2022 (12) TMI 503 - AT - Income Tax

Tribunal remits case for CIT(A) to determine property transfer year, emphasizes tax clarity

The Tribunal remitted the case back to the CIT(A) for a specific finding on the year of transfer of the property, emphasizing the importance of clarifying ... Transfer of a capital asset - chargeability to capital gains - year of transfer - reopened assessment - reassessment proceedings - recomputation with indexed cost of acquisitionTransfer of a capital asset - year of transfer - chargeability to capital gains - Whether the year in which the transfer of the assessee's property took place has been established for determining taxability of long-term capital gains. - HELD THAT: - The Tribunal held that taxability under the head 'Capital gains' depends on the year in which the transfer of the capital asset, as regards the assessee, actually took place. Although the sale to the end-buyer was effected by the ARCIL, that circumstance indicates there may have been an earlier transfer from the assessee to the bank/ARC, but no categorical finding as to the date or documentation of any transfer from the assessee to the State Bank of India (or by operation of DRT orders) has been recorded by the authorities. The point was not examined by the Assessing Officer or the CIT(A). In view of this lacuna, the Tribunal remitted the matter to the CIT(A) to record a specific finding, after affording the assessee a due and reasonable opportunity of hearing and passing a speaking order; only after such determination can the question of taxability in the relevant year be answered. All contentions of the assessee remain open pending that adjudication. [Paras 4]Remitted to the CIT(A) for a specific finding on the year of transfer, with opportunity of hearing and a speaking order; taxability to be determined thereafter.Recomputation with indexed cost of acquisition - quantification of capital gains - reassessment proceedings - Whether the quantification of capital gains and related computations were finally determined by the authorities. - HELD THAT: - The Tribunal observed that, because the determinative question of the year of transfer has been remitted, the issues relating to correct quantification of capital gains are academic at this stage. The Tribunal directed that, if necessary after the CIT(A) determines the year of transfer, the CIT(A) should recompute capital gains taking into account duly indexed cost of acquisition and cost of improvement, and allow the assessee to furnish necessary information. This aspect is therefore to be re-examined afresh by the CIT(A) following the determination of the year of transfer. [Paras 6]Quantification and recomputation remitted to the CIT(A) for fresh examination and recomputation (including indexation) after the year of transfer is determined.Final Conclusion: The appeal is allowed for statistical purposes by remitting the matter to the CIT(A) to determine, by a speaking order after hearing the assessee, the year in which the transfer occurred; consequential recomputation of capital gains (with indexed cost and cost of improvements) is to be carried out by the CIT(A) thereafter and all other contentions remain open. Issues:Challenge to correctness of order dated 3rd September 2015 under section 143(3) r.w.s. 147 for assessment year 2006-07.Analysis:The appeal challenges the order passed by the CIT(A) regarding the assessment under section 143(3) r.w.s. 147 of the Income Tax Act, 1961, for the assessment year 2006-07. The case involves a reopened assessment due to the sale of immovable property by the assessee. The Assessing Officer noted that the assessee was a director of a company and had given a personal guarantee for its borrowings. The property owned by the assessee was given as collateral security to a bank, which later assigned it to another company. The property was eventually sold to a developer. The Assessing Officer taxed the entire sale amount as long-term capital gain, leading to the appeal by the assessee.The Tribunal observed that the crucial aspect for taxability is the year in which the transfer of the property took place from the assessee. The transfer from the assessee to the Asset Reconstruction Company (ARC) was considered significant, and the Tribunal found a lack of examination on this matter. Therefore, the Tribunal remitted the case back to the CIT(A) for a specific finding on the year of transfer, ensuring due process and a speaking order. The question of taxability of capital gains is linked to the year of transfer, which needs clarification.Furthermore, the Tribunal highlighted the issue of protecting the revenue's interests in cases where assets are taken over for recovery by banks or ARCs. The concern raised was that the tax liability on capital gains falls on the asset owner, even if the sale proceeds go entirely to the banks, leaving the revenue at a loss. The Tribunal suggested the government consider mechanisms to secure tax liabilities in such transactions to prevent revenue losses and avoid subsidizing banks unintentionally.Given the remittance of the case to the CIT(A) for reevaluation, the Tribunal deemed the issues raised by the assessee on capital gains quantification premature. The CIT(A) was directed to reexamine the capital gains calculation, considering indexed cost of acquisition and improvements, based on the clarified year of transfer. The appeal was allowed for statistical purposes, emphasizing the need for a comprehensive reassessment by the CIT(A) in light of the clarified transfer year.In conclusion, the Tribunal's judgment focused on clarifying the year of transfer for taxability, addressing revenue protection concerns in asset sale transactions, and directing a fresh assessment by the CIT(A) on capital gains quantification based on the revised findings.