2016 (10) TMI 971 - AT - Income Tax

Reopening of assessment - unexplained investment - Held that - There was no material with the Revenue to say that unexplained investment was made by the assessee in his individual cases. The ADIT who has investigated the assessee has suggested for obtaining DVO s report. The ld.AO ought to have first obtained report then visualize in the light of that report. Thus at the time when he has recorded reasons for reopening of the assessment he was not possessing any material in the individual cases of the assessee. The DVO has submitted his report on 5.12.2011 and valued the land at 19.12 lakhs for Block No.559/B at the time of purchases and 22.31 lakhs at the time of sale i.e. on 18.10.2005. In the case of HUF the assessee has already shown value of investment at 55 lakhs. He has already paid tax of 4.70 lakhs in instalments. He has shown this land in HUF much prior to investigation started by the DDIT. He has paid taxes on account of alleged unexplained investment by way of revised computation. All these steps were taken by the assessee three years prior to the recording of reasons by the AO. Once the alleged land was shown in the balance sheet of HUF taxes were paid in the hands of HUF and then how that very alleged unexplained investment can be considered in the hands of the individual ? The AO has not verified any facts from the record and he simply reproduced information came from the ADIT and issued notice under section 147. As observed earlier even the ADIT was not sure about the quantum of alleged unexplained investment as well as in the status of the assessee in whose hand it is to be assessed. Quantum was apprehended at 7 crores but was subject to verification from the DVO and a suggestion was made to this effect by the ADIT. In spite of that ld.AO did not bother to collect information for harbouring a belief that income chargeable to tax has escaped assessment. On overall evaluation of the material available on record we are of the view that a live link is totally missing between the material available with the AO for formation of a belief that income chargeable to tax has escaped. Therefore we allow this ground of appeal in both the years and quash re-assessment orders. - Decided in favour of assessee

Summary

Issues Involved:
1. Condonation of delay in filing the appeal for the Asstt.Year 2004-05.
2. Validity of reopening assessments for Asstt.Years 2004-05 and 2006-07.

Analysis:

Condonation of Delay:
The appeal for the Asstt.Year 2004-05 was delayed by 118 days. The assessee explained the delay by stating that their former representative, Shri Sapnesh Sheth, did not inform them about the CIT(A)'s order before his retirement. The Revenue argued that the assessee should have been vigilant. The Tribunal referred to the Supreme Court's decisions in Collector Land Acquisition Vs. Mst. Katiji & Others and N.Balakrishnan Vs. M. Krishnamurthy, emphasizing a justice-oriented approach and the importance of substantial justice over technical considerations. The Tribunal found the assessee's explanation sufficient and condoned the delay, deciding to hear the appeal on merits.

Reopening of Assessments:
The assessee challenged the reopening of assessments for both years.

Facts:
The assessee, in their HUF capacity, purchased agricultural land, showing the investments in their balance sheet. A tax evasion petition led to an inquiry by the DDIT, during which the assessee admitted to making unaccounted investments and receiving on-money from land transactions. The AO reopened the assessments based on the DDIT's report, which suggested unaccounted investments and transactions involving significant amounts of money.

Arguments:
The assessee argued that the AO had no material to believe that income had escaped assessment in their individual capacity, as the investments were made by the HUF, which had already filed returns and paid taxes. They also contended that the AO did not independently verify the information from the DDIT and relied on borrowed satisfaction, which is not permissible. The assessee cited various judicial precedents to support their arguments, including the decisions in Manju Shah Estate Pvt. Ltd. Vs. ITO and ACIT Vs. Dhariya Construction.

Tribunal's Findings:
The Tribunal noted that the AO's reasons for reopening were based on the DDIT's report, which itself was uncertain about the exact value of the land and suggested verification by a valuer. The Tribunal found that the AO did not possess any material in the individual case of the assessee at the time of recording reasons for reopening. The DVO's report, obtained later, valued the land significantly lower than the alleged ?7 crores, and the HUF had already shown the investments and paid taxes. The Tribunal concluded that there was no live link between the material available and the formation of belief that income had escaped assessment. The AO's action was based on borrowed satisfaction without independent verification.

Conclusion:
The Tribunal allowed the appeals, quashing the reassessment orders for both years, as the reopening was not justified based on the available material and the AO's lack of independent application of mind. The appeals were allowed, and the reassessment orders were quashed.