Whether when method deployed by assessee for computation of capital gains was found to be wrong, it confers jurisdiction on AO to reopen assessment after four years - NO: HC

THE issue before the Bench is - Whether when method deployed by assessee for computation of capital gains was found to be wrong, it confers jurisdiction on AO to reopen assessment after four years. NO is the answer.

Facts of the case

The assessee is an individual. It had filed return of income declaring losses. A notice u/s 143(2) was issued and duly served upon the assesssee. Subsequently, a questionnaire was issued calling for certain details/information and clarifications u/s 142(1) from the assessee, which was duly served upon the assessee. During the year assessee sold an immovable property for Rs.35 lac resulting in capital loss of Rs.4,57,137/-. On the basis of the information received from the Sub Registrar regarding valuation of the said property, it was revealed that the value of the said property assessed by the Sub Registrar was Rs.1,01,77,400/-. Therefore, AO held that the assessee had understated the value of the said property in his return of income by Rs.66,77,400/- Therefore, in view of the provisions of Section 50C, the assessee was served with the show cause notice and was called upon to show cause as to why the sale price of the said property should not be taken at Rs.1,01,77,400/- for computing the capital gain. Initially, the assessee claimed indexed cost of property at Rs.38,57,137/-. However, subsequently and during the course of assessment proceedings, assessee had submitted the revised computation of income, in which the assessee claimed indexed cost of property of Rs.93,98,488/-. The same was accepted by AO and computed the capital gain by considering the sale price of the property at Rs.1,01,77,400/- less indexed cost of property as per the return of income at Rs.93,98,488/- and considered the long term capital gains. Accordingly, AO passed the final assessment order. Thereafter, after a period of four years from the date of assessment, AO served a notice u/s 147 on the assessee for AY 2008-2009 and reopening the assessment proceedings beyond the period of four years. At the instance of the assessee, AO served the reasons for initiating the proceedings u/s 147 as per which it was made clear that during assessment income of the assessee was assessed at Rs.1,97,560/-/ after considering the indexed cost of the property shown in the revised computation of income instead of Rs.38,57,137/- as declared in the original computation of income filed with return of income. The assessee had declared capital loss in the return of income. As the assessee had not filed revised return, the indexed cost of property was to be taken as per return filed by assessee. The assessee had not filed any revised return of income to claim the indexed cost of property, but filed the claim simply by way of letter which cannot be entertained. Thus, it was observed that there was escapement of income in the hands of assessee which was required to be taxed by reopening the assessment u/s 147.

Held that,

++ at the outset, it is required to be noted that in the present case, the reopening of the assessment u/s 147 and the petitioner has been served with the notice under section 148 of the Act for AY 2008-2009 beyond the period of four years. Under the circumstances and considering the section 147 of the Act, unless and until it is found that any income chargeable to tax has escaped assessment for such assessment year by reason of the failure on the part of the assessee to disclose fully and truly all material facts necessary for the assessment for that assessment year, initiation of the reassessment proceedings u/s 147 would not be permissible. In the present case, it is required to be noted that during the original assessment proceedings, the assessee did claim the indexed cost of property at Rs.93,98,488/- may be without filing any revised return of income and by submitting only revised computation of income. However, the same came to be considered by the Assessing Officer and while computing the long term capital gain, the AO considered the indexed cost of property of Rs.Rs.93,98,488/- as claimed by the assessee. Therefore, as such, it cannot be said that the assessee did not disclose fully and truly all material facts necessary for the assessment, for that assessment year. May be the method adopted by the assessee was not correct. He ought to have submitted the revised return of income. However, by that itself, cannot confer the jurisdiction on the AO to initiate the reassessment proceedings and/or reopen the assessment in exercise of powers under section 147 beyond the period of four years unless and until the assessee did not truly and fully disclosed the material fact, which was necessary for the purpose of assessment. Under the circumstances, in the present case, the condition precedent for initiation of the proceedings beyond the period of four years u/s 147 are not satisfied at all. Under the circumstances, the initiation of reassessment proceedings/reopening the assessment for AY 2008-2009, which has been initiated beyond the period of four years, is wholly without jurisdiction and authority under the law and therefore, this is a fit case to quash and set aside the impugned notice of reopening the assessment. In view of above and for the reasons stated above, the petition succeeds. The impugned notice issued under section 148 dated 31.3.2014 reopening the assessment for the AY 2008-2009 is hereby quashed and set aside. Rule is made absolute accordingly with no order as to costs.