2012 (11) TMI 225 - AT - Income Tax

Validity of reopening of assessment u/s 147/148, earlier framed u/s 143(3), after expiry of four years from end of relevant AY alleged that investment in land was not disclosed in balance sheet based on incriminating document found during search assessee contended that fact of purchase of plot was disclosed in return on Income and reasons has been selectively recorded so as to increase the time limit from 4 years to 6 years Held that - When the assessee has recorded a transaction in its books of accounts as evident from balance sheet at year end of 2000 and 2001 and the assessment is completed u/s 143(3), the assessee has disclosed primary facts relating to the transaction. The assessee s original assessment having been completed u/s 143(3), no action of reassessment can be taken after the expiry of 4 years from the end of the relevant AY unless any income chargeable to tax has escaped on the part of the failure of the assessee to disclose fully and truly all material facts necessary for the assessment. Assessing Officer has recorded the reasons in a manner to attract time limit of 6 years by recording an erroneous reason that this transaction has been kept outside the books of accounts by the assessee. It implies that the reasons recorded lack bona fide in terms of recording the correct facts. Since the reasons have been recorded without application of mind and proper bona fides, they are not tenable. Thus, the reassessment proceedings initiated on the basis of untenable reasons are ab initio void and are quashed accordingly Decided in favor of assessee.

Summary

Issues Involved:
1. Validity of reopening the assessment under section 148/147.
2. Deletion of addition of Rs. 1,30,38,610/- on account of undisclosed income.

Issue-wise Detailed Analysis:

1. Validity of Reopening the Assessment under Section 148/147:

The assessee contended that the reopening of the assessment was invalid as it was initiated beyond the prescribed time limit of 4 years under section 149 of the I.T. Act, 1961. The assessee had disclosed the primary material facts regarding the purchase of the plot in its return of income and balance sheet. The notice under section 148 was issued on 15-3-2007, which was beyond the 4-year limit from the end of the assessment year 2001-02, making the reassessment proceedings legally untenable.

The CIT(A) upheld the reopening of the assessment, stating that the Assessing Officer (AO) had specific information and prima facie material to believe that income had escaped assessment. The sufficiency or correctness of the material was not to be considered at the reopening stage.

However, the tribunal found merit in the assessee's argument that the reasons recorded by the AO were contradictory and lacked bona fide. The AO had acknowledged that the plot purchase was reflected in the balance sheet but simultaneously concluded that the transaction was kept outside the books of accounts. This contradiction indicated that the reasons were recorded to extend the time limit from 4 to 6 years, which was not justified. Therefore, the tribunal held that the reassessment proceedings were ab initio void and quashed them.

2. Deletion of Addition of Rs. 1,30,38,610/- on Account of Undisclosed Income:

The AO had made an addition of Rs. 1,30,38,610/- as undisclosed income based on a seized document during a search operation on a third party, which suggested that the plot was purchased for Rs. 1,68,38,610/- instead of the declared Rs. 38 lacs. The CIT(A) deleted the addition, noting that the AO had not conducted any independent enquiry or brought any supporting evidence on record. The seized documents were rough workings without corroborative evidence, making them "dumb documents."

The tribunal upheld the CIT(A)'s deletion of the addition, emphasizing that the burden of proof was on the Revenue to establish that the assessee had made an investment exceeding the declared consideration. The tribunal referenced the Supreme Court judgment in K.P. Verghese, which held that the burden of proving understatement or concealment of consideration rests with the Revenue. The tribunal also noted that the assessee was not given an opportunity to cross-examine the third party, and no evidence was provided to substantiate the AO's claims. Consequently, the tribunal dismissed the Revenue's appeal on merits.

Conclusion:

The tribunal dismissed the Revenue's appeal and allowed the assessee's cross-objection, holding that the reassessment proceedings were invalid and the addition of Rs. 1,30,38,610/- was unjustified. The order was pronounced in open court on 20-07-2012.