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2020 (1) TMI 1666 - AT - Income TaxValidity of reopening of assessment u/s 147 - reasons to believe - Borrowed satisfaction - AO received information from ITO(hq.) (tech) O/o Pr. Commissioner of Income Tax-1 Jalandhar - whether on the basis of the reasons recorded by the AO to reopen the assessment it can be said that AO on the basis of whatever material before it, had reasons which he had indicated in his reasons recorded which warrant holding a belief that income chargeable to tax has escaped assessment? - HELD THAT - The reasons recorded by AO to reopen has to be evaluated on a stand-alone basis and no addition/extrapolation can be made or assumed while adjudicating the legal issue of AO s usurpation of jurisdiction u/s. 147 of the Act. From the reasons already set out above and from the gist of the reasons recorded by the AO, we understand that the AO received information from ITO(hq.) (tech) O/o Pr. Commissioner of Income Tax-1 Jalandhar. After getting the information from the ITO(hq.) (tech) O/o Pr. Commissioner of Income Tax-1 Jalandhar, the AO should apply his mind and to examine based on this information that income has escaped assessment. In this case AO has not applied his mind and it is a borrowed satisfaction only. We note that reasons recorded by AO are only on the basis of information from the ITO(hq.) (tech) O/o Pr. Commissioner of Income Tax-1 Jalandhar. Based on this information the AO ought to have conducted further enquiry to examine whether there is tangible material which suggests that income has escaped assessment, which he has not done, therefore based of the borrowed satisfaction he has reopened the assessment. The reasons should be recorded standalone basis and not on the basis of borrowed satisfaction. It is clearly evident from the reasons recorded by the Assessing Officer that there was actually no reason for him to have formed a belief about the escapement of any income of the assessee from the assessment, but the assessment was reopened by him to verify or to conduct further enquiry or to examine certain particulars furnished by the assessee in the return of income. We note that the information given by the ITO(hq.) (tech) O/o Pr. Commissioner, can only be a basis to ignite/trigger reason to suspect for which reopening cannot be made for further examination to be carried out by him in order to strengthen the suspicion to an extent which can form the belief in his mind that income chargeable to tax has escaped assessment. No quantification of income escaping assessment has been spelt out by the AO in the reasons recorded for justifying reopening u/s. 147 of the Act. It has to be kept in mind that merely on an allegations leveled by the ITO(hq.) (tech) O/o Pr. Commissioner, can only raise suspicion in the mind of the AO which is not the sufficient/requirement of law for reopening of assessment. The reasons to believe is not synonymous to reason to suspect . Reason to suspect based on an information can trigger an enquiry to find out whether there is any substance or material to substantiate that there is merit in the information adduced by the ITO(hq.) (tech) O/o Pr. Commissioner, and thereafter the AO has to take an independent decision to re-open or not. And the AO should not act on dictate of any other authority (like in this case information given by the ITO(hq.) (tech) O/o Pr. Commissioner), because then it would be borrowed satisfaction. AO failed to quantify the escapement of income in the reasons recorded. The AO is a quasi judicial authority empowered to reopen the completed assessment only in a given case wherein there is reason to believe escapement of chargeable income to tax which is the jurisdictional fact and sine qua non to assume jurisdiction to reopen a completed assessment. It must be kept in mind that reasons to believe postulates foundation based on information and belief based on reason. Even if there is foundation based on information there must be some reason warrant holding the belief that income chargeable to tax has escaped assessment. Thus we find that the reasons recorded by the AO to justify reopening the assessment u/s. 147 fails and, therefore, the very assumption of jurisdiction to reassess the assessee fails and therefore, we quash the reopening and consequent reassessment order framed by him. Appeal of assessee allowed.
Issues Involved:
1. Validity of the reopening of assessment under Section 147/148 of the Income Tax Act, 1961. 2. Application of Section 50C of the Income Tax Act, 1961 regarding the valuation of the property for capital gains calculation. 3. Consideration of objections to the valuation determined by the Departmental Valuation Officer (DVO). Issue-wise Detailed Analysis: 1. Validity of the Reopening of Assessment under Section 147/148: The primary grievance of the assessee was the reopening of the assessment under Section 147 of the Income Tax Act, 1961. The assessee contended that the Assessing Officer (AO) reopened the assessment based on information received from the ITO (Hq.) (Tech.) O/o Pr. Commissioner of Income Tax-1, Jalandhar, without independent application of mind. The AO's reasons for reopening were based on the difference between the sale deed value (Rs. 1,21,00,000) and the stamp duty valuation (Rs. 3,46,00,000), suspecting an escapement of income. The Tribunal noted that the AO must have "reason to believe" that income has escaped assessment, which should be based on tangible material. The Tribunal emphasized that "reason to believe" is stronger than "reason to suspect" and requires the AO to conduct a reasonable enquiry and collect material supporting the belief of income escapement. The Tribunal found that the AO acted on borrowed satisfaction from the ITO (Hq.) (Tech.) without independent verification, rendering the reopening invalid. Consequently, the Tribunal quashed the reopening and the consequent reassessment order. 2. Application of Section 50C Regarding Valuation of Property: The assessee challenged the application of Section 50C, which deems the value adopted by the stamp valuation authority as the full value of consideration for calculating capital gains if it exceeds the actual sale consideration. The CIT(A) upheld the AO's invocation of Section 50C but directed the AO to refer the matter to the Departmental Valuation Officer (DVO) for determining the fair market value. The DVO valued the property at Rs. 2,03,00,000, lower than the stamp duty valuation but higher than the actual sale consideration. The CIT(A) directed the AO to compute the long-term capital gains based on the DVO's valuation, providing relief to the assessee as the deemed sale consideration was reduced from Rs. 3,46,00,000 to Rs. 2,03,00,000. 3. Consideration of Objections to DVO's Valuation: The assessee raised objections to the DVO's valuation, arguing that the circle rate adopted by the stamp valuation authority was recently reduced and should be considered for a lower deemed sale consideration. The CIT(A) acknowledged the assessee's objections but upheld the DVO's valuation, directing the AO to re-compute the capital gains accordingly. The Tribunal noted that the CIT(A) provided relief by reducing the deemed sale consideration from the stamp duty value to the DVO's valuation, aligning with the provisions of Section 50C(2). Conclusion: The Tribunal concluded that the reopening of the assessment was invalid due to the AO's failure to independently verify the information received and form a belief of income escapement. The Tribunal quashed the reopening and the consequent reassessment order. Regarding the application of Section 50C, the Tribunal upheld the CIT(A)'s decision to adopt the DVO's valuation for computing capital gains, providing partial relief to the assessee. The appeal was allowed in favor of the assessee, emphasizing the necessity of independent application of mind by the AO in reopening assessments and the proper application of Section 50C for property valuation.
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