2016 (7) TMI 1313 - AT - Income Tax

Reopening of assessment - reopening on the basis of audit objections - investment in purchase of agricultural land - Held that - Where the original assessment was completed under section 143(3) of the Act, the assessee had made the investment in purchase of agricultural land during the year and the necessary details once having been looked into by the Assessing Officer cannot be re-looked as the same tantamount to change of opinion. The Assessing Officer has failed to point out whether any fresh facts came to his knowledge in order to establish the reason of belief against escapement of income by the assessee. In any case, where the cash of ₹ 3 lakhs has been paid for purchase of agricultural land before Sub-Registrar i.e. in State Government office, the provisions of section 40A(3) are not attracted as the said cash of payment of ₹ 3 lakhs is part and parcel of total payment of ₹ 48,50,000/-. The assessee admittedly, had paid total sale consideration on the date of registration of Sale Deed itself i.e. on 12.09.2008 except demand draft of ₹ 10 lakhs, which was paid on 11.09.2008. Further, no action under section 147 of the Act can be taken on account of audit objections raised by the audit party. - Decided in favour of assessee.

Summary

Issues:
1. Validity of assessment made under section 148 of the Income-tax Act.
2. Justification of disallowance of cash payment under section 40A(3) of the Act.

Issue 1: Validity of assessment under section 148:
The appeal challenged the order of CIT(A)-1, Nashik, pertaining to assessment year 2009-10 under section 143(3) r.w.s. 147 of the Income-tax Act. The Assessing Officer initiated proceedings under section 148 based on the alleged contravention of section 40A(3) due to cash payments exceeding the prescribed limit. The assessee contended that the reopening of assessment was unjustified, as it was based on audit objections and a change in opinion without new material. The Tribunal found that the Assessing Officer's belief for reassessment lacked a direct link to income escapement and was not supported by fresh facts. The Tribunal ruled in favor of the assessee, holding the reassessment order invalid without jurisdiction.

Issue 2: Disallowance of cash payment under section 40A(3):
The Assessing Officer disallowed a cash payment of ?3 lakhs made during the purchase of agricultural land, invoking section 40A(3) of the Act. The CIT(A) upheld this disallowance. The assessee argued that the cash payment was necessitated by the seller's circumstances, as she did not have a bank account in the location of the transaction. The Tribunal noted that the entire consideration was paid during the registration of the sale deed, with only a part being in cash. It held that section 40A(3) was not applicable in this context, as the cash payment was integral to the total consideration. Relying on legal precedents, the Tribunal allowed the assessee's appeal on both jurisdictional and merit-based grounds, overturning the addition of ?3 lakhs and deeming the reassessment order invalid.

In conclusion, the Tribunal ruled in favor of the assessee on both issues, declaring the reassessment order invalid and allowing the appeal. The judgment emphasized the necessity of a direct link between the Assessing Officer's belief and income escapement for reassessment under section 147. Additionally, it clarified that section 40A(3) does not apply when cash payments are part of the total consideration during a transaction.