Facts of the Case

The assessee, Simatajvar Yusufkhan Khan, filed appeals for Assessment Years 2009-10, 2010-11, 2013-14 and 2014-15 against separate orders passed by the Commissioner of Income Tax (Appeals), National Faceless Appeal Centre, Delhi. The Assessing Officer reopened the assessments under Section 147 on the basis of information from the Investigation Wing that the assessee had received amounts pursuant to a Memorandum of Understanding dated 15.03.2009 entered into between the Nawab family and Shri Mohammed Yusuf Abdul Majid Shaikh for land bearing Survey Nos. 506, 507 and 508 at Village Abhwa, Surat.

The assessee claimed that the amounts received were advances for sale of land and capital in nature. The Assessing Officer found that the assessee was neither the owner nor in possession of the land, which had already been sold in the year 1968 to third parties who were litigating with the Government. The Assessing Officer therefore treated the receipts as casual income taxable under the head “Income from other sources” under Section 56(2)(vii)(a). The CIT(A), NFAC confirmed the additions.

Issues Involved

Whether amounts received under an unregistered MOU could be treated as capital advances when the assessee had no ownership or contingent rights in the land, whether such receipts were taxable as income from other sources under Section 56(2)(vii)(a), and whether reassessment under Section 147 was invalid due to incorrect quantum mentioned in the reasons recorded.

Petitioner’s Arguments

The assessee contended that the amounts received were advances under an MOU akin to an agreement to sell and did not result in transfer of any property. It was argued that no income had accrued and that the assessee’s rights in the land were contingent. On legality, the assessee challenged reopening under Section 147 on the ground that the reasons recorded mentioned an incorrect amount of escapement and were based on borrowed satisfaction.

Respondent’s Arguments

The Revenue argued that the assessee had admittedly sold all rights in the land in 1968 and had no ownership or possessory rights whatsoever. It was contended that the MOU itself acknowledged absence of ownership and did not involve any transfer of asset or rendering of services. The Revenue further submitted that incorrect mention of quantum in reasons did not vitiate reassessment when escapement of income was otherwise established.

Court Order / Findings

The ITAT Ahmedabad held that it was an admitted and undisputed fact that the assessee did not own the land in question and had no contingent or future rights therein. The Tribunal noted that the MOU itself recorded that the assessee and her family members were not in possession of the land and had already sold the same in 1968. Accordingly, the Tribunal held that the amounts received could not be treated as advances for sale of land and were rightly taxed as income from other sources under Section 56(2)(vii)(a).

On the issue of reopening for Assessment Year 2009-10, the Tribunal held that although the Assessing Officer had mentioned an incorrect quantum of receipt in the reasons recorded, the fact of receipt of taxable income pursuant to the MOU was undisputed. The Tribunal held that such factual error was not material enough to invalidate the formation of belief regarding escapement of income and did not render reassessment proceedings void.

Important Clarification

The Tribunal clarified that where an assessee has no ownership or legally enforceable rights in an immovable property, amounts received under an MOU cannot be characterised as capital advances. It was further clarified that reassessment proceedings are not invalid merely because of an error in the quantum mentioned in the reasons, so long as escapement of income is otherwise established.

Final Outcome

All four appeals filed by the assessee for Assessment Years 2009-10, 2010-11, 2013-14 and 2014-15 were dismissed. The additions treating the receipts as income from other sources under Section 56(2)(vii)(a) were upheld, and the reassessment under Section 147 for Assessment Year 2009-10 was held to be valid.
Link to Download Order https://www.mytaxexpert.co.in/uploads/1769063143_SIMATAJVARYUSUFKHANKHANVADODARA.pdf

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