The Delhi High Court has held that re-assessment based on an error committed by the Assessing Officer( AO) is not permissible when Income Tax deduction is allowed after verification.
Deepak Kapoor, the petitioner (‘the assessee’) challenged the notice under Section 148 of the Income Tax Act, 1961 (‘the Act’). By the impugned notice, the assessee was called upon to file the return of income for the relevant assessment year within a period of thirty days from the said date, on the ground that his income chargeable to tax, for the Assessment Year 2016-17, has escaped assessment within the meaning of Section 147 of the Income Tax Act.
The AO believed that a part of the assessee’s income, by way of capital gains resulting from the sale of the property at Vasant Vihar, had escaped assessment. It was contended by the assessee that his return of income duly disclosed the transaction regarding the sale of property and the computation of capital gains resulting from the said transaction. The AO did not accept the assessee’s computation and recomputed the capital gains.
In the computation of income filed along with the return, the assessee claimed ₹11,06,66,759/- as costs of acquisition of the Property, being the fair market value as of 01.04.1981, enhanced based on the Inflation Index published by the Income Tax Authorities for the said purpose.
The assessee also claimed a sum of ₹19,20,00,000/- paid to his three sisters in terms of the settlement as decreed, as expenditure incurred wholly and exclusively in connection with the Property. In addition, the assessee also claimed brokerage and other charges amounting to ₹3,86,66,000/-. The assessee’s return was picked up for scrutiny and the AO issued a notice dated 06.07.2017, under Section 143(2) of the Income Tax Act and examined the statements elaborately.
Justice Vibhu Bakhru and Justice Amit Mahajan of the HC observed that the assessment cannot be reopened only for the reason that the AO has changed his view on the question of the fair market value or whether the amount paid by the assessee to his sisters was deductible from the total consideration.
The HC held that “it is impermissible to the AO to seek to reopen the assessment to review its decision regarding the fair market value of the Property or deduction on account of the amount of ₹19,20,00,000/- paid by the assessee to his sisters or the expenses incurred by him. “
The petition was allowed and the impugned notice dated 13.03.2021 was set aside. Mr Piyush Kaushik, Advocate appeared for the petitioner and Mr Sanjay Kumar & Ms Easha, Advocates appeared for the respondent.
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