2011 (6) TMI 142 - AT - Income Tax

Reopening - Income escaping assessment - it is well settled as a result of several decisions of the Apex Court that two distinct conditions must be satisfied before the ITO can assume jurisdiction to issue notice under section 147(a) - Held that the reopening is beyond four years and there is no failure on the part of the assessee - Since there is no failure on the part of assessee to disclose fully and truly all material facts necessary for the assessment, the reopening under section 147 is invalid and is hereby quashed Assessing Officer issued notice under section 148 without issuing notice under section 143(2), we find that this issue is covered in favour of assessee - held that proceedings initiated under section 147 of the Act is without jurisdiction and bad in law. Therefore, the order of the Assessing Officer to that extent is quashed - Decided in favour of the assessee

Summary

Issues Involved:
1. Validity of notice under section 148 of the Income-tax Act, 1961.
2. Assessment of fair value as on 1-4-1981.
3. Disallowance of cost of improvement.
4. Disallowance of deduction under section 54 of the Act.
5. Valuation method (built-up area vs. carpet area).

Detailed Analysis:

1. Validity of Notice under Section 148:

The assessee challenged the validity of the notice issued under section 148, arguing that it was issued beyond the four-year limit and without any failure on their part to disclose material facts. The CIT(A) incorrectly recorded that the reopening was within four years. The tribunal found that the notice was indeed issued on 6-7-2004, which is beyond the four-year limit. The tribunal referenced the legal principle that for reopening beyond four years, there must be a failure on the part of the assessee to disclose fully and truly all material facts necessary for assessment. The tribunal found that the assessee had disclosed all relevant details and documents with the return of income, and thus, the reopening was invalid. Consequently, the tribunal quashed the reopening under section 147.

2. Assessment of Fair Value as on 1-4-1981:

The assessee argued against the Assessing Officer's rejection of the registered valuer's report, which estimated the fair value at Rs. 2,200 per sq.ft. The CIT(A) modified the Assessing Officer's findings and directed the adoption of Rs. 1,750 per sq.ft. for 1675 sq.ft. instead of the Assessing Officer's adoption of carpet area. The tribunal upheld the CIT(A)'s direction to adopt the rate of Rs. 1,750 per sq.ft. for 1675 sq.ft., emphasizing that valuation in Mumbai is typically done based on built-up area.

3. Disallowance of Cost of Improvement:

The CIT(A) confirmed the disallowance of Rs. 1,90,000 made by the Assessing Officer, as there was no evidence on record to support the claimed renovation costs. The tribunal did not find it necessary to further deliberate on this issue due to the decision on the legal issues.

4. Disallowance of Deduction under Section 54:

The Assessing Officer and CIT(A) disallowed the deduction under section 54 claimed by the assessee for the purchase of a houseboat, stating that a houseboat does not qualify as a residential property. The tribunal did not address this issue further due to the decision on the legal issues.

5. Valuation Method (Built-up Area vs. Carpet Area):

The revenue contested the CIT(A)'s decision to direct the Assessing Officer to adopt the built-up area for valuation purposes. The tribunal supported the CIT(A)'s stance, noting that transactions in Mumbai are typically based on built-up area, and thus, the valuation should be computed accordingly.

Conclusion:

The tribunal allowed the appeal filed by the assessee, quashing the reopening under section 147 due to the invalidity of the notice issued beyond four years and the absence of any failure on the part of the assessee to disclose material facts. Consequently, the tribunal did not find it necessary to deliberate on the merits of the case. The appeal filed by the revenue was dismissed.