Reassessment and capital gains fail where recorded reasons are withheld and no transfer arises under part-performance rules.

Failure to furnish the recorded reasons for reopening when demanded during reassessment vitiated the reassessment, so the reopening challenge succeeded. The later memorandum arrangement was treated as having substituted and extinguished the earlier development agreement by novation, and the statutory requirements for part performance were not satisfied; therefore, no transfer arose under section 2(47)(v) in the relevant year and capital gains could not be taxed then. As the transfer itself was not established, the related capital gains computation and consequential interest adjustments also lacked a legal basis.

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Issues: (i) Whether reassessment was invalid for non-furnishing of reasons recorded for initiation of proceedings under section 147; (ii) Whether the arrangement between the parties resulted in a transfer within section 2(47)(v) so as to attract capital gains in the assessment year in question; (iii) Whether the computation of capital gains and related interest consequences were sustainable.

Issue (i): Whether reassessment was invalid for non-furnishing of reasons recorded for initiation of proceedings under section 147.

Analysis: The Third Member concurred with the view that the assessee was entitled to the recorded reasons once sought in the course of reassessment proceedings, and that failure to furnish them vitiated the reassessment. The reassessment was therefore held to be without effect on this issue.

Conclusion: This issue was decided in favour of the assessee.

Issue (ii): Whether the arrangement between the parties resulted in a transfer within section 2(47)(v) so as to attract capital gains in the assessment year in question.

Analysis: The later memorandum arrangements substituted the earlier development agreement, the earlier contract stood extinguished by novation, and the post-amendment legal requirements for invoking part performance were not satisfied on the facts. On that basis, the registered later arrangement could not be treated as giving rise to a transfer under section 2(47)(v) for the relevant year.

Conclusion: This issue was decided in favour of the assessee.

Issue (iii): Whether the computation of capital gains and related interest consequences were sustainable.

Analysis: Once no transfer was held to have occurred in the relevant assessment year, the computed capital gains and the enhanced consideration adopted by the authorities lacked a legal basis for that year. The interest grounds were treated as consequential to the main findings.

Conclusion: This issue was decided in favour of the assessee.

Final Conclusion: The reassessment and the capital gains additions were set aside in the first appeal, while in the connected appeal only the reopening challenge failed and the remaining substantive grounds succeeded, resulting in a partly allowed disposal overall.

Ratio Decidendi: In reassessment proceedings, recorded reasons must be furnished when demanded after return is filed in response to notice under section 148, and a later substituted development arrangement, extinguishing the earlier contract by novation, does not amount to a transfer under section 2(47)(v) unless the statutory requirements for part performance are satisfied.

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