2022 (1) TMI 421 - AT - Income Tax

Reopening of assessment u/s 147 - assumption of jurisdiction u/s 148 - reopening beyond the period of four years from the end of relevant assessment year - eligible reason to believe - verification of claim - assessee having rental income from various properties and the income from such properties was not disclosed by the Assessee - HELD THAT - It is a settled position that even where an assessment has been only processed under Section 143(1) of the Act, the reopening notice must satisfy the test of having reason to believe that the income chargeable to tax has escaped assessment. The reason to believe has to be arrived at after applying one's mind to the material available and to reach a prima facie view that income chargeable to tax has escaped assessment. Mere receipt of information from any source would not by itself tantamount to reason to believe that income chargeable to tax has escaped assessment - AR has submitted that the property from which the deemed rental income the Revenue proposes to add does not belong to the assessee. When the property does not belong to the assessee, the question of taxing the deemed rental income does not arise. Revenue has not placed any material on record to demonstrate that the submission of the assessee of it not being the owner of the aforesaid properties is false/ incorrect. In the present case the AO prima facie has not done the bare necessary enquiry into the material received before he concluded that income chargeable to tax has escaped assessment. As in case ANKITA A. CHOKSEY VERSUS INCOME TAX OFFICER-19 (1) (1) OTHERS 2019 (1) TMI 862 - BOMBAY HIGH COURT reasons to believe that income chargeable to tax has escaped Assessment must be on correct facts. If the facts, as recorded in the reasons are not correct and the assessee points out the same in its objections, then the order on objection must deal with it and prima facie, establish that the facts stated by it in its reasons as recorded are correct. Verification of source of commodity transactions and its income - As per the reasons recorded, the AO wants to verify it. In view of the settled position of law that for a mere verification of the claim, the power of reopening of assessment cannot be exercised - As decided in INDUCTOTHERM (INDIA) PVT. LTD. 2012 (9) TMI 16 - GUJARAT HIGH COURT For a mere verification of the claim, the power of reopening of the assessment could not be exercised and it further observed that AO under the guise of power to re-open the assessment cannot seek to undertake an undertaking a fishing or roving inquiry or seek to verify the claim as if he is the scrutiny officer. In the present case, notice for re-opening of the assessment u/s 147 of the Act is not as per the mandate of Sec.147 of the Act and therefore the re-opening is not permissible - therefore of the view that the notice issued for reopening has to be set aside and the same deserves to be quashed. - Decided in favour of assessee.

Summary

Issues Involved:
1. Assumption of jurisdiction under Section 148 of the Income Tax Act.
2. Addition on merits regarding deemed rental income from properties.
3. Principles of natural justice and proper notice.

Issue-wise Detailed Analysis:

1. Assumption of Jurisdiction under Section 148:
The Assessee challenged the reopening of the assessment under Section 148 of the Income Tax Act, arguing that the reopening was based on "borrowed satisfaction" from the ADIT (Inv.), New Delhi, without independent verification or tangible material. The Assessee cited multiple legal precedents to support the claim that reopening cannot be based on borrowed satisfaction. The Tribunal noted that for reopening beyond four years, there must be a failure on the part of the Assessee to fully and truly disclose all material facts necessary for assessment. The Tribunal found that the reasons recorded for reopening did not indicate any such failure by the Assessee. Additionally, the Tribunal observed that the AO had not conducted any independent inquiry to verify the ownership of the properties or the commodity transactions. Consequently, the Tribunal held that the reopening was not as per the mandate of Section 147 of the Act and quashed the reassessment proceedings.

2. Addition on Merits Regarding Deemed Rental Income:
The Assessee contested the additions made by the AO on account of deemed rental income from certain properties. The Tribunal found that the properties in question were either not owned by the Assessee or were owned by the Assessee's wife or a partnership firm in which the Assessee was a partner. The Tribunal noted that the AO had not provided any evidence to demonstrate that the properties were owned by the Assessee. The Tribunal also observed that the AO had ignored the documentary evidence submitted by the Assessee, such as letters from builders and bank statements. Given these findings, the Tribunal concluded that the additions on account of deemed rental income were not justified.

3. Principles of Natural Justice and Proper Notice:
The Assessee argued that the AO's actions were against the principles of natural justice, arbitrary, and without proper notice. The Tribunal noted that the AO had not conducted any independent inquiry and had relied solely on the information from the ADIT (Inv.). The Tribunal emphasized that the reasons for reopening must be based on correct facts and that the AO must have tangible material to form a belief that income chargeable to tax has escaped assessment. The Tribunal found that the AO had not satisfied these requirements and that the reopening was essentially a fishing and roving inquiry. As a result, the Tribunal held that the reassessment proceedings were void and required no further adjudication on merits.

Conclusion:
The Tribunal quashed the reassessment proceedings for A.Y. 2011-12, holding that the reopening was not in accordance with the law. Consequently, the appeal of the Assessee was allowed.