2021 (7) TMI 1024 - AT - Income Tax

Reopening of assessment u/s 147 - non-disclosure of loan given by the assessee to his wife Smt. Sulochana for purchase of agricultural land - whether the AO can limit his powers to assess income which is escaped from tax on the basis of reasons recorded for reopening of assessment or he could further proceed to any other income which is escaped from tax and which has subsequently came to his knowledge during the course of reassessment proceedings or not? - HELD THAT - In this case, on perusal of facts available on record, it is abundantly clear that the AO has formed reasonable basis of escapement of income for taxing income escaped assessment on account of non-disclosure of money lent by the assessee to his wife for purchase of agricultural lands. However, in the reassessment proceedings, the AO has accepted the explanation of the assessee regarding money lent by the assessee to his wife and has not made any addition, but he has made addition towards profit deriving from sale of lands under the head income from business or profession as against income declared by the assessee under the head income from capital gains but said addition is not part of reasons recorded for reopening of assessment. Therefore, we are of the considered view that the reasons for reopening of assessment is fails and hence, the AO is not permitted to assess any other income which has escaped from tax and come to his knowledge subsequently during the course of reassessment proceedings. Therefore, we quash reassessment order passed by the AO. - Decided in favour of assessee.

Summary

Issues Involved:
1. Validity of the reassessment proceedings.
2. Classification of income from the sale of land as business income or capital gains.
3. Admissibility of additional grounds of appeal.

Detailed Analysis:

1. Validity of the Reassessment Proceedings:
The primary issue was whether the reassessment proceedings initiated by the Assessing Officer (AO) were valid. The AO reopened the assessment under Section 147 of the Income Tax Act, 1961, on the grounds that the assessee had lent ?2.5 crores to his wife for purchasing agricultural land, which was not disclosed. However, during the reassessment, the AO did not make any additions regarding this loan transaction but instead assessed the profit from the sale of land as business income. The Tribunal emphasized that if the reason for reopening the assessment fails, any other additions made during the reassessment proceedings also fail. This principle is supported by several judicial precedents, including the Hon’ble High Court of Madras in M/s. Martech Peripherals Pvt. Ltd. vs. DCIT, [2017] 394 ITR 733, and the Hon’ble High Court of Bombay in CIT v. Jet Airways (I) Ltd., [2011] 331 ITR 236. The Tribunal concluded that since the reason for reopening failed, the AO had no jurisdiction to make other additions, and thus, the reassessment order was quashed.

2. Classification of Income from Sale of Land:
The AO assessed the income from the sale of land as business income, arguing that the assessee was involved in systematic buying and selling of land, which constituted an adventure in the nature of trade. The assessee contended that the land was agricultural and used for agricultural purposes, and the sale should be treated as capital gains. The Commissioner of Income Tax (Appeals) [CIT(A)] upheld the AO's decision. However, since the reassessment order was quashed, the Tribunal did not delve into the merits of this issue, rendering it infructuous.

3. Admissibility of Additional Grounds of Appeal:
The assessee sought to admit additional grounds of appeal, arguing that these were legal in nature and the facts were already on record. The Tribunal admitted these additional grounds, citing the decision of the Hon’ble Supreme Court in National Thermal Power Co. Ltd. vs. CIT, [1998] 229 ITR 383, which allows the Tribunal to examine questions of law arising from the facts found by the authorities below. The Tribunal held that the additional grounds were admissible and decided the issue on merits.

Conclusion:
The Tribunal quashed the reassessment order on the grounds that the original reason for reopening the assessment failed, and therefore, the AO had no jurisdiction to make other additions. Consequently, the other grounds raised by the assessee regarding the classification of income from the sale of land were dismissed as infructuous. The appeal filed by the assessee was allowed.