2021 (5) TMI 957 - AT - Income Tax

Reopening of assessment u/s 147 - assessee had shown fixed assets but he had not offered any income from the said property except agriculture income - HELD THAT - In our view this is a vague reason. Merely possession of a fixed asset does not mean that the assessee might have earned any income from the said asset which would have escaped assessment. Admittedly the assessee owns agricultural land where upon certain construction has been made by the assessee. It has been used for its own purposes. The reasons recorded by the Assessing Officer do not disclose that the assessee has used any of his assets for any business or rental purposes. The formation of belief by the AO in this case regarding the escapement of income of the assessee, in my view is based on just assumptions and presumptions and there was no reliable material available with the AO to form the belief that the income of the assessee had escaped assessment. In this view, re-opening of the assessment in this case, in my view is bad in law and the same is therefore quashed. Proportionate construction expenses - AO had adopted the Current Value of the construction exp. and added the proportionate const, exp.- AO not making any reference to DVO - HELD THAT - First of all, it is seen that there was no evidence before the AO regarding the date of the construction of the property. Consequently, the value of the property has been made on estimation basis. Assessee has brought my attention to the report of the Valuer obtained from Punjab Vigilance Bureau upon which the AO has relied upon, wherein, the year of construction has been mentioned as 2008 to 2011. The value of the property, however, has been assessed as on 3.3.2015. Therefore, the value of the property has been estimated in the year 2015 and the addition has been made on proportionate basis taking the value of the property as on 3.3.2015, whereas, it is own case of the department that the property has been constructed from 2008 to 2011. The assessee had further requested the AO to get all the details in this respect from M/s. ICRMS company, however, the AO totally ignored the aforesaid request of the assessee and simply relied upon the report of the valuer attached alongwith the report of the Punjab Vigilance Bureau. As observed the said valuation was done as per the value of the construction in the year 2015. In this case, even the AO did not make any independent query. Moreover, the AO in the circumstances was supposed to refer the matter to the Departmental Valuation Officer to get approximate date of construction of the property as well as value of the property on the date of construction. No such exercise has been done by the AO. The addition has been made just on estimation basis on the borrowed satisfaction of the Punjab Vigilance Bureau without any independent investigation in the matter by the AO. Such an addition made on the basis of mere suspicion, in my view, is not sustainable in the eyes of law. This addition is accordingly set aside. Addition made by the AO as income from other sources as against declared by the assessee as 'agricultural income' - HELD THAT - As before this Tribunal, assessee has submitted that the assessee has continuously been offering the agricultural land on Batai and that the aforesaid amount was earned by the assessee from agriculture operations. The ld. counsel has further submitted that during the subsequent years, the said lessee was examined by the AO and statement was also recorded and after having satisfied, no addition has been made in this respect in the subsequent years. Moreover, it has not been denied by the AO that the assessee is in possession of agricultural land and the lessee has admitted that he has paid aforesaid amount of ₹ 1.20 lacs as batai to the assessee. In view of this,we do not find any justification on the part of the AO to make the impugned addition. In view of this, the addition made by the AO on this issue is deleted.

Summary

Issues Involved:
1. Validity of re-opening of assessment under Section 147 read with Section 148 of the Income Tax Act, 1961.
2. Validity of assessment without issuance of valid notice under Section 143(2) of the Income Tax Act, 1961.
3. Additions made on account of construction expenses.
4. Addition of income from agricultural operations as "income from other sources".
5. Adherence to principles of natural justice and allegations of biased assessment.

Issue-wise Detailed Analysis:

1. Validity of Re-opening of Assessment under Section 147 read with Section 148 of the Income Tax Act, 1961:
The assessee challenged the validity of the re-opening of assessments for the assessment years (A.Y.) 2008-09, 2009-10, and 2011-12. The reasons recorded by the Assessing Officer (AO) for re-opening were deemed vague and based on assumptions and presumptions. It was observed that the AO did not have reliable material to form the belief that the income had escaped assessment. Specifically:
- For A.Y. 2008-09, the AO's belief was based on the possession of fixed assets without evidence of rental or business income.
- For A.Y. 2009-10, the AO's belief was based on alleged use of assets for marriage functions and unaccounted construction expenses, but no addition was made on these grounds.
- For A.Y. 2011-12, the reasons were identical to A.Y. 2009-10 and were deemed invalid.
The re-opening of assessments was quashed for being bad in law.

2. Validity of Assessment without Issuance of Valid Notice under Section 143(2) of the Income Tax Act, 1961:
The assessee contended that the assessment was completed without the issuance of a valid notice under Section 143(2). This issue was raised for A.Y. 2008-09 and 2011-12. The Tribunal did not specifically address this issue separately as the re-opening of assessments itself was quashed.

3. Additions Made on Account of Construction Expenses:
The AO made additions based on a report from the Punjab Vigilance Bureau, which indicated construction/development work amounting to ?32.84 lakhs on the assessee's property. The AO added proportionate amounts for various years:
- For A.Y. 2008-09, ?2.05 lakhs.
- For A.Y. 2009-10, ?8.21 lakhs.
- For A.Y. 2011-12, ?8.21 lakhs.
The Tribunal found that the AO did not have independent evidence regarding the date of construction and relied on an estimation basis. The assessee provided a valuation report indicating construction in 2006-07 by a lessee, M/s. ICRMS Pvt. Ltd. The AO failed to refer the matter to the Departmental Valuation Officer (DVO) for an accurate assessment. The additions were set aside as they were based on mere suspicion and not sustainable in law.

4. Addition of Income from Agricultural Operations as "Income from Other Sources":
For A.Y. 2008-09, the AO added ?1.20 lakhs as "income from other sources" instead of agricultural income. The assessee provided an affidavit from the lessee, Mr. Kuldeep Singh, confirming the agricultural income. The Tribunal found that the AO did not justify the addition, especially since the assessee was in possession of agricultural land and the lessee admitted to paying the batai (share of produce). The addition was deleted.

5. Adherence to Principles of Natural Justice and Allegations of Biased Assessment:
The assessee argued that the assessment was conducted in haste and without reasonable opportunity, violating principles of natural justice. The Tribunal observed that the AO acted on borrowed satisfaction without independent investigation. The assessments were found to be biased and prejudiced, further supporting the decision to quash the re-openings and set aside the additions.

Conclusion:
The Tribunal allowed the appeals for all the assessment years (2008-09, 2009-10, 2011-12), quashing the re-opening of assessments and setting aside the additions made by the AO. The judgments emphasized the need for reliable evidence and adherence to principles of natural justice in assessment proceedings.