2023 (11) TMI 277 - AT - Income Tax

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 ... Validity of reassessment proceedings - jurisdiction of AO to frame assessment u/s 143(3) r.w.s.147 - reasons to believe - HELD THAT:- As decided in Rajesh Jhaveri Stock Brokers Private Limited [2007 (5) TMI 197 - SUPREME COURT] where intimation is issued to an assessee u/s143(1) of the Act on processing of the return of income, the failure of the AO to take steps u/s 143(3) of the Act would not render the AO powerless as the AO would be free to initiate proceedings u/s 147/148 of the Act provided the ingredients of Section 147 of the Act are fulfilled. What is required to be considered is whether the Assessing Officer had the relevant material on which a reasonable person could have formed requisite belief that income has escaped assessment. Whether the materials would conclusively prove the escapement of income and/or whether the material is sufficient or not does not require consideration at that stage. In our view, in the facts and circumstances of the present case, the Assessing Officer had sufficient tangible material to form belief that income has escaped assessment for the Assessment Year 2009-10. Further, in our view, the provisions contained in Clause (b) of Explanation 2 to Section 147 of the Act would also get attracted in the case of the Appellant and income would be deemed to have escaped assessment. Thus, we hold that the order passed by CIT(A) on this issue does not suffer from any infirmity. Addition of capital gains - As per AO Appellant had not offered to tax capital gains income arising from transfer of the Property - whether the transactions undertaken between the Appellant and Purchaser resulted in ‘transfer’ of the Property from the Appellant to Purchaser in terms of Section 2(47)? - HELD THAT:- On perusal of Clause 4(b) of the Agreement, it can be seen that the Appellant continued to in the physical possession of the Property till the Consent Terms were recorded and granted only license and right of entry to the Purchasers by way of the aforesaid Consent Terms. Further, on perusal of Clause 11 of the Consent Terms it emerges that it also dealt with handing over of only the constructive possession of limited area occupied by the tenants/occupants and a small portion of the area of the building. In our view, Clause 11 of the Consent Terms when read with Clause 4(b) of the Agreement for Sale, supports the contention of the Appellant that the Purchaser was not put in possession of the Property. Nothing on record to support the contention of the Revenue that the Purchaser had possession of the Property. The provisions of Section 2(47)(v) of the Act defines transfer in relation to capital assets to include any transaction involving the allowing of possession of any immovable property to be taken or retained in part performance of the contract of the nature referred to in Section 53A of the TPA. Since in the facts of the present case we have concluded that the possession of the Property was not taken by the Purchaser, the provisions of Section 2(47)(v) of the Act are not attracted. It is admitted position that the Agreement for Sale, dated 01/04/2008 is not a registered document. Further, nothing has been brought on record by the Assessing Officer to show that the Purchaser was willing to perform his part of contract. The Consent Terms were agreed upon only after the Appellant filed suit for seeking specific performance of the Agreement for Sale. Therefore, we hold that the transaction under consideration did not attract provisions of Section 53A of the TPA. We also do not find any merit in the contention advanced on behalf of the Revenue that there was relinquishment of any right by the Appellant in the Property. There being no transfer in terms of Section 2(47)(v) of the Act, the question of any capital gains arising in the hands of the Appellant does not arise. Accordingly, addition on account of Long Term Capital Gains is deleted. Advance received and retained in relation to transaction of sale of Property - While computing capital gains the Assessing Officer had taken into consideration the amount of INR 5 Crores paid by the Purchaser to the Appellant which has, admittedly, being retained by the Appellant - Agreement to Sale has not resulted in transfer of the capital assets - HELD THAT:- There is no transfer of the Property during the relevant previous year and therefore, the amount cannot be brought to tax as income during the relevant previous year. The receipt of such an advance received and retained in relation to transaction of sale of Property has been brought to tax as 'Income from Other Sources' by way of an amendment to Section 56(2)(ix) of the Act made vide Finance (No. 2) Act, 2014 (effective from 01/04/2015). Further, the definition of ‘income’ under section 2(24) of the Act was also amended by the said Finance (No. 2) Act, 2014 (w.e.f. 01/04/2015) to include any sum of money referred to in Clause 56(2)(ix) of the Act. Therefore, prior to 01/04/2015, the amount of INR 51,00,000/- received by the Appellant for transfer of capital asset and retained by the Appellant could not have been brought to tax as income. However, as per Section 51 of the Act, the aforesaid amount would have to be reduced from the cost for which the Property was acquired while computing the cost of acquisition of the Property during the previous year in which provisions of Section 51 of the Act are attracted. Advance in relation to the sale of the Varsova Property - Assessee argued that relevant agreement was not duly signed by all the parties and the full amount of consideration was not received. Therefore, the transaction could not be completed and amount represented refundable advance and therefore, was not liable to tax as income in the hands of the Appellant - AO was not convinced as he concluded that even after expiry of more than four years the amount was still standing as advance received and was no longer refundable as the recovery has become time barred - HELD THAT:- Since amount has been lying with the Appellant; there is no material on record to show that steps for recovery by the other party; and in the Balance Sheets also the Appellant does not admit that such amount as payable/refundable to any specific party as the aforesaid amount has been reflected against the name of the property (i.e. ‘Varsova’). Nothing prevented the Appellant to refund the amount over these years. Therefore, we concur with the authorities below that the amount has been received and retained by the Appellant. Though the aforesaid amount is not liable to tax in income in the hands of the Appellant during the relevant previous year, however, the aforesaid amount would have to be reduced from the cost for which the Varsova Property was acquired while computing the cost of acquisition of the Property during the previous year in which provisions of Section 51 of the Act are attracted. 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 ActThe 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 GainsThe 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 advanceThe 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 advanceThe 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 investmentsGround 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.