2021 (9) TMI 190 - AT - Income Tax

Reopening of assessment u/s 147 - eligibility of reasons to believe - information that the assessee had made immovable properties transactions - HELD THAT - From perusal of the reasons recorded, we noticed that whether the provisions of explanation 2(a) or 2(b) of section 147 are applicable or both the sections are applicable . AO had written escaped assessment within the meaning of section 147 . The explanation 2(a) contains the situation where no return of income was furnished by the assessee. In the present case the assessee furnished his return of income, which is evident from assessment order page No. 2, therefore, provisions of explanation 2(a) of Section 147 of the Act does not apply on the assessee. As observed that no addition was made by the AO on the ground of reasons recorded and AO believed that income is escaped assessment.Explanation 3 does not and cannot override the necessity of fulfilling the conditions set out in the substantive part of section 147. An Explanation to a statutory provision is intended to explain its contents and cannot be construed to override it or render the substance and core nugatory. Section 147 has this effect that the AO has to assess or reassess the income ( such income ) which escaped assessment and which was the basis of the formation of belief and if he does so, he can also assess or reassess any other income which has escaped assessment and which, comes to his notice during the course of the proceedings - If after issuing a notice under section 148, he accepted the contention of the assessee and holds that the income which he has initially formed a reason to believe had escaped assessment, has as a matter of fact not escaped assessment, it is not open to him independently to assess some other income. If he intends to do so, a fresh notice under section 148 would be necessary, the legality of which would be tested in the event of a challenge by the assessee. Therefore, we found merit in the contention of the ld. AR and the case laws relied upon by the ld DR are not applicable in the case of the assessee, therefore, we quash the proceedings initiated u/s 147 of the Act. - Decided in favour of assessee.

Summary

Issues Involved:
1. Validity of reassessment proceedings initiated under Section 147 of the Income Tax Act, 1961.
2. Legality of additions made by the Assessing Officer (AO) on issues not originally specified in the reassessment notice.
3. Applicability of Section 50C of the Income Tax Act regarding the sale of immovable properties.

Detailed Analysis:

1. Validity of Reassessment Proceedings:
The appeal contested the reassessment proceedings initiated under Section 147 of the Income Tax Act. The assessee argued that the AO's belief that income had escaped assessment was based on mechanical and insufficient grounds. The AO cited the sale of immovable properties and potential capital gains under Section 50C as reasons for reopening the assessment. However, the assessee had already included these transactions in their income declarations. The Tribunal observed that the AO's belief was based on the assumption that the assessee failed to disclose material facts, which was not the case since the transactions were already reported. The AO's reliance on explanation 2(a) of Section 147 was deemed inapplicable as the assessee had filed their returns.

2. Legality of Additions on Unspecified Issues:
The Tribunal scrutinized whether the AO could make additions on issues not specified in the original reassessment notice. The AO had issued a notice under Section 148 based on the belief that income from the sale of immovable properties had escaped assessment. However, during reassessment, the AO added ?10,00,000 related to labor and administration charges, which were not part of the original reasons for reopening the assessment. The Tribunal referenced several judicial pronouncements, including CIT Vs Jet Airways (I) Limited and Ranbaxy Laboratories Ltd. Vs CIT, to conclude that the AO could not make additions on issues unrelated to the original grounds for reassessment unless those grounds were substantiated. Since the AO did not find any escaped income related to the original grounds, the additions on new issues were deemed invalid.

3. Applicability of Section 50C:
The AO believed that the sale of immovable properties by the assessee should attract capital gains tax under Section 50C, which deals with the valuation of property for stamp duty purposes. The assessee demonstrated that these transactions were already accounted for in their income statements. The Tribunal noted that the AO did not make any additions based on the original reason for reopening the assessment, i.e., the application of Section 50C. Consequently, the reassessment proceedings were found to lack jurisdiction once the AO accepted the assessee's explanation regarding the original grounds.

Conclusion:
The Tribunal concluded that the reassessment proceedings were invalid as the AO did not make any additions based on the original reasons for reopening the assessment. The additions made on unrelated issues were also deemed invalid. The appeal was partly allowed, and the reassessment proceedings under Section 147 were quashed.

Order Pronounced:
The order was pronounced in the open court on 02nd September, 2021.