2016 (8) TMI 1045 - AT - Income Tax

Reopening of assessment - no business activity carried - Held that - The contention of the assessee-company that the re-assessment proceedings were initiated during pendency of the original proceedings cannot be accepted, as the facts emerge from the assessment order, the original return of income was filed on 28/3/2008 and therefore, notice u/s 143(2) should have been issued by 31/3/2009. Obviously, there was no notice issued u/s 143(2) against original return of income. Notice u/s 148 was issued on 21/12/2009 on which date admittedly there was no pending proceedings. Therefore, the contention of the assesseecompany that the re-assessment proceedings were initiated during the course of pendency of the original assessment is bald without any substance and devoid of any merit and therefore, dismissed as such. From the reasons recorded, it is clear that the AO had information that no return of income has been filed for several assessment years and this fact goes to show that there was no business activity carried on by the assessee-company. Obviously, this information could have enabled the AO to believe that no business was carried on by the assessee-company so as to entitled it to business loss which could be set off against capital gains. In our considered opinion, this information would have enabled the AO to believe that income got escaped assessment. It is also trite law that at the time of issuing notice, it is not incumbent upon the AO to prove conclusively that there is escapement of income As regards merits of the addition, the assessee-company has not brought any evidence in support of the contention that the assessee-company had undertaken any business activity during the previous year relevant to assessment year under consideration. The findings of the AO that sales tax bills or invoices and transport details plus details of granites extracted were not produced, has not been controverted by the assessee-company either before the CIT(A) or before us. In the result, it cannot be accepted that the assessee-company is engaged in the business activity during the previous year relevant to assessment year under consideration. Therefore, business loss returned can neither be accepted nor can it be allowed to be set off against capital gains. As regards, grounds relating to bifurcation of consideration between land and buildings, assessee-company had not demonstrated before us as to how the working done by the AO is wrong. Therefore, we do not find any reason to interfere with order of CIT(A).- Decided against assessee.

Issues:
1. Validity of re-assessment proceedings
2. Reason to believe income escaped assessment
3. Assessment order barred by limitation
4. Existence of business activity during the relevant year
5. Bifurcation of consideration between land and buildings

Validity of re-assessment proceedings:
The appeal challenged the initiation of re-assessment proceedings during the pendency of the original proceedings. However, it was found that notice u/s 148 was issued after the original return filing date, dismissing the claim. The contention that re-assessment was based on mere suspicion was also rejected as the AO had valid information indicating no business activity by the assessee-company, allowing the belief of income escapement. The argument of the assessment order being barred by limitation lacked substantiation and was dismissed.

Reason to believe income escaped assessment:
The AO had information about the non-filing of returns for several years, indicating no business activity by the assessee. This lack of business activity supported the belief of income escapement, as the AO was not required to conclusively prove it at the notice issuance stage. The claim of re-assessment being prompted by a mere change of opinion was refuted, given the absence of a prior opinion due to the original assessment being completed u/s 143(1).

Assessment order barred by limitation:
The claim that the assessment order was barred by limitation was rejected due to the lack of evidence demonstrating the limitation period breach. The contention was dismissed for lack of merit.

Existence of business activity during the relevant year:
The assessee failed to provide evidence supporting the claim of business activity during the relevant year, as required for accepting the business loss returned and allowing set off against capital gains. The absence of sales tax bills, invoices, and transport details led to the rejection of the business loss claim.

Bifurcation of consideration between land and buildings:
The assessee did not demonstrate any error in the bifurcation of consideration between land and buildings by the AO. As a result, the order of the CIT(A) was upheld, and no interference was deemed necessary.

In conclusion, the appeal challenging the assessment order was dismissed based on the findings related to the validity of re-assessment proceedings, the belief of income escapement, the limitation period, the existence of business activity, and the bifurcation of consideration between land and buildings. The detailed analysis of each issue highlighted the reasons for the dismissal and the legal principles applied in reaching the decision.

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