2023 (8) TMI 19 - AT - Income Tax

Reopening of assessment u/s 147 - Validity of sanction given u/s 151 - sale proceeds of plot of land has escaped income - incriminating documents were found and seized from third party Shri Madan Mohan Gupta - reasons to believe - as argued sanctioning authority Pr. CIT-III has granted sanction in a mechanical manner without ascertaining whether any enquiry was conducted by AO before reaching to the conclusion that there was any escapement of income - HELD THAT - The reasons recorded by the Assessing Officer in reopening the case of the assessee are identical to the case of Shri Navrattan Kothari 2017 (12) TMI 860 - ITAT JAIPUR wherein under identical set of facts the entire reassessment proceedings were quashed by the Tribunal. AO has proceeded in the case of assessee on the premises that the assessee has sold the plot of land in question by receiving money over and above the consideration mentioned in the sale deed, as found recorded in the seized material, which was explained by Shri Madan Mohan Gupta. However, no tangible material is placed on record to support the action of the AO warranting reopening of the assessee s case. AO did not rebut the appellant s contention that nothing over and above the amount recorded in the registered sale deeds was received by bringing necessary details. The unsubstantiated material found in the diary in possession of Shri Madan Mohan Gupta cannot be considered in the hands of the assessee as a conclusive evidence so as to reopen the assessment and make additions towards long term capital gain in sale of the plot of land. Undisputedly, no other material suggesting receipt of higher amounts was recovered during the search. It is trite law that burden is on the revenue to prove that the price had been under stated and no addition is possible without any inquiry. In this case, there is no cogent material to support the reopening of the assessment within the meaning of section 147 and that the appellant has actually received higher amount than that recorded in the registered sale deed and the AO did not conduct any inquiry to bring some material to corroborate the notings found in the diary allegedly contained dealings in respect of certain properties sold by the assessee, except relying on the statement of Shri Madan Mohan Gupta. Thus validity of the reopening of the case of assessee quashed - Decided in favour of assessee.

Issues Involved:
1. Validity of reopening the assessment under section 147 read with section 148 of the Income Tax Act, 1961.
2. Addition on account of alleged undisclosed long-term capital gain.
3. Non-allowance of cost of improvement incurred by the assessee.
4. Adoption of sale consideration under section 50C of the Income Tax Act, 1961.
5. Denial of the opportunity for cross-examination of persons whose statements were relied upon.
6. Non-provision of complete material relied upon by the Assessing Officer (AO).

Detailed Analysis:

1. Validity of Reopening the Assessment:
The assessee challenged the reopening of the assessment under section 147 read with section 148, arguing that the notice was issued without proper application of mind and was based on mere guesswork. The Tribunal observed that the AO initiated proceedings based on information from the DDIT (Inv.) without independent verification, which is contrary to the principles laid out in various judicial precedents. The Tribunal noted that the AO did not conduct any inquiry to verify the actual sale price or purchase price and acted mechanically on the information received. The Tribunal held that the reopening of the assessment was invalid as it was based on conjecture and suspicion without tangible material or evidence.

2. Addition on Account of Alleged Undisclosed Long-Term Capital Gain:
The AO made an addition based on the difference between the sale consideration mentioned in the registered sale deed and the amount noted in a seized diary. The Tribunal found that the AO's assumption of higher sale consideration was based solely on notings in a diary seized from a third party (Shri Madan Mohan Gupta) without any corroborative evidence. The Tribunal emphasized that the burden of proof lies with the revenue to establish that the sale consideration was understated. In the absence of any tangible material or evidence, the Tribunal held that the addition made by the AO was unsustainable.

3. Non-Allowance of Cost of Improvement:
The AO did not allow the cost of improvement claimed by the assessee for constructing a boundary wall on the plot. The Tribunal did not specifically address this issue in detail as it quashed the entire reassessment proceedings, rendering this ground infructuous.

4. Adoption of Sale Consideration under Section 50C:
The AO adopted the sale consideration as per section 50C, which was higher than the actual sale consideration shown by the assessee. The Tribunal noted that the AO's action was based on the notings in the seized diary without any independent verification or inquiry. As the Tribunal quashed the reassessment proceedings, this issue also became infructuous.

5. Denial of Opportunity for Cross-Examination:
The assessee contended that the AO erred by not providing an opportunity for cross-examination of persons whose statements were relied upon. The Tribunal observed that the AO's reliance on statements without offering the assessee an opportunity for cross-examination was against the principles of natural justice. However, since the reassessment proceedings were quashed, this issue was not further deliberated.

6. Non-Provision of Complete Material:
The assessee argued that the AO did not provide the complete material on which the assessment was based, denying the assessee an opportunity to confront the same. The Tribunal found that the AO's action was based on unsubstantiated material found in a third party's possession, and no corroborative evidence was provided to the assessee. The Tribunal held that the reassessment proceedings were invalid due to the lack of tangible material and proper inquiry.

Conclusion:
The Tribunal quashed the reassessment proceedings under section 147 read with section 148 for both appeals, holding that the reopening was invalid and based on mere assumptions without tangible evidence. Consequently, the other grounds raised by the assessee became infructuous. The appeals were allowed in favor of the assessees.

← Previous Next →