2020 (12) TMI 257 - AT - Income Tax

Tribunal upholds CIT(A)'s decision on assessment reopening, capital gains, depreciation & rectification.

The Tribunal upheld the CIT(A)'s decision, dismissing the Department's appeal. It deemed the reopening of assessment under Section 147/148 invalid due to ... Reopening of assessment u/s 147 - change of opinion - addition holding the claimed long term capital gain arising on sale of a property being 2 contiguous plots of land and building thereon as short term capital gain u/s 50 - HELD THAT:- We agree with the contention of the assessee that the assessment order cannot contain each and every fact verified by the assessing officer. What has been verified by him forms part of the assessment record. All the information regarding long term capital gain, depreciation, sale of asset was part of the return of income as well as the assessment record which only was later on referred to by the assessing officer to record reasons of escapement of income. Thus, the said facts were on the record of the assessing officer and verified by him. CIT(A) also verified the said information as has been mentioned in its order. Even, we have verified the said information from the documents placed in the paper book and have come to a conclusion that no depreciation was ever claimed or allowed on the land of building under consideration. Undisputedly, the said property was held by the assessee for more than three years as it was receiving the rent on the said property w.e.f. 1/5/2005 and no depreciation, was claimed thereon. There was true and full disclosure of the facts and no new information came to the knowledge of the assessing officer. On these facts and material already on record, the reopening of the assessment was invalid and the assessment so made on the basis of an invalid notice was correctly quashed by the CIT(A). Thus, ground no. 1 of the department is hereby dismissed. Section 50C Applicability - Documentary evidence clearly shows that the property in question was let out since the date of its acquisition and was never used for the purpose of business by the assessee. On perusal of the returns of income filed for the AY 2006-07 to 2009-10 and the depreciation charts submitted under Rule 5 of the Income-tax Rules, it is clearly evident that no depreciation was ever claimed on the said property since the date of its acquisition. Since no depreciation was claimed by the assessee and allowed by the department on this property, the provisions of section 50 cannot be invoked in this case. Hence, there would not be any change in the value of the block of assets as shown by the assessee as on 31/03/2009. Hence, the action of the assessing officer to assess the said surplus as Short-Term Capital Gain against the law and otherwise is not sustainable and the assessee is entitled to depreciation claimed on value of the block of assets as declared and the disallowance of depreciation is hereby deleted because this property was never part of the said block of assets eligible for depreciation. Thus, the ground nos. 2 and 3 of the revenue are dismissed. Accordingly, the appeal of the revenue is dismissed. Rectification of mistake u/s 154 - writing off of long-term capital gain on account of order of the Hon’ble Jurisdictional Delhi High Court - whether the long-term capital gain on sale of two properties declared by the assessee in its return of income has to be excluded from taxable income of the assessee for this assessment year in view of the cancellation of sale deeds of the said property in pursuance of the decree order passed by the Hon’ble Delhi High Court - HELD THAT:- Substantive justice must be rendered to the assessee to meet both the ends of law and justice - AO has made a grave error apparent from record by ignoring the documentary evidences including the Hon’ble jurisdictional Delhi High Court’s order placed on his record for cancellation of the sale even though the same was brought to his notice by the assessee and thereby including the long term capital gain on sale of the property in the taxable income of the assessee. The letter dated 29.02.2016 filed before the AO is to be treated an application u/s 154 to rectify the assessment order passed u/s 143(3) on 28.12.2011 as the application has to be considered in respect of LTCG assessed therein, because the said application was within 4 years as held above. We hold that the long- term capital gain of ₹ 143,85,67,404/- on sale of the said property is not at all taxable in the hands of the assessee as the sale deeds were cancelled. We hereby direct the assessing officer to exclude the long term capital gain on sale of the said property from the computation of taxable income for the A.Y. 2009-10 by passing an order u/s 154 of the Act within a period of three months from the receipt of this order to avoid undue harassment to the assessee and to refund the incometax paid thereon as per law. Thus, the issue raised in these grounds is decided in favour of the assessee. Mesne profit - As regards the Taxability of the amount of ₹ 36 crores remained with assessee after cancellation of the said sale in terms of the decree order of the Hon’ble jurisdictional Delhi High Court, we agree that the same was in the nature of mesne profit and beyond the provisions of section 56(2)(ix) - as explained by the Ld. AR, the said section is also not applicable as the twin conditions mentioned therein have not been met on the facts, because as per the contention of the AR the said amount was in the nature of liquidated damages for affecting the title of the assessee on the property for nearly 7 years. Issues Involved:1. Validity of reopening the assessment under Section 147/148.2. Classification of capital gain as long-term or short-term.3. Disallowance of depreciation.4. Treatment of revised return and rectification under Section 154.5. Taxability of the amount retained by the assessee after the cancellation of the sale.Issue-wise Detailed Analysis:1. Validity of Reopening the Assessment under Section 147/148:The Department challenged the quashing of the assessment order passed by the AO under Section 147/143(3), claiming that the assessee failed to disclose material facts fully and truly. The CIT(A) held that the reopening was invalid as it was based on a change of opinion on the same set of facts already on record. The Tribunal agreed, noting that all relevant information was available during the original assessment, and no new material justified the reopening. The Tribunal cited the Supreme Court's decision in CIT Vs Kelvinator India Ltd., emphasizing that reassessment based on a mere change of opinion is not permissible.2. Classification of Capital Gain as Long-Term or Short-Term:The Department contended that the capital gain arising from the sale of property should be classified as short-term under Section 50, as the property was part of the block of assets on which depreciation was claimed. The CIT(A) and the Tribunal found that no depreciation was claimed on the property, as it was let out and not used for business purposes. Consequently, the gain was rightly classified as long-term capital gain. The Tribunal relied on the decision in Divine Construction Company Vs ACIT, which held that if no depreciation is claimed, the provisions of Section 50 do not apply.3. Disallowance of Depreciation:The AO disallowed the depreciation claimed on the block of assets, arguing that the sale consideration exceeded the WDV, reducing the WDV to nil. The CIT(A) and the Tribunal held that since no depreciation was claimed on the property in question, it was not part of the block of assets eligible for depreciation. Therefore, the disallowance was unjustified, and the depreciation claimed by the assessee was allowed.4. Treatment of Revised Return and Rectification under Section 154:The assessee filed a revised return during reassessment proceedings, excluding the capital gain on the property whose sale was canceled by a High Court decree. The AO and CIT(A) rejected this revised return, stating that Section 147 is for taxing escaped income, not for giving benefits to the assessee. The Tribunal, however, held that the revised return should be treated as an application under Section 154 for rectification, as the cancellation of the sale deed constituted a mistake apparent from the record. The Tribunal directed the AO to rectify the assessment and exclude the capital gain from the taxable income.5. Taxability of the Amount Retained by the Assessee after Cancellation of the Sale:The Tribunal examined whether the amount of Rs. 36 crores retained by the assessee after the sale cancellation was taxable. It was concluded that the amount was in the nature of mesne profit, compensating the assessee for the deprivation of the property for nearly seven years. The Tribunal held that this amount was not taxable under Section 56(2)(ix), as the conditions for its applicability were not met. The amount was considered a capital receipt and not taxable.Conclusion:The Tribunal dismissed the Department's appeal, upholding the CIT(A)'s decision to quash the reassessment and allow the long-term capital gain classification and depreciation claim. The Tribunal also directed the AO to rectify the assessment under Section 154, excluding the capital gain from the taxable income and treating the retained amount as non-taxable mesne profit.