Capital gains transfer test fails absent possession under section 53A; reassessment upheld and retained advances adjusted against cost.

Reassessment under section 147 was upheld where the original return had only been processed under section 143(1), the notice under section 148 was issued within four years, and the Assessing Officer had material to form a belief that income had escaped assessment; the challenge based on absence of tangible material and change of opinion failed. The property transaction was not a transfer under section 2(47)(v) because the buyer was not put in possession in part performance under section 53A of the Transfer of Property Act, and the unregistered agreement did not satisfy the legal requirement; the long-term capital gains addition was deleted. Retained advances were not taxable as income in the relevant year, but had to be reduced from cost of acquisition under section 51.

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Issues: (i) Whether reassessment under section 147 was valid where the original return had been processed under section 143(1); (ii) Whether the property transaction resulted in a transfer so as to attract long-term capital gains; and (iii) Whether the advances of Rs. 51,00,000 and Rs. 19,60,000 were taxable in the relevant year or required adjustment only in the cost of acquisition.

Issue (i): Whether reassessment under section 147 was valid where the original return had been processed under section 143(1).

Analysis: The reopening was based on information that the assessee had entered into an agreement to sell the property for consideration of Rs. 50 crores but had not offered capital gains to tax. Since no assessment under section 143(3) had been completed earlier and the notice under section 148 was issued within four years, the first proviso to section 147 did not apply. At the stage of reopening, the Assessing Officer needed only relevant material to form a belief that income had escaped assessment. The material relied upon was held sufficient, and the challenge based on absence of tangible material and change of opinion was rejected.

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

Issue (ii): Whether the property transaction resulted in a transfer so as to attract long-term capital gains.

Analysis: The agreement for sale was not followed by a conveyance deed. The consideration of Rs. 45 crores was in fact received, but the decisive question was whether the purchaser was put in possession in part performance of a contract of the nature contemplated by section 53A of the Transfer of Property Act, 1882. On the facts, the assessee retained physical possession, and the limited entry or constructive possession referred to in the consent terms did not amount to possession attracting section 2(47)(v). The agreement was also unregistered, so section 53A was not available in law for the relevant purpose. Consequently, there was no transfer during the year.

Conclusion: No transfer within section 2(47)(v) occurred, and the addition made on account of long-term capital gains was deleted in favour of the assessee.

Issue (iii): Whether the advances of Rs. 51,00,000 and Rs. 19,60,000 were taxable in the relevant year or required adjustment only in the cost of acquisition.

Analysis: The amounts were held to be advances received and retained by the assessee in relation to property transactions, but prior to 01.04.2015 there was no charging provision treating such retained advances as income from other sources under section 56(2)(ix). The addition in the relevant year was therefore not sustainable as income. However, in terms of section 51, the retained advances were required to be reduced from the cost of acquisition when capital gains, if any, were computed in the relevant year of transfer.

Conclusion: The additions were not taxable as income in the relevant year, but the amounts were to be adjusted against the cost of acquisition under section 51, against the assessee on the limited adjustment aspect.

Final Conclusion: The appeal succeeded only on the capital gains issue, while the reassessment challenge failed and the treatment of the retained advances was confined to cost adjustment rather than current-year taxation.

Ratio Decidendi: For a transfer under section 2(47)(v), there must be a legally enforceable transaction coupled with possession in part performance under section 53A; where that element is absent, capital gains cannot arise, though retained advances may still affect cost of acquisition under section 51.

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