Reopening of the assessment is unsustainable if no reason exists to believe that the income chargeable to tax has escaped assessment

Amar R Shanbhag Vs ITO (Mumbai High Court)- There was inordinate delay in obtaining commencement certificate and, therefore, the petitioner once again terminated the Development Agreement dated 17th September 2004. Thereupon, Matoshree Properties filed a Suit in the High Court being Suit No. 2863 of 2010, which was ultimately settled on 2nd May 2011, wherein the consideration was enhanced from Rs.4 crores to Rs. 7.5 crores.

As per the consent terms filed on 2nd May 2011, the amount of Rs. 7.5 crores are to be paid in instalments up to 31st December 2011. It is also on record that the commencement certificate in the present case was issued on 29th December 2009. In these circumstances, in our opinion, it cannot be said that there was any reason to believe that income chargeable to tax has escaped assessment in assessment year 2005­-06 so as to initiate reassessment proceedings under Section 147 read with Section 148 of the Act. So long as the consent terms filed on 2nd May 2011 hold the field, the question of bringing to tax the capital gains under the Development Agreement dated 17th September 2004 in assessment year 2005-­06 does not arise at all.

IN THE HIGH COURT OF JUDICATURE AT BOMBAY

ORDINARY ORIGINAL CIVIL JURISDICTION

WRIT PETITION NO. 552 of 2011

Amar R. Shanbhag Vss The Income Tax Officer 11(2)(1)

DATE : 18th July, 2011.

ORAL JUDGEMENT: (Per J.P. Devadhar, J.)

1. Rule is made returnable forthwith. By consent, taken up for final hearing.

2. This Writ Petition is filed to challenge the notice dated 25^th March 2010 issued under Section 148 of the Income Tax Act, 1961 and also  the order dated 2^nd December 2010 whereby the objections raised by the petitioner against reopening of the assessment has been rejected.

“During the course of re­opening assessment proceedings for A.Y. 2004­05, it was observed that the assessee had entered into development agreement with M/s. Matoshree Properties on 17­/09­/2004 for development of property situated at No. 1, Parel Tank Road, Bhoiwada, Parel, Mumbai – 400 012 known as Bagla Property. Vide this said agreement, the developers agreed to pay the assessee a sum of Rs.4,00,00,000/­ (Rupees Four Crores). However, it is observed that, in the return of income filed for A.Y. 2005­-06, no capital gain was offered on such transaction. Further, the assessee has shown Rs. 61,00,000/­ on a/c. of Bagla Properties under the head sundry loans in the Balance Sheet as at 31­/03/­2005 i.e. for A.Y. 2005-­06.

In view of this, during the relevant year, the assessee should have offered the Capital Gain as there is transfer of rights of above referred property i.e. Bagla Property. As the property was given for development during the year and in view of development agreement, capital gain arisen, ought to have been offered for taxation in the year under consideration i.e. A.Y. 2005­- 06.

In view of the above, I have reason to believe that capital gain arisen on aforesaid property has escaped assessment within the purview of Section 147 of the Income Tax Act, 1961.”

5.  From the aforesaid reasons, it is evident that according to the assessing officer, capital gains has accrued to the assessee in assessment year 2005- ­06 on account of transfer of development rights as per the Agreement dated 17^th September 2004.

8. The facts on record clearly show that there was inordinate delay in obtaining commencement certificate and, therefore, the petitioner once again terminated the Development Agreement dated 17th September 2004. Thereupon, Matoshree Properties filed a Suit in the High Court being Suit No.2863 of 2010, which was ultimately settled on 2nd May 2011, wherein the consideration was enhanced from Rs.4 crores to Rs.7.5 crores. As per the consent terms filed on 2nd May 2011, the amount of Rs.7.5 crores are to be paid in installments upto 31st December 2011. It is also on record that the commencement certificate in the present case was issued on 29th December 2009. In these circumstances, in our opinion, it cannot be said that there was any reason to believe that income chargeable to tax has escaped assessment in assessment year 2005­-06 so as to initiate reassessment proceedings under Section 147 read with Section 148 of the Act. So long as the consent terms filed on 2nd May 2011 hold the field, the question of bringing to tax the capital gains under the Development Agreement dated 17th September 2004 in assessment year 2005-­06 does not arise at all.