2018 (6) TMI 217 - AT - Income Tax

Reopening of assessment - Unexplained purchase of land - Held that - The document relied on by the AO has no mention or information relating to unexplained investment or passing on of unaccounted payment to the vendors by the assessee. The said document bearing No.A/SLT/3/39 has no relevance on the assessee in as much as there was no mention of the assessee names and they are not parties to the agreement. Therefore, we hold that the reopening of assessment u/s 147 of the Act is bad in law and accordingly, we quash the notice issued u/s 148 of the Act and the consequent assessment made u/s 147 r.w.s. 143(3) is cancelled. Additions made by AO for unexplained investment relating to purchase of the land - Held that - The agreement was signed by the vendors and does not bear the signature of the vendee, hence the said agreement cannot be held as valid agreement - the agreement was neither signed by the assesses nor their names were mentioned, thus the assesses have never become the parties for the agreement and no other material is available to show that the assessee s have paid the consideration over and above the consideration recorded in the sale deed, thus there is no material in the case for forming a belief to hold that there was an escapement of income in the hands of the assessee - mere suspicion, presumption, surmises are not sufficient reasons to reopen the assessment - thus there is no case for making addition u/s 69 - Decided in favor of assessee.

Issues Involved:
1. Validity of the initiation of proceedings under section 147 of the Income Tax Act.
2. Validity of the assessment made under section 147 read with section 143(3) of the Income Tax Act.
3. Quantum of addition as unexplained investment in the hands of the assessee.

Detailed Analysis:

1. Validity of the initiation of proceedings under section 147 of the Income Tax Act:

The foundation for the issue of notice under section 147 was an agreement dated 21.06.2007, which was found during the search operations. This agreement was purportedly between Mr. Y. Joji Reddy and the original landowners, indicating a purchase price of ?32.50 lakhs per acre. However, this agreement was not signed by Mr. Y. Joji Reddy, and there was no mention of the assessees in this document. The Tribunal concluded that the agreement dated 21.06.2007 could not be considered valid as it lacked the vendee's signature and did not directly involve the assessees. Therefore, there was no material evidence to form a belief that income had escaped assessment. The Tribunal cited several judgments, including the Hon'ble Supreme Court's decision in S. Narayanappa vs. CIT, emphasizing that mere suspicion or presumption is insufficient to reopen an assessment. Consequently, the Tribunal quashed the notice issued under section 148 and held that the reopening of the assessment was bad in law.

2. Validity of the assessment made under section 147 read with section 143(3) of the Income Tax Act:

The Tribunal found that the Assessing Officer (AO) relied on the agreement dated 21.06.2007 and other documents, none of which mentioned the assessees or indicated that they had paid any consideration over and above the registered sale deed. The Tribunal noted that the AO's reasons for reopening the assessment were based on the assumption that the assessees had paid unaccounted consideration, which was not supported by any evidence. The Tribunal reiterated that there must be a direct nexus or live link between the material available and the formation of belief for income escapement. In the absence of such evidence, the Tribunal held that the assessment made under section 147 read with section 143(3) was invalid and cancelled the consequent assessment.

3. Quantum of addition as unexplained investment in the hands of the assessee:

The AO had added the difference between the registered sale deed amount and the assumed purchase price as unexplained investment in the hands of the assessees. The Tribunal observed that the assessees had purchased the land for ?26,56,000 (?4 lakhs per acre), as per the registered sale deed. There was no evidence to suggest that the assessees had paid any amount over and above this consideration. The Tribunal emphasized that the AO could not make an assessment based on pure guesswork without any supporting evidence. The Tribunal referred to the Hon'ble Supreme Court's decision in Dakeswari Cotton Mills Ltd. vs. CIT, which held that assessments must be based on evidence and not mere suspicion. Consequently, the Tribunal deleted the addition made by the AO as unexplained investment, setting aside the orders of the lower authorities.

Conclusion:

The Tribunal allowed the appeals of the assessees, quashing the notice issued under section 148, cancelling the consequent assessment made under section 147 read with section 143(3), and deleting the addition made as unexplained investment. The Tribunal concluded that there was no valid basis for reopening the assessment and making the addition, as the AO's actions were based on assumptions and lacked supporting evidence.

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