2018 (8) TMI 650 - AT - Income Tax

Reassessment u/s 147 - recording of reason to believe u/s 148 - sale of property - Held that - In our view, the Assessing Officer is duly ceased of the information in the form of the sale deed registered with the Sub-registrar, Dholpur, Rajasthan and the assessee s share in the sale deed is also determined to the extent of 1/5 share. There is, therefore, a definitive and a live link between the information in possession of the Assessing Officer and formation of believe that the income in the form of capital gain on the sale of the property has escaped assessment. Merely because the quantum of income which is finally determined is lower than the amount specified in the reasons, the same cannot be the basis for challenging the initiation of reassessment proceedings U/s 147 of the Act. Mechanical approval by Additional CIT - Held that - The said approval cannot be said to have been granted mechanically, rather in our view, the ld. Additional CIT has applied his mind before granting the approval to the Assessing Officer to initiate the proceedings U/s 147 of the Act. The decisions relied by the ld. AR are distinguishable on facts and does not support the case of the assessee. Even though the proceedings have been validly initiated by issuance of notice U/s 148 of the Act, however, giving the fact that the reasons so recorded have not been supplied to the assessee even though the same were being specifically asked during course of reassessment proceeding, a fact which remain undisputed before us, the reassessment proceedings have become vitiated and liable to be set aside respectfully following the decisions of the Hon ble Supreme Court and other High Courts referred supra. Decided in favor of assessee.

Issues Involved:
1. Validity of the initiation of reassessment proceedings under Section 147 of the Income Tax Act.
2. Jurisdictional authority in initiating reassessment proceedings.
3. Enhancement of income by the Commissioner of Income Tax (Appeals) under Sections 25AA and 25B of the Act.
4. Issuance of specific show cause notice before enhancement of income.
5. Nature of the sum of ?5,00,000/- related to rent.
6. Taxability of income from house property below the taxable limit.
7. Initiation of proceedings under Section 271(1)(c) of the Income Tax Act.

Detailed Analysis:

1. Validity of the Initiation of Reassessment Proceedings under Section 147 of the Act:
The assessee argued that the initiation of reassessment proceedings was without satisfying the statutory preconditions under Section 147 of the Act. The Tribunal held that the Assessing Officer (AO) had a definitive and live link between the information in possession (sale deed) and the formation of belief that income in the form of capital gain had escaped assessment. The Tribunal emphasized that at the time of issuing notice under Section 148, a prima facie belief that certain income had escaped assessment was sufficient, and the actual determination of income would occur during reassessment proceedings.

2. Jurisdictional Authority in Initiating Reassessment Proceedings:
The assessee contended that the sanction granted by the Additional CIT was mechanical. The Tribunal found that the Additional CIT had applied his mind before granting approval, as evidenced by the specific statement of satisfaction. Thus, the Tribunal concluded that the approval was not mechanical and upheld the initiation of proceedings under Section 147.

3. Enhancement of Income by the Commissioner of Income Tax (Appeals) under Sections 25AA and 25B of the Act:
The CIT(A) enhanced the income by ?3,50,000/- under Sections 25AA and 25B, considering the balance consideration of ?25,00,000/- towards unrealized rent. The Tribunal noted that the CIT(A) took the sale consideration as per the sale deed at ?40,00,000/- and computed the long-term capital loss. However, the Tribunal did not specifically address the merits of this enhancement in the final judgment due to the procedural issues identified.

4. Issuance of Specific Show Cause Notice Before Enhancement of Income:
The assessee argued that the enhancement was made without issuing a specific show cause notice, thereby lacking jurisdiction. The Tribunal did not provide a detailed analysis on this issue, as the reassessment proceedings were set aside on other grounds.

5. Nature of the Sum of ?5,00,000/- Related to Rent:
The assessee claimed that the sum related to rent which could not be collected as the owners resided outside Dhaulpur. The Tribunal did not adjudicate on this issue due to the procedural flaws identified in the reassessment process.

6. Taxability of Income from House Property Below the Taxable Limit:
The assessee argued that the income from house property was below the taxable limit and hence not liable to be taxed. The Tribunal did not address this issue directly, as the reassessment proceedings were invalidated on other grounds.

7. Initiation of Proceedings under Section 271(1)(c) of the Act:
The assessee contended that the initiation of proceedings under Section 271(1)(c) was erroneous. The Tribunal did not specifically address this issue due to the overarching decision on the invalidity of the reassessment proceedings.

Procedural Flaws Leading to Setting Aside Reassessment Proceedings:
The Tribunal highlighted that the AO did not provide the recorded reasons for reopening the assessment to the assessee, despite specific requests. This non-communication of reasons violated the principles laid down by the Hon’ble Supreme Court in the case of GKN Driveshafts (India) Ltd. vs. ITO & Ors. The Tribunal emphasized that the AO is bound to furnish reasons within a reasonable time, and failure to do so vitiates the reassessment proceedings.

Conclusion:
The Tribunal set aside the reassessment proceedings due to the procedural flaw of not providing the reasons for reopening the assessment to the assessee. Consequently, the other grounds raised by the assessee became academic and were not adjudicated upon. The appeal filed by the assessee was allowed.

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