2016 (5) TMI 1399 - AT - Income Tax

Reopening of assessment - Held that - having noted that the reasons recorded for reopening of the assessment do not suggest anything more than the verification, we are of the considered view that the very initiation of reassessment proceedings on the facts of this case is unsustainable in law - we deem it fit and proper to quash the reassessment proceedings - appeal allowed.

Summary

Issues:
Appeal challenging correctness of order dated 13.01.2016 passed by the ld. CIT(A) in the matter of assessment under section 143(3) read with section 147 of the Income Tax Act, 1961 for the assessment year 2007-08.

Analysis:
The assessee appealed against the correctness of the order passed by the CIT(A) challenging the reopening of assessment under section 147. The Assessing Officer reopened the assessment based on information received regarding a property transfer. The assessee contended that the property was ancestral and was never transferred to a company, hence no capital gain was earned. The CIT(A) upheld the reopening, stating that the AO only needed prima facie material to believe in an income escape. The tribunal, however, noted that suspicion alone is not enough for reopening; there must be indications of income escaping assessment. Citing legal precedents, the tribunal emphasized the need for a rational connection between the material and belief of income escapement.

The tribunal found the initiation of reassessment proceedings unsustainable as the reasons recorded for reopening only called for verification without indicating income escape. Quoting the Bombay High Court, the tribunal stressed that reasons for reopening must be self-explanatory and not leave the assessee guessing. Consequently, the tribunal quashed the reassessment proceedings, allowing the first ground of appeal.

As the reassessment proceedings were quashed, the tribunal deemed the second ground of appeal, questioning the addition of undisclosed long-term capital gain, infructuous. Therefore, the second ground was dismissed as infructuous. Ultimately, the appeal was partly allowed, with the reassessment proceedings quashed, rendering the second ground irrelevant.