2016 (7) TMI 1599 - AT - Income Tax

Validity of reopening of assessment u/s 147 - invocation of the jurisdiction u/s 148 on the basis of AIR information - entries relating to investment in Mutual fund etc. - HELD THAT - Assumption of jurisdiction u/s 147/148 on the basis of AIR information was illegal inasmuch as it was simplify in the domain of suspicion and for verification of the source of investment made in Mutual funds, which is impermissible u/s 148. Section 148 does not permit verification, as rightly contended, as the same falls in the domain of section 143(2), after the return is filed. It is an undisputed fact on the record, that but for the AIR information, there was no other material with the AO to reach the requisite satisfaction u/s 148(2). The above reasons are no reasons in the eyes of law, inasmuch as the source of investment is yet to be verified and explained, and it cannot be held as income escaping assessment for the purposes of section 148. For such a verification, the AO is to assume normal jurisdiction under section 143(2), after the return is filed. It is only during such regular assessment proceedings, that the source can be questioned, and deemed to be income u/s.68/69, in case no satisfactory explanation is offered by assessee. In the absence of verification/explanation of the assessee in the course of assessment proceedings, it is premature to assume the same as 'income', much less for the purposes of section 148. Therefore, the AIR information is no tangible material to empower the AO to reach the requisite satisfaction as envisaged u/s 147/148. - Decided in favour of assessee.

Issues Involved:
1. Validity of proceedings initiated under Section 147/148.
2. Addition made on a different issue than the reason for reopening.
3. Confirmation of addition towards unexplained credit in the bank account.
4. Disallowance of claims while recomputing long-term capital gain on the sale of flat.
5. Direction to reopen the case for AY 2004-05 to assess capital gain on a protective basis.
6. Competence of CIT(A) to issue directions to reopen the case for another year.
7. Initiation of penalty proceedings for alleged concealment of long-term capital gain.

Issue-wise Detailed Analysis:

1. Validity of proceedings initiated under Section 147/148:
The assessee contested the invocation of jurisdiction under Section 148 based on AIR information. The AO had reopened the assessment due to undisclosed investments in mutual funds amounting to ?1,09,49,156/-. The Tribunal observed that the assumption of jurisdiction under Section 147/148 based on AIR information was illegal, as it fell within the domain of suspicion and verification, which is impermissible under Section 148. The Tribunal held that Section 148 does not permit verification, which should be conducted under Section 143(2) after the return is filed. The Tribunal concluded that the AIR information alone did not constitute tangible material to empower the AO to reach the requisite satisfaction under Section 147/148.

2. Addition made on a different issue than the reason for reopening:
The assessee argued that the addition made by the AO was on a different issue than the reason for reopening. The Tribunal noted that the AO had recorded reasons based on AIR information about investments in mutual funds, but the addition was made on unexplained credits in the bank accounts. The Tribunal found this approach to be inconsistent and invalidated the proceedings.

3. Confirmation of addition towards unexplained credit in the bank account:
The AO made an addition of ?28,36,295/- towards unexplained credits in the assessee's bank accounts. The assessee provided explanations and sources for some credits but could not explain all the credits due to time constraints and health issues. The Tribunal found that the AO had prematurely assumed these credits as income without proper verification and explanation, which should have been done during regular assessment proceedings under Section 143(2).

4. Disallowance of claims while recomputing long-term capital gain on the sale of flat:
The assessee's claims for expenses on transfer and improvement of the flat were disallowed by the CIT(A) while recomputing the long-term capital gain. The Tribunal did not specifically address this issue in the judgment, focusing instead on the validity of the reopening proceedings.

5. Direction to reopen the case for AY 2004-05 to assess capital gain on a protective basis:
The CIT(A) directed the AO to reopen the case for AY 2004-05 to assess the capital gain on a protective basis. The Tribunal found this direction to be beyond the competence of the CIT(A), especially after holding that the capital gain was taxable in the current year.

6. Competence of CIT(A) to issue directions to reopen the case for another year:
The Tribunal held that the CIT(A) was not competent to issue directions to reopen the case for another year after determining the capital gain's taxability in the current year. Such directions were deemed illegal, arbitrary, and uncalled for.

7. Initiation of penalty proceedings for alleged concealment of long-term capital gain:
The initiation of penalty proceedings by the CIT(A) for the alleged concealment of long-term capital gain was contested by the assessee. The Tribunal did not specifically address the penalty proceedings in detail, as the primary focus was on the invalidity of the reopening proceedings.

Conclusion:
The Tribunal concluded that the reasons recorded under Section 148 were vague and invalid in the eyes of the law. Consequently, all proceedings pursuant to the reopening, culminating in the impugned order, were quashed. The appeal was allowed, and the order pronounced in the open court on 11/07/2016.

← Previous Next →