Facts of the Case

The petitioner sold a residential property located at Defence Colony, New Delhi, for ₹2 crores and declared the same as Long Term Capital Gain (LTCG) in his return. Subsequently, he purchased a new residential property in Gurugram jointly with his wife for ₹2.54 crores, with the entire consideration paid from his own bank account.

The case was selected for scrutiny under Section 143(2), and after examining all documents including sale deeds, bank statements, and reinvestment details, the Assessing Officer passed an order under Section 143(3) accepting the LTCG exemption claim.

Later, reassessment proceedings were initiated under Section 148 based on an audit objection alleging that since the new property was purchased jointly with the petitioner’s wife, only 50% exemption should be allowed.

Issues Involved

  1. Whether reassessment under Section 148 based on audit objection constitutes a valid reopening.
  2. Whether LTCG exemption under Section 54 can be denied when the new property is purchased jointly with a spouse.
  3. Whether reassessment is permissible in absence of new material (i.e., change of opinion).

Petitioner’s Arguments

  • The entire sale consideration was reinvested in the new property and paid solely by the petitioner.
  • The Assessing Officer had already examined and accepted the LTCG claim during original assessment proceedings.
  • Reassessment proceedings were initiated merely on a change of opinion, which is not permissible.
  • Reliance was placed on CIT vs Ravinder Kumar Arora to argue that exemption is allowable even if the property is purchased jointly with a spouse, provided consideration is paid by the assessee.

Respondent’s Arguments

  • Since the new property was purchased in joint names, ownership should be considered proportionately.
  • The audit objection justified reopening of assessment to verify excess exemption claimed under Section 54.
  • The exemption should be restricted to the extent of the petitioner’s ownership share.

Court’s Findings / Order

  • The Court held that all material facts were already available and examined during the original assessment under Section 143(3).
  • Reassessment was initiated without any new tangible material and thus amounted to a change of opinion, which is impermissible in law.
  • The Court reaffirmed that:
    • Where the entire consideration for purchase of property is paid by the assessee, exemption under Section 54 cannot be denied merely because the property is registered jointly with the spouse.
  • The Court relied on binding precedent in:
    • CIT vs Ravinder Kumar Arora (Delhi High Court)

 Final Order:

  • The notice issued under Section 148 and order under Section 148A(d) were quashed and set aside.
  • The writ petition was allowed. 

Important Clarification

  • The Court emphasized that reassessment cannot be used as a tool for review of concluded assessments.
  • Joint ownership does not defeat exemption if the real and constructive ownership lies with the assessee.
  • Beneficial provisions like Section 54 must be interpreted liberally to promote housing investment.

Link to download the order -https://delhihighcourt.nic.in/app/case_number_pdf/2022:DHC:3882-DB/58922092022CW137132022_205925.pdf

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