Petitioners Entitled to Prior Notice Before Adverse Conclusion on Capital Gains Account: Madras HC quashes  Assessment Order [Read Order]

In a recent ruling, the Madras High Court quashed the assessment order and held that petitioners were entitled to prior notice before the department arrived at an adverse conclusion on the capital gains account.

The petitioner had filed the writ petition challenging the order passed by the Income Tax Officer for the Assessment Year ( AY ) 2014-2015 under Section 147 read with Section 144B of the Income-tax Act, 1961.

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The reassessment proceedings began with the issuance of notice under Section 148 of the Act on 25-07-2019. Later on, notice under Section 142( 1 ) of the Income Tax Act stating the reasons for reopening of assessment.

In this case, the assessee, Pahilajrai Lund, sold land in 2013 for Rs. 4.8 crore, with a 1/3rd share allotted to him. While filing his Income Tax Returns for the AY 2014-15 return, he claimed a deduction of Rs. 53 lakh under Section 54 for deposits in a Syndicate Bank term deposit.

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But according to the department, since the deposit was not made in the Capital Gains Account Scheme, 1988, the deduction was disallowed, and Rs. 53 lakh was treated as escaped income for taxation.

Although a reply was filed by the assessee, the deduction claimed by the assessee was disallowed.

It was contended by the counsel on behalf of the petitioner that invocation of jurisdiction under Section 148 of the Act was beyond the period of limitation under Section 148 of the Income Tax statute. 

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In the impugned assessment order, the assistant commissioner reached an adverse conclusion based on the Syndicate Bank's response to a notice under Section 133(6) of the Income Tax Act. And it was submitted that the Syndicate Bank had purportedly stated that there was no mention of the deposit in capital gain accounts while there were debits in the bank statement.

The counsel for the petitioner also drew the bench’s attention to the certificate dated 19.02.2021 issued by the Canara Bank for the aforesaid sum of Rs. 53,00,000, which was deposited in Syndicate Bank and invested in the Capital Gains Account Scheme.

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The High Court observed that the petitioners were entitled to notice before an adverse conclusion arrived in the impugned assessment order that the certificate did not mention capital gains account. The bench was of the view that the respondents should have informed the petitioners before an adverse order was passed against the petitioners.

Justice C. Saravanan, set aside the imputed order and remitted the case back to the assistant commissioner to pass appropriate orders on merits.

To Read the full text of the Order CLICK HERE

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