Iapl/364/2008 Of Smt. Sangeeta v. Commissioner Of Income Tax

Court No. - 3 Case :- INCOME TAX APPEAL No. - 364 of 2008 Appellant :- Smt. SangeetaRespondent :- Commissioner Of Income TaxCounsel for Appellant :- Amit MahajanCounsel 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 SriPraveen Kumar, learned counsel for the revenue. Present appeal has been filed by the assessee under Section260(A) of the Income Tax Act, 1961 (hereinafter referred to as 'theAct') against the order dated 22.02.2008 passed by Income TaxAppellate 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 Tribunalwas legally justified in upholding the proceedings u/s 147 of the Act, eventhough, the same is made only on account of change of opinion and withoutany material coming to the knowledge of the Assessing Officer ? (ii) Whether, on the facts and in the circumstances of the case, the Tribunalwas legally justified to hold that the Assessing Officer has reason to believethat the income has escaped assessment ? (iii) Whether, on the facts and in the circumstances of the case, the Tribunalwas legally justified in confirming the disallowance u/s 40-A(3) of the Act, eventhough, the appellant has explained exceptional circumstances under provisoto the said section ? Upon hearing learned counsel for the parties, it transpires, in theoriginal assessment order dated 31.03.2003 (passed under Section143(3) of the Act), long term capital loss Rs.45,952/- claimed by theassessee on sale of ancestral jewellery (that came in the hand ofthe assessee upon the death of her father on 21.09.1991), wasdisallowed. Similarly, 20% of the cash expenditure Rs.11,19,981/-was disallowed, under Section 40A(3) of the Act. The matter was carried in appeal and the appellate authority vide itsorder dated 16.01.2007 allowed that appeal on both counts. In such facts, the assessing authority initiated reassessmentproceeding 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 didnot disclose any capital gain in his total income. During the course of hearingof proceedings u/s 263, the assessee filed a copy of approved Valuer's reportaccording to which the market value of jewellery as on 1.4.1981 wasRs.3,12,057/-. Before the CIT, the assessee submitted that on account of saleof jewellery he incurred a loss of Rs.45,952/- which was computed in thefollowing 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 mentionedthat the assessee's father expired on 21.09.91. as per Explanation to Section48 of the Income Tax Act, the indexed cost of acquisition means an amountwhich bears to the cost of acquisition the same proportion as Cost InflationIndex for the first year in which the asset was held by the assessee or for theyear beginning on the 1[st] day of April, 1981 which ever is later. In this casesince 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 atthe 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:- 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 yearthe assessee paid cash for purchase of land, the details of which is as below:- 3 At the time of original assessment, disallowance u/s 40A(3) was not madewhich comes to Rs.5,35,651/-, therefore, I have reason to believe that theassessee’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, theassessing officer made total additional of sale proceeds as unexplainedincome and CIT (Appeals) deleted the same but the department is in appeal. Ifthe department succeeds in appeal, no addition on account of capital gain willbe made but if the department looses in appeal before the ITAT, the aforesaidaddition on account of capital gain will be required to be made. So far as the issue of disallowance U/s 40A(3) is concerned, theassessing officer applied the net profit rate and, therefore, the disallowanceu/s40A(3) is not required. However, the CIT (Appeals) has deleted thataddition made on account of application of net profit rate. On this issue alsothe order of the CIT (Appeals) is not accepted and appeal to the Tribunal isfiled. Therefore, the nature of this addition also i.e. protective or substantivewill depend upon the outcome of the order of the ITAT. If the departmentlooses 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 ofITAT is not received the additions will be made only on protective basis. If thedepartment finally wins before the Tribunal, the protective addition will bedeleted and if the department looses before the Tribunal, the protectiveaddition will become substantive.” Bare perusal of the "reasons to believe" reveals that the claim ofthe 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 appealfiled from regular assessment proceedings. In fact, the “reasons tobelieve” record existence of a departmental appeal, against theaforesaid relief granted to the assessee, by the first appellateauthority. Thus, it cannot be disputed that the order passed by theCIT(Appeals) accepting the claim of long term capital lossRs.45,952/- from sale of diamond jewellery and cash expenditure ofRs.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 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 identicalto the facts and grounds in ITA No.2764(Del) 2007 (supra). Therefore, theorder of that year is made applicable to this year also. Clearly, the facts of the present case, as noted above, have notbeen considered. Thus, it cannot be disputed that the order passed by theCIT(Appeals) accepting the claim of long term capital lossRs.45,952/- from sale of diamond jewellery and cash expenditure ofRs.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 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 identicalto the facts and grounds in ITA No.2764(Del) 2007 (supra). Therefore, theorder of that year is made applicable to this year also. Clearly, the facts of the present case, as noted above, have notbeen considered. It, therefore, follows that the disputed amounts had been assessedto tax by the assessing authority in the regular assessmentproceedings. The appeal against the said addition was allowed bythe CIT(Appeals). It could never lead to the conclusion that suchamount had escaped assessment at the hands of the assesseenotwithstanding the fate of the appeals arising therefrom.Consequently, no “reason to believe” as to escapement of thatincome, from assessment could ever exist. The recital to thecontrary, is a nullity in law. Accordingly, question no.2 is answered in negative i.e. in favour ofthe assessee and against the revenue. In view of the aforesaid, answer of question nos.1 and 3 are notrequired to be answered. The appeal is allowed. Order Date :- 8.10.2021A.Kr.