Reassessment on audit information and section 54 relief both turn on independent belief and completed registered conveyance

Reassessment initiated within four years was treated as valid where an audit objection supplied information and the Assessing Officer independently formed a belief of escapement of income; it was not regarded as a mere change of opinion. For section 54 relief, an unregistered agreement to sell coupled with possession, but not completed by a registered conveyance deed, was held insufficient to constitute a completed purchase of a residential house. The denial of deduction was therefore sustained, with relief confined to restricting the disallowance to the deduction amount claimed in the return.

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Issues: (i) Whether reopening of assessment was valid when based on audit objection and alleged change of opinion; (ii) Whether deduction under section 54 could be claimed on the basis of an unregistered agreement to sell coupled with possession, without a registered conveyance deed.

Issue (i): Whether reopening of assessment was valid when based on audit objection and alleged change of opinion.

Analysis: The regular assessment had been completed earlier under section 143(3), and the reassessment was initiated within four years. The record did not show that the relevant aspect had been examined in the original assessment. The audit objection constituted information, and if the Assessing Officer independently applied mind to that information and formed a belief that income had escaped assessment, reassessment could be sustained. On the facts, the reopening was not merely a change of opinion.

Conclusion: The reassessment proceedings were held valid, against the assessee.

Issue (ii): Whether deduction under section 54 could be claimed on the basis of an unregistered agreement to sell coupled with possession, without a registered conveyance deed.

Analysis: The assessee relied on an unregistered agreement for sale and claimed to have received possession, but the transaction had not culminated in a registered sale deed. The term "purchase" in section 54 was treated as requiring an effective and absolute acquisition of ownership through a registered conveyance. An unregistered agreement, without completion of conveyance, did not amount to completed purchase. The legal position under section 2(47) of the Income-tax Act, section 53A of the Transfer of Property Act, 1882, and sections 17(1A) and 49 of the Registration Act, 1908 supported the view that an unregistered arrangement did not confer the requisite transfer rights for the exemption. However, the addition was to be restricted to the amount of deduction actually claimed in the return.

Conclusion: The denial of deduction was upheld, with relief limited to restricting the addition to the amount of deduction claimed by the assessee.

Final Conclusion: The appeal succeeded only to the limited extent of restricting the disallowance to the deduction amount claimed, while the reopening and the substantive denial of exemption were otherwise sustained.

Ratio Decidendi: For section 54, an unregistered agreement to sell that has not matured into a registered conveyance does not amount to a completed purchase of a residential house; and reassessment based on audit information is sustainable where the Assessing Officer independently forms a belief of escapement of income.

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