2020 (1) TMI 1366 - AT - Income Tax

Reopening of assessment u/s 147 - whether the Assessing Officer is in possession of the material/information basis which he has formed the reasonable belief that the income of the assessee has escaped assessment for the impugned assessment year? - Assessee had sold an immoveable property for consideration of ₹ 7 lacs and which has been valued at ₹ 7.17 lacs for the purposes of charging stamp duty - HELD THAT - AO has merely gone by the CIB report and was not even in possession of the sale deed and the exact specifics of the transaction at the time of recording of reasons and therefore, it is a case where the proceedings are vitiated for want of tangible material in possession of the AO and lack of reason to believe which is more in the realm of suspicion rather than formation of opinion that income has escaped assessment. The reasons thus recorded and/or the documents available on record, therefore, don t show a link/nexus and relevancy to the opinion formed by the Assessing Officer regarding escapement of income. Even though the reopening in the present case was after the expiry of four years from the end of the relevant A.Y 2008-09, given that there was no original return of income filed by the assessee and consequent assessment, it was not necessary for the AO to show that there was any failure to disclose fully or truly all material facts necessary for the assessment in terms of proviso to section 147 of the Act which is not applicable in the instant case. Assumption of jurisdiction and initiation of the proceedings under Section 147 of the Act to reopen the assessment proceedings are vitiated and does not satisfy the requirement of law - Decided in favour of assessee.

Issues Involved:
1. Validity of the reopening of assessment under Section 147/148 of the Income Tax Act.
2. Addition of ?7,17,286 on account of Short Term Capital Gains (STCG).
3. Charging of interest under Sections 234A, 234B, and 234C of the Income Tax Act.

Issue-Wise Detailed Analysis:

1. Validity of the Reopening of Assessment under Section 147/148:
The primary issue in this case was the validity of the reopening of the assessment under Section 147/148. The assessee contended that the reopening was based on incorrect facts and without proper jurisdiction. The Assessing Officer (AO) initiated the reassessment proceedings based on a CIB report indicating that the assessee had sold an immovable property for ?7,00,000, which was valued at ?7,17,286 for stamp duty purposes. The AO believed that the income had escaped assessment due to the non-filing of the return by the assessee.

The Tribunal observed that the AO recorded the reasons for reopening on 25.03.2015 based solely on the CIB report without obtaining a copy of the registered sale deed or verifying the specifics of the immovable property. The Tribunal noted that the AO issued a notice under Section 133(6) to the Sub-Registrar only after recording the reasons, indicating that the AO did not have tangible material at the time of forming the belief that income had escaped assessment.

The Tribunal emphasized that the formation of belief by the AO must be based on tangible material and not mere suspicion. The reasons recorded must show a link/nexus and relevancy to the opinion formed by the AO regarding the escapement of income. In this case, the AO's reasons were found to be based on incorrect facts and without proper examination of the transaction details. Consequently, the Tribunal held that the assumption of jurisdiction under Section 147 was vitiated and the reassessment proceedings were set aside.

2. Addition of ?7,17,286 on Account of Short Term Capital Gains (STCG):
The assessee challenged the addition of ?7,17,286 made by the AO on account of alleged undisclosed STCG from the sale of the property. The AO invoked Section 50C of the Act, which deals with the adoption of stamp duty value as the sale consideration for computing capital gains.

The Tribunal, however, did not delve into the merits of this addition. Since the reassessment proceedings were quashed on the ground of invalid assumption of jurisdiction, the Tribunal found it unnecessary to address the issue of STCG addition. Therefore, this ground of appeal was dismissed as infructuous.

3. Charging of Interest under Sections 234A, 234B, and 234C:
The assessee also contested the charging of interest under Sections 234A, 234B, and 234C of the Act. These sections pertain to interest for defaults in furnishing return of income, payment of advance tax, and deferment of advance tax, respectively.

Similar to the STCG addition, the Tribunal did not examine the merits of this issue. Given that the reassessment proceedings were set aside, the Tribunal dismissed this ground of appeal as academic and infructuous.

Conclusion:
The Tribunal allowed the appeal of the assessee by quashing the reassessment proceedings initiated under Section 147/148 due to the lack of tangible material and improper formation of belief by the AO. Consequently, the issues related to the addition of STCG and charging of interest were dismissed as infructuous. The order was pronounced in the open Court on 05/01/2021.

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