ITAT Mumbai Rejects Reopening and Deletes Rs 12.83 Cr Capital Gains Addition

The ITAT Mumbai did not agree with the revenue’s appeal. They supported the CIT(A)’s decision. They said that the Revenue was wrong to reopen the case under Sections 147 and 148. This was because they were using things that were already decided in favour of the assessee in years.

The ITAT Mumbai looked at the case. Said that the assessee did not have to pay capital gains tax under Section 45. This was because the assessee did not change any capital asset into something they could sell or transfer. So the ITAT Mumbai removed the tax of ₹12.83 crore that was added to the assessee’s bill. The ITAT Mumbai decision was in favour of the assessee. The revenue’s appeal was dismissed by the ITAT Mumbai.

Facts:

The company, which develops estates, filed its income return for the year 2016-2017 and reported no income. The Assessing Officer reopened the assessment under Sections 147 and 148 based on findings from years. In those years capital gains of ₹64.16 crore were made. Proposed to be spread over five years from 2012-2013 to 2016-2017. As a result, ₹12.83 crore was added in the year under review under Section 45(2). The company challenged the reopening and the addition and the CIT(A) allowed the appeal.

Issue of the Case

Was the reopening under Section 147/148 valid when based on years’ findings that were already decided in favour of the company?

Was the addition under Section 45(2) for alleged capital gains justified?

Court Observation

The Bombay High Court had already ruled that reopening based on earlier years’ orders, which were set aside by the ITAT is not sustainable.

The ITAT noted the following:

• The issue was already decided in the company’s favour in years.
• No conversion of a capital asset into stock-in-trade occurred.
• No. Sale by the company; hence, Section 45(2) is not applicable.
• Emphasised the principle of consistency. Same facts must yield the same outcome.

Judgement

The Income Tax Appellate Tribunal Mumbai upheld the CIT(A) order. Dismissed the Revenue’s appeal. The Tribunal held that reopening of assessment under Sections 147 and 148 was invalid as it was based on assessment orders that had already been set aside by higher appellate authorities, including the ITAT and affirmed by the jurisdictional High Court. On merits the Tribunal agreed that there was no conversion of capital asset into stock-in-trade and no transfer by the company and therefore Section 45(2) was not applicable. Consequently, the addition of ₹12.83 crore was right. No interference with the CIT(A) order was warranted.