TMI Blog2014 (10) TMI 8X X X X Extracts X X X X X X X X Extracts X X X X ..... see already had rights as owner of the property subject to the covenant of the lease for all purposes such as transfer of the lease hold rights of the property with the previous consent of the lessor - The conversion of the rights of the lessee in the property from lease hold to free hold was only an improvement of the rights over the property, which the petitioner enjoyed and this would not have any effect on the taxibility of capital gains from such property - the property was held for more than three years, short term capital gains would not be applicable - The conversion from lease hold to a free hold being an improvement of the title, does not have any effect on the taxibility of profits as short term capital gains - the notices issued u/s 148 of the Act does not comply with the proviso to Section 147 and 149 of the Act - The reasons recorded does not indicate that the assessee has failed to disclose fully and truly all material facts necessary for his assessment and that the escaped income was likely to be ₹ 1 lac or more – the notice issued u/s 148 cannot be sustained and is to be set aside – Decided in favour of assessee. - Civil Misc. Writ Petition (Tax) No. 1492 o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... igh Court in the case of CIT vs. Dr. V.V. Mody (218 ITR page 1). I have, therefore, reasons to believe that income chargeable to tax under the head Short Term Capital Gains has escaped assessment for which notice U/s 148 has been issued. Prior approval of learned Addl. CIT, Range-I, Allahabad has been obtained. Sd/- (C.K. Bartariya) Income Tax Officer, Range1(I), Allahabad The reasons indicate that the petitioner after converting the lease land into free hold sold off the property within three years resulting into short term capital gain in view of the judgment of the Karnataka High Court in CIT Vs. Dr. V.V. Mody, 218 ITR 1 and, therefore, has reasons to believe that income chargeable to tax had escaped assessment under the head Short Term Capital Gains. Subsequently, the petitioner received a notice dated 13th August, 2007 under Section 142. In response, the petitioner filed a copy of the return along with a detailed computation sheet of total income in respect of assessment year 2000-01. The petitioner also filed a detailed objection dated 24th August, 2007 objecting to the notice under Section 148 of the Act praying that the proceedings be dropped. This obj ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pen the assessment, if he has reasons to believe that the income had escaped assessment. The learned counsel submitted that even after the expiry of four years, reassessment proceedings could be opened upon permission being granted by the competent authority, which in the instant case was taken and, therefore, the notice was not barred by limitation. The learned counsel submitted that in the instant case the petitioner was liable to pay short term capital gains tax and, therefore, urged that the reasons disclosed by the Assessing Officer justified his action in issuing a notice under Section 148 of the Act. Before proceeding further, it would be appropriate to peruse Section 147 and 148 of the Act which existed at the relevant moment of time and which is extracted hereunder:- Income escaping assessment. 147. If the [Assessing] Officer [has reason to believe] that any income chargeable to tax has escaped assessment for any assessment year, he may, subject to the provisions of sections 148 to 153, assess or reassess such income and also any other income chargeable to tax which has escaped assessment and which comes to his notice subsequently in the course of the proceedings ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... owance or any other allowance under this Act has been computed. Explanation 3. - For the purpose of assessment or reassessment under this section, the Assessing Officer may assess or reassess the income in respect of any issue, which has escaped assessment, and such issue comes to his notice subsequently in the course of the proceedings under this Section, notwithstanding that the reasons for such issue have not been included in the reasons recorded under sub-section (2) of section 148. Issue of notice where income has escaped assessment. 148. (1) Before making the assessment, reassessment or recomputation under section 147, the Assessing Officer shall serve on the assessee a notice requiring him to furnish within such period, as may be specified in the notice, a return of his income or the income of any other person in respect of which he is assessable under this Act during the previous year corresponding to the relevant assessment year, in the prescribed form and verified in the prescribed manner and setting forth such other particulars as may be prescribed; and the provisions of this Act shall, so far as may be, apply accordingly as if such return were a return requir ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ........... (b) if four years, but not more than six years, have elapsed from the end of the relevant assessment year unless the income chargeable to tax which has escaped assessment amounts to or is likely to amount to one lakh rupees or more for that year. From the aforesaid, it is clear that two distinct conditions must be satisfied before the Assessing Officer can assume jurisdiction to issue a notice under Section 148 of the Act, namely, that he must have reasons to believe that the income of the assessee had escaped assessment and, that he must have reasons to believe that such escapement was by reasons of the omission or failure on the part of the assessee to disclose fully and truly all material facts necessary for his assessment. If either of these conditions are not fulfilled, the notice issued by the Assessing Officer would be without jurisdiction. Further, from a perusal of Section 149(1)(b) of the Act, it is imperative that the Assessing Officer, in his reasons, should also state that the escaped income is likely to be ₹ 1 lac or more, which is an essential ingredient for seeking the approval and satisfaction that is to be recorded by the Competent Auth ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... an be taken only where the income which has escaped assessment is likely to amount to ₹ 1 lakh or more. In other words, it is only in regard to cases where the escaped income is of a high magnitude that the restriction of the period of limitation has been removed. Since no reasons were recorded that the escaped income is likely to be ₹ 1 lac or more so that the Chief Commissioner or Commissioner may record his satisfaction under Section 151, the initiation of reassessment proceedings after more than four years was clearly barred by time. There is yet another aspect of the matter. The reason so recorded by the Assessing Officer is, that the petitioner has indicated the computation of long term capital gains tax liability, whereas the petitioner was liable to pay short term capital gains tax since the petitioner had sold off a portion of the property within three years from the date of conversion of lease land into a free hold land. Short term capital asset is defined under Section 2(42A), which is extracted hereunder:- 2(42A) 'short-term capital asset' means a capital asset held by an assessee for not more than thirty-six months immediately precedin ..... X X X X Extracts X X X X X X X X Extracts X X X X
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