Reassessment under Section 147 valid but no capital gains tax on property sale without possession transfer

ITAT Mumbai upheld reassessment proceedings under Section 147, finding AO had sufficient material to believe income escaped assessment. However, the tribunal ruled no capital gains tax was due on property transaction as purchaser never obtained possession, making Section 2(47)(v) inapplicable. The unregistered agreement for sale did not constitute transfer under Section 53A of Transfer of Property Act. Advance amounts received and retained by assessee were not taxable as income during the relevant year but would reduce acquisition cost under Section 51 when computing future capital gains.

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Issues Involved:
1. Jurisdiction of the Assessing Officer under Section 143(3) read with Section 147 of the Income Tax Act.
2. Addition of INR 49,50,11,429/- as Long Term Capital Gains.
3. Addition of INR 51,00,000/- received as advance.
4. Addition of INR 19,60,000/- received as advance.
5. Non-adjudication of additional grounds by CIT(A).
6. Treatment of properties as investments.

Summary:

Issue 1: Jurisdiction of the Assessing Officer under Section 143(3) read with Section 147 of the Income Tax Act
The Appellant challenged the jurisdiction of the Assessing Officer to frame assessment under Section 143(3) read with Section 147 of the Act. The Tribunal noted that the Assessing Officer had reason to believe that income had escaped assessment based on the Agreement for Sale dated 01.04.2008, which was not disclosed in the return of income. The Tribunal upheld the CIT(A)'s reliance on the Supreme Court judgment in ACIT vs. Rajesh Jhaveri Stock Brokers Private Limited, where it was held that the Assessing Officer is free to initiate proceedings under Section 147 if there is reason to believe that income has escaped assessment. Ground No. (A) to (D) and Additional Ground No. 1 were dismissed.

Issue 2: Addition of INR 49,50,11,429/- as Long Term Capital Gains
The Tribunal examined whether the transactions between the Appellant and Purchaser constituted a 'transfer' under Section 2(47) of the Act. It was found that the Appellant received the consideration of INR 45 Crores but the Purchaser was not put in possession of the Property. The Tribunal concluded that the provisions of Section 2(47)(v) were not attracted as there was no transfer of possession. The Tribunal also noted that the Agreement for Sale was not registered, and thus, Section 53A of the Transfer of Property Act was not applicable. Consequently, the addition of INR 49,50,11,429/- on account of Long Term Capital Gains was deleted.

Issue 3: Addition of INR 51,00,000/- received as advance
The Appellant received INR 51,00,000/- as advance in relation to the sale of the Property, which was claimed to be refundable. The Tribunal noted that the amount was retained by the Appellant and not admitted as payable in the Balance Sheets. The Tribunal held that the amount could not be taxed as income during the relevant previous year but would have to be reduced from the cost of acquisition of the Property under Section 51 of the Act.

Issue 4: Addition of INR 19,60,000/- received as advance
The Appellant received INR 19,60,000/- as advance for the sale of Varsova Property, which was also claimed to be refundable. The Tribunal observed that the amount was retained by the Appellant and not admitted as payable in the Balance Sheets. Similar to the previous issue, the Tribunal held that the amount could not be taxed as income during the relevant previous year but would have to be reduced from the cost of acquisition of the Varsova Property under Section 51 of the Act.

Issue 5: Non-adjudication of additional grounds by CIT(A)
The Tribunal disposed of Ground No. (L) as infructuous in view of the adjudication of other grounds.

Issue 6: Treatment of properties as investments
Ground No. (M) was also disposed of as infructuous in light of the Tribunal's findings on other issues.

Conclusion:
The appeal was partly allowed, with the Tribunal deleting the additions related to Long Term Capital Gains and advances received, while upholding the jurisdiction of the Assessing Officer. The application for additional evidence was rejected as infructuous. The order was pronounced on 06.07.2023.

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