AO arbitrarily selected Rs. 8 per sq meter for capital gains computation, ignored Section 54EC deduction claim

Delhi HC quashed reassessment proceedings u/s 147 for capital gains computation. AO failed to apply mind while determining cost of acquisition, arbitrarily selecting Rs. 8 per sq meter instead of Rs. 10 without justification, and ignored available material from DCIT. AO also overlooked petitioner's Section 54EC deduction claim of Rs. 1 crore. PCIT rubber-stamped AO's decision without proper scrutiny. Court held both authorities showed complete non-application of mind, lacking sufficient material to form belief that income escaped assessment.

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Issues Involved:
1. Validity of Reassessment Proceedings
2. Application of Section 50C of the Income Tax Act, 1961
3. Calculation of Cost of Acquisition for Capital Gains

Summary:

1. Validity of Reassessment Proceedings:
The main contention raised by the petitioner was that the reassessment proceedings were initiated without due application of mind by the Assessing Officer (AO). The petitioner argued that both the AO and the authority granting approval did not properly consider whether there was sufficient material to form a belief that income chargeable to tax had escaped assessment. The court found that the AO had not applied his mind to the input received from the DCIT and had failed to secure relevant material before triggering the reassessment proceedings. Additionally, the Principal Commissioner of Income Tax (PCIT) had merely rubber-stamped the AO's attempt to reopen the assessment without proper examination, leading to a conclusion of non-application of mind.

2. Application of Section 50C of the Income Tax Act, 1961:
The AO initiated reassessment proceedings on the basis that the petitioner did not disclose the "full and true value of the consideration" for the land sold during the Financial Year 2010-11. The AO argued that the consideration received was less than the circle rate, thus attracting the provisions of Section 50C of the Act. However, the court observed that the petitioner had calculated his capital gains by taking the circle rate into account, and therefore, the provisions of Section 50C were not applicable. The AO had missed this crucial aspect, leading to an erroneous basis for reopening the assessment.

3. Calculation of Cost of Acquisition for Capital Gains:
The real difference in the long-term capital gain was due to the cost of acquisition. The petitioner calculated the cost of acquisition based on the circle rate, while the AO pegged it at a much lower rate based on a letter from the DCIT, which referred to outdated market rates from 1980-83. The court noted that the AO did not provide a rationale for using Rs. 8 per square meter instead of Rs. 10 per square meter in calculating the cost of acquisition. Furthermore, the AO failed to adjust the deduction claimed by the petitioner under Section 54EC of the Act. This indicated a lack of due diligence and application of mind by the AO.

Conclusion:
The court allowed the writ petition, quashing the notice dated 29.03.2018 issued under Section 148 of the Income Tax Act. The reassessment proceedings were deemed invalid due to non-application of mind by both the AO and the PCIT, and the erroneous application of Section 50C.

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