Sale deed registered by HC order related back to original sale agreement

Execution of sale deed by order of High Court would relate back to the date of original agreement to sale with benefit of cost indexation from said date

ABCAUS Case Law Citation:
ABCAUS 2692 (2019) (01) HC

Important Case Laws Cited/relied upon:
ACIT vs. Rajesh Jhaveri Stock Brokers Pvt. Ltd., 291 ITR 500 (SC)
Sanjeev Lal & Ors. Vs. CIT (2015) 5 SCC 775
Hindustan Lever Ltd Vs. ACIT 268 ITR 332

The Petitioner had challenged a notice of reopening of the assessment.

The petitioner was an individual. For the relevant assessment year, the petitioner filed return of income which was accepted by the assessing officer under Section 143(1) of the Income Tax Act, 1961 (the Act).

The previous owner had entered into an agreement to sale with the petitioner. At the time of execution of this agreement, the petitioner had paid the required earnest money and the balance amount was to be paid upon issuance of no objection certificate (NOC) by the appropriate authority as referred to in Chapter XX-C of the Income Tax Act, 1961.

However, the appropriate authority refused to grant such NOC and ordered deemed purchase of the same by the Central Government.

The petitioner challenged such order of the appropriate authority before the High Court by filing a Writ Petition. The Hon’ble High Court quashed the order passed by the Appropriate Authority and directed the Income Tax Department to hand over the possession of the premises to the Petitioner and also execute necessary Deed of Sale.

Pursuant to the judgment of the High Court, the sale deed was executed in favour of the petitioner upon the petition depositing remaining sale consideration with the department.

In the return filed, therefore, the petitioner offered capital gain arising out of the sale of the said property by treating the date of acquisition as the date of agreement to sale and accordingly worked out the indexed cost of acquisition.

However, according to the department, as per the reasons recorded for reopening, the assessee had wrongly taken the date of acquisition of the property as the date of agreement to sell instead of correct date which was the date of judgment of the High Court.

The petitioner filed objections to the notice of reopening. The said objections were, however, rejected by the Assessing Officer (AO). As a result, the present petition had been filed.

The petitioner submitted that the agreement to sale did not culminate into a final sale only because the competent authority under Chapter XX-C of the Act refused to grant NOC and instead ordered compulsory acquisition of the property by the Central Government. This order was declared as ab initio void by the Bombay High Court. In that view of the matter, the transfer of the property in question would relate back to the original date of agreement to sale since, but for the illegal intervention by the Income Tax Authorities, the sale would have taken place as envisaged in the agreement to sale.

It was submitted that at no stage, the original owner, the proposed seller of the property had raised any dispute about the agreement to sale or the terms thereof.

The Hon’ble High Court observed that the return filed by the assessee having been accepted without scrutiny, the assessing officer would enjoy a greater latitude in reopening of the assessment as is held by the Supreme Court. However, even in such a case, the requirement that the assessing officer must have reason to believe that income chargeable to tax has escaped assessment, must be satisfied.

The Hon’ble High Court accepted the petitioner’s contention that the execution of the sale deed by virtue of the judgment of the High Court was related back to the original agreement to sale entitling the benefit of cost indexation from the said date.  The entire basis of the department in the reasons recored in order to dispute the petitioner’s computation of the capital gain, therefore, was rendered invalid.

Accordingly, the impugned notice u/s 148 was set aside.

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