Smt. Sangeeta V. Commissioner Of Income Tax

IAPL/364/2008

AI Insights

The case involves an appeal by Smt. Sangeeta against the Commissioner of Income Tax concerning reassessment proceedings for the Assessment Year 2001-02. The primary issues revolved around the validity of the reassessment under Section 147 of the Income Tax Act, 1961, and the disallowance of certain expenses under Section 40-A(3). The Income Tax Appellate Tribunal had upheld the reassessment, which the appellant contested, arguing that the reassessment was based on a mere change of opinion without new material evidence. The High Court examined whether the Tribunal was justified in its decision, particularly focusing on the 'reasons to believe' standard required for reassessment and the application of Section 40-A(3) concerning cash expenditures.

• Counselvise Citation: [2021] 140 COUNSELVISE.COM (IT) 798080 (HC-DELHI)
• Appeal Type: Others
• Pronouncement Date: 08-10-2021
• Assessment Year: misc
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Others
• Court: HIGH COURT
• Department Lawyers: PRAVEEN KUMAR
• Assessee Lawyers: AMIT MAHAJAN
• Keywords: Capital Gain; Cash expenditure; Escaped assessment; Income tax appeal; Long Term Capital Loss; Reassessment
• Section: 147; 148; 143(3); 40(A)(3); 260-A

Judgement Text

"1 Court No. - 3 Case :- INCOME TAX APPEAL No. - 364 of 2008 Appellant :- Smt. Sangeeta Respondent :- Commissioner Of Income Tax Counsel for Appellant :- Amit Mahajan Counsel for Respondent :- C.S.C.,Praveen Kumar Hon'ble Naheed Ara Moonis,J. Hon'ble Saumitra Dayal Singh,J. Heard Sri Amit Mahajan, learned counsel for the assessee and Sri Praveen Kumar, learned counsel for the revenue. Present appeal has been filed by the assessee under Section 260(A) of the Income Tax Act, 1961 (hereinafter referred to as 'the Act') against the order dated 22.02.2008 passed by Income Tax Appellate Tribunal, Delhi in ITA No.2765/(Del)/2007 (A.Y. 2001-02). Appeal was admitted on following three questions of law; (i) Whether, on the facts and in the circumstances of the case, the Tribunal was legally justified in upholding the proceedings u/s 147 of the Act, even though, the same is made only on account of change of opinion and without any material coming to the knowledge of the Assessing Officer ? (ii) Whether, on the facts and in the circumstances of the case, the Tribunal was legally justified to hold that the Assessing Officer has reason to believe that the income has escaped assessment ? (iii) Whether, on the facts and in the circumstances of the case, the Tribunal was legally justified in confirming the disallowance u/s 40-A(3) of the Act, even though, the appellant has explained exceptional circumstances under proviso to the said section ? Upon hearing learned counsel for the parties, it transpires, in the original assessment order dated 31.03.2003 (passed under Section 143(3) of the Act), long term capital loss Rs.45,952/- claimed by the assessee on sale of ancestral jewellery (that came in the hand of the assessee upon the death of her father on 21.09.1991), was disallowed. Similarly, 20% of the cash expenditure Rs.11,19,981/- was disallowed, under Section 40A(3) of the Act. 2 The matter was carried in appeal and the appellate authority vide its order dated 16.01.2007 allowed that appeal on both counts. In such facts, the assessing authority initiated reassessment proceeding for the A.Y. 2001-02, on the following reasons; \"REASONS FOR REOPENING THE ASSESSMENT U/S 148 OF THE I.T. ACT, 1961 In this case, the assessee sold diamond jewellery for Rs.12,21,000/-. He did not disclose any capital gain in his total income. During the course of hearing of proceedings u/s 263, the assessee filed a copy of approved Valuer's report according to which the market value of jewellery as on 1.4.1981 was Rs.3,12,057/-. Before the CIT, the assessee submitted that on account of sale of jewellery he incurred a loss of Rs.45,952/- which was computed in the following manner:- The total sale consideration Rs. 12,21,000/- Less: Indexed cost of acquisition (cost on 1.4.81 X 406) = 312057X406 100 100 = Rs.12,66,952/- Loss Rs.45,952/- In the CTI(A)'s order dated 11.11.2003, in para 4 on page 8, it is mentioned that the assessee's father expired on 21.09.91. as per Explanation to Section 48 of the Income Tax Act, the indexed cost of acquisition means an amount which bears to the cost of acquisition the same proportion as Cost Inflation Index for the first year in which the asset was held by the assessee or for the year beginning on the 1st day of April, 1981 which ever is later. In this case since the assessee's father expired on 21.09.1991 i.e. in the financial year 91- 92, the assessee has wrongly adopted the index for the year 81-81 to arrive at the indexed cost. The forrect Indexed cost has to be as below:- Value of jewellery as on 1.4.81 X cost Inflation Index for F.Y. 2000-2001 Cost Inflation Index for F.Y 91-91 312057 X 406 199 Rs. 6,36,670/- Thus, instead of a capital loss of Rs.45,952/- as calculated by the assessee, he in fact, has earned a capital gain of Rs,5,85,330/- calculated as below:- Total sale consideration Rs.12,21,000/- Less: Indexed cost of acquisition as calculated above. Rs.636,670/- Rs. 5,84,330/- Thus capital gain to the extent of Rs.5,84,330/- has escaped assessment. Further, from the record, it is noticed that during the relevant financial year the assessee paid cash for purchase of land, the details of which is as below:- 3 1. B-Block, Humayun Nagar Rs. 20,58,255/- 2. D-Block, Humayn Nagar Rs. 6,20,000/- Rs.26,78,255/- At the time of original assessment, disallowance u/s 40A(3) was not made which comes to Rs.5,35,651/-, therefore, I have reason to believe that the assessee’s income to the extent of Rs. 11,19,981/- (Rs. 5,84,330+5,35,651) has escaped assessment. I may further bring on record that on the issue of sale of jewellery, the assessing officer made total additional of sale proceeds as unexplained income and CIT (Appeals) deleted the same but the department is in appeal. If the department succeeds in appeal, no addition on account of capital gain will be made but if the department looses in appeal before the ITAT, the aforesaid addition on account of capital gain will be required to be made. So far as the issue of disallowance U/s 40A(3) is concerned, the assessing officer applied the net profit rate and, therefore, the disallowance u/s40A(3) is not required. However, the CIT (Appeals) has deleted that addition made on account of application of net profit rate. On this issue also the order of the CIT (Appeals) is not accepted and appeal to the Tribunal is filed. Therefore, the nature of this addition also i.e. protective or substantive will depend upon the outcome of the order of the ITAT. If the department looses before the ITAT, the addition u/s 40A(3) will be required to be made. If by the time the reopened assessment has to be made, the order of ITAT is not received the additions will be made only on protective basis. If the department finally wins before the Tribunal, the protective addition will be deleted and if the department looses before the Tribunal, the protective addition will become substantive.” Bare perusal of the \"reasons to believe\" reveals that the claim of the assessee both with respect to long term capital loss suffered, on sale of diamond jewellery and, cash expenditure Rs.11,19,981/- had been accepted by the higher appellate authority in the appeal filed from regular assessment proceedings. In fact, the “reasons to believe” record existence of a departmental appeal, against the aforesaid relief granted to the assessee, by the first appellate authority. Thus, it cannot be disputed that the order passed by the CIT(Appeals) accepting the claim of long term capital loss Rs.45,952/- from sale of diamond jewellery and cash expenditure of Rs.11,19,981/-, stood allowed in regular assessment- proceedings. The appeal being continuation of assessment proceedings. The Tribunal has not examined this issue at all, inasmuch as, the 4 only observation made by the Tribunal with respect to that is: \"9. The facts of this year and the grounds taken by the assessee are identical to the facts and grounds in ITA No.2764(Del) 2007 (supra). Therefore, the order of that year is made applicable to this year also. Clearly, the facts of the present case, as noted above, have not been considered. It, therefore, follows that the disputed amounts had been assessed to tax by the assessing authority in the regular assessment proceedings. The appeal against the said addition was allowed by the CIT(Appeals). It could never lead to the conclusion that such amount had escaped assessment at the hands of the assessee notwithstanding the fate of the appeals arising therefrom. Consequently, no “reason to believe” as to escapement of that income, from assessment could ever exist. The recital to the contrary, is a nullity in law. Accordingly, question no.2 is answered in negative i.e. in favour of the assessee and against the revenue. In view of the aforesaid, answer of question nos.1 and 3 are not required to be answered. The appeal is allowed. Order Date :- 8.10.2021 A.Kr. "