, and therefore did not disclose valid material to justify reopening.

Conclusion: The reopening notice was unsustainable and was set aside in favour of the assessee.

Final Conclusion: The assessee's original date of acquisition was accepted for capital gains purposes, and the reassessment action failed because the recorded reasons were based on an incorrect legal premise.

Ratio Decidendi: Where a completed transfer is delayed only because of an unlawful intervention later declared void, the transfer may relate back to the original agreement for capital gains computation, and reassessment cannot rest on a reopening reason founded on an erroneous assumption about the date of acquisition.

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