Reassessment order quashed for not supplying reasons recorded for re-opening the assessment u/s 148 in spite of assessee’s written request
ABCAUS Case Law Citation:
ABCAUS 3033 (2019) (06) ITAT
Important Case Laws Cited/relied upon by the parties:
CIT Vs. Dr. T. K. Dayalu (2011) 14 taxmann.com 120
GKN Driveshafts (India) Ltd., 259 ITR 19 (SC)
PCIT Vs. V. Ramaiah (2019) 103 taxmann.com 201
Home Finders Housing Ltd., Vs. ITO (2018) 93 taxmann.com 371
The instant appeals was filed by assessees and cross appeals by Revenue all directed against separate orders of the CIT(A).
The appellant three assessees were co-owners of an inherited property. They entered into a joint development agreement (JDA) with a Developer for construction of a commercial complex.
For this purpose, the assessee executed a general power of attorney in favour of the Developer. As per the JDA, the built up area was to be shared in the ratio 42% to the assessee and 58% to the developers. Apart from this, the assessees (i.e., co-owners) on the execution of the JDA, the assesses had received an amount of Rs. 1 crore. The construction was completed and the possession of the property was handed over in the relevant assessment Year and the assessees declared capital gains thereon.
The Assessing Officer (AO), however, was of the opinion that capital gains arising on account of the JDA had escaped assessment for assessment year in which JDA was executed. He therefore issued notices under section 148 of the Income Tax Act, 1961 (the Act).
In response thereto, the assessees filed returns of income for AY in which JDA was executed mentioning the date of transfer as the date of receipt of the first cheque of the deposit received. As the assessees had received Rs. 1 crore as deposit one-third of the amount was shown as capital gains in each of the co-owners account.
According to the AO, the capital gain arising on part performance of the contract, i.e., JDA, is to be assessed in the previous year relevant to the Assessment Year in which the JDA was executed. In support of this proposition, the AO, inter alia, relied upon the decision of the Hon’ble Karnataka High Court wherein it was held that the capital gains is to be assessed in the year in which possession was allowed to the developer for development of the property.
The gist of the contentions of the assessee in this regard were as under:
(i) No amount was assessable to tax in the year which JDA was executed as there was no transfer of any capital asset by the assessee since the possession given by the assessee to the developer was permissive and not conclusive.
(ii) The general power of attorney (GPA) executed in favour of the developer did not involve the right to property and therefore there is no transfer.
(iii) Till date, the assessee had not transferred the undivided share of land to the developer and therefore no amount is assessable to tax as capital.
The assessee’s contentions did not find favour with the AO and he proceeded to hold that capital gain was payable by the assessees at the time of execution of the JDA and therefore the income from capital gain was assessable when JDA was executed only.
The orders of assessment of appellant assessees was accordingly concluded under section 143(3) r.w.s. 147.
The matter was carried in appeal before the CIT(A). The assessee, inter alia, contended that since the AO did not furnish the reasons recorded for initiation of proceedings for assumption of jurisdiction under section 147 and issue of notices under section 148 of the Act, therefore the orders of assessment were, ab initio, void / invalid. The assessee also raised grounds on the merits of the substantive additions made.
The CIT(A) disposed off the appeal allowing partial relief. The CIT(A) dismissed the grounds raised by the assessee on the issue of non-furnishing of reasons recorded for reopening the assessment under section 147 / 148 of the Act.
In the impugned order, the CIT(A) has observed that separate service to the assessee of the reasons recorded for re-opening of the assessment constituted a mere procedural / technical requirement; the absence of which would not vitiate the assessment in totality in the given circumstances of the case on hand.
On the merits of the case, the CIT(A) upheld the action of the AO in assessing the income in the hands of the assessees at the time when the JDA was signed. The CIT(A), however, granted the assessees partial relief on the issue of computation of capital gains; wherein the CIT(A) directed the AO to adopt the guidance value in respect of the property while computing the capital gains.
The Tribunal observed that the assesses requested the AO to furnish the reasons recorded for taking up proceedings under sections 147 and 148 of the Act. However, as per the records and the impugned orders of assessment, there was no proof of the reasons recorded having been furnished to the these assessees by the AO.
The Revenue was also not able to controvert the factual position of the matter as laid out above i.e., that the reasons recorded by the AO for initiating re-assessment proceedings under sections 147 / 148 of the Act were not furnished to the three assessees by the AO as requested by the assessees.
The Tribunal stated that there is no dispute that the AO is bound to furnish the reasons recorded for initiating re-assessment proceedings to the assessees as per the law laid down by the Hon’ble Apex Court in the case of GKN Driveshafts (India) Ltd.
It was also noted the Hon’ble Karnataka High Court after considering the decision of the Hon’ble Madras High Court had held that the re-assessment order / proceedings were to be quashed on the ground that the reasons recorded by the AO for re-opening the assessment were never furnished to the assessee as requested for. The said decision was later affirmed by Hon’ble Supreme Court.
Accordingly, the Tribunal was of the view that the decision of the Hon’ble Karnataka High Court was squarely applicable to the facts of the assessees where also the AO had not provided the assessees with the reasons recorded for re-opening the assessment as requested for by the assessees.
Respectfully following the decision of the Hon’ble Karnataka High Court the Tribunal held and directed that since the AO had failed to provide the assessees with reasons recorded for re-opening the assessments, in spite of the assessee’s written request for being provided with the same, the re-assessment orders passed under section 143(3) r.w.s. 147 of the Act were liable to be quashed.
