Sec. 147: Failure To Compute Capital Gains U/s 50C Does Not Lead To Escapement Of Income

ITO vs. Haresh Chand Agarwal HUF (ITAT Agra)

S. 147: Failure to compute capital gains u/s 50C does not lead to escapement of income


The assessee sold property for Rs.6 lakh and offered capital gains on that basis. The AO accepted the claim without examining the applicability of s. 50C. He later (within 4 years from the end of the AY) reopened the assessment on the basis that the stamp duty valuation was Rs. 25 lakhs and the capital gains had to computed on that basis u/s 50C. The assessee challenged the reopening inter alia on the ground that the failure to apply s. 50C did not mean income had escaped assessment. The CIT(A) accepted the plea. On appeal by the department to the Tribunal HELD dismissing the appeal:

S. 50C is not a final determination to prove that it is a case of escapement of income. The report of the approved valuer may give estimated figure on the basis of facts of each case. Therefore, mere applicability of s. 50C would not disclose any escapement of income in the facts and circumstances of the case. The AO at the original assessment stage considered all the documents and material produced before him and has accepted the cost of property as was declared by the assessee. The reassessment is on change of opinion which is not justified

Note: On the question whether failure to voluntarily apply s. 50C attracts s. 271(1)(c) penalty see Madan Theatres (Cal HC), Renu Hingorani (ITAT Mum) & Chimanlal Manilal Patel (ITAT Ahd)

Sec. 147: Despite Sanction Reopening Void If Satisfaction Not Recorded: ITAT Mumbai

Amarlal Bajaj vs. ACIT (ITAT Mumbai)

S. 147/ 151: Merely writing “approved” in the sanction form without recording satisfaction renders the reopening void
The AO issued a notice u/s 147 and reopened the assessment on the ground that the assessee was the beneficiary of hawala entries in the form of loans, expenses & gifts. He alleged that the assessee had deposited unaccounted cash and received cheques in the form of loans, expenses, gifts. The CIT granted sanction u/s 151 to the reopening by writing the words “approved”. The assessee challenged the reopening on the ground that as satisfaction was not recorded by the CIT the sanction was without application of mind and void. HELD by the Tribunal allowing the appeal:

S. 147 and 148 are a charter to the Revenue to reopen earlier assessments and are, therefore protected by safeguards against unnecessary harassment of the assessee. They are sword for the Revenue and shield for the assessee. S. 151 guards that the sword of S. 147 may not be used unless a superior officer is satisfied that the AO has good and adequate reasons to invoke the provisions of S. 147. The superior authority has to examine the reasons, material or grounds and to judge whether they are sufficient and adequate to the formation of the necessary belief on the part of the assessing officer. If, after applying his mind and also recording his reasons, howsoever briefly, the Commissioner is of the opinion that the AO’s belief is well reasoned and bona fide, he is to accord his sanction to the issue of notice u/s 148 of the Act. In the instant case, we find from the perusal of the order sheet which is on record, the Commissioner has simply put “approved” and signed the report thereby giving sanction to the AO. Nowhere the Commissioner has recorded a satisfaction note not even in brief. Therefore, it cannot be said that the Commissioner has accorded sanction after applying his mind and after recording his satisfaction (Chhugamal Rajpal 79 ITR 603 (SC) & United Electrical Co 258 ITR 317 (Del) followed)

See also The Central India Electric Supply Co Ltd 51 DTR 51 (Del HC)