2014 (1) TMI 749 - AT - Income Tax

Validity of reopening of assessment Notice issued u/s 148 of the Act Held that - The AO has recorded his reasons on the basis of the enquiries conducted in the case of the assessee in pursuance to Tax Evasion Petition - the AO has recognized that the assessee is disclosing income from salary - When the AO recognized that the assessee is offering income from salary obviously it would have been known to him that the assessee is drawing his salary from some organizations - the foundation of the reopening itself being erroneous insofar as the reasons recorded are erroneous and are not supported by any evidence but are contrary to the evidence as are available on record - the reasons as recorded are bad in law and the same are liable to be quashed as also the consequential assessment as a consequence to the notice issued u/s 148 of the Act - The reasons recorded for the purpose of reopening the assessments in the case of the assessee are without legal backing and is not supported by any evidence or material on record Decided in favour of Assessee.

Issues Involved:
- Reopening of assessments based on undisclosed income from educational institutions and rental income.
- Validity of reasons recorded for reopening assessments.
- Assessment of income derived from educational institutions and rental income.

Issue 1: Reopening of assessments based on undisclosed income from educational institutions and rental income.

The appeals involved the reopening of assessments by the Assessing Officer (AO) based on undisclosed income from educational institutions and rental income. The AO had conducted enquiries following a Tax Evasion Petition and concluded that the assessee and spouse were running three educational institutions and had rental income. The AO issued notices under section 148 of the Act for reassessment. The assessee challenged the reopening on the grounds that the institutions were run by a registered society, not individually, and that the reasons recorded were erroneous. The Tribunal found that the reasons for reopening lacked legal backing as they were based on assumptions and not supported by evidence. The Tribunal quashed the reopening and consequent assessments, allowing the appeals filed by the assessee.

Issue 2: Validity of reasons recorded for reopening assessments.

The Tribunal analyzed the reasons recorded by the AO for reopening the assessments. In the case of one assessee, the reasons mentioned undisclosed income from educational institutions allegedly run by the assessee and spouse. However, the Tribunal found that the institutions were operated by a registered society, not individually. The AO's conclusions were based on assumptions without proper evidence, rendering the reasons invalid. Similarly, in another case, the AO cited undisclosed rental income and salary as reasons for reopening. The Tribunal noted that the AO's reasons were unfounded, as the income had been disclosed in the original returns. The lack of proper evidence and reliance on presumptions led the Tribunal to quash the reopening and subsequent assessments, ruling in favor of the assessee.

Issue 3: Assessment of income derived from educational institutions and rental income.

While addressing the issue of assessing income derived from educational institutions and rental income, the Tribunal emphasized the importance of valid reasons for reopening assessments. In both cases, the Tribunal found that the AO's reasons lacked legal backing and were not supported by evidence. The Tribunal highlighted that assessments should be based on concrete evidence rather than assumptions. As a result, the Tribunal quashed the reopening and consequent assessments, allowing the appeals filed by the assessee. The Tribunal granted the AO the liberty to assess the income of the educational institutions in accordance with the law, acknowledging that the institutions were run by a registered society, not by the individual assessee and spouse.

In conclusion, the Appellate Tribunal ITAT CUTTACK ruled in favor of the assessee, quashing the reopening of assessments and subsequent notices issued by the AO. The Tribunal emphasized the importance of valid reasons supported by evidence for reopening assessments and highlighted the need for assessments to be based on concrete facts rather than assumptions. The Tribunal allowed the appeals filed by the assessee, granting liberty to the AO to assess income derived from educational institutions in accordance with the law.

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