2023 (9) TMI 858 - AT - Income Tax

Validity of the order passed u/s 147 - incorrect claim of deduction of capital gain - claimed deduction u/s 54B incorrectly by co-owners - HELD THAT - We fail to understand how the AO arrives at this conclusion. The information in his possession being that Shri Riddhish B. Trivedi co-owner had claimed incorrect deduction u/s 54B of the Act of capital gain in which the assessee was also a co-owner, there is nothing in the reason revealing that there was any identity of facts of the assessee s claim of deduction against capital gain returned to tax with that of Shri Riddhish B. Trivedi. AO is not even aware of the Section under which the assessee has claimed deduction of its capital gain. In view of the same, we agree with assessee that, on the basis of information regarding incorrect claim of deduction of capital gain by Shri Riddhish B. Trivedi, AO could not have arrived at a belief that the assessee s income had also escaped assessment in the absence of complete particulars of deduction claimed by the assessee against the capital gain returned by him. It is settled law that the fulfilment of one of the basic condition for initiating action u/s 147 of the Act, of the AO having reason to believe that income has escaped assessment, requires live link between material coming to the knowledge of the AO and his formation of belief of escapement. The Hon ble apex court having held so in the case of ITO vs Lakhmani 1976 (3) TMI 1 - SUPREME COURT We find that his belief of escapement of income of the assessee has nothing to do with any incorrect claim of exemption of capital gains, but is apparently on account of claim of deduction against consideration received from sale of land for computing capital gains earned.There is no basis mentioned in the reasons for the belief of the Assessing Officer that the assessee s entire claim of deduction under Section 48 of the Act was incorrect. And this escapement of income has absolutely no link or correlation with the information in the possession of the AO that the other co-owner of land had incorrectly claimed deduction under Section 54B of the Act. We are in complete agreement with the assessee that the reasons recorded by the AO showing his formation of belief of escapement of income of the assessee were insufficient for assuming a valid jurisdiction to frame assessment u/s 147 as reasons exhibited no live link between the information in the possession of the AO and the formation of belief of escapement of income, no basis for formation of belief of escapement of income and there was complete in application of mind by the AO while recording reasons for escapement of income. Decided in favour of assessee.

Summary

Issues involved:
The judgment involves challenges to the order of the learned Commissioner of Income-tax (Appeals) dated 01.05.2015 for the Assessment Year 2008-09, specifically regarding the reopening of assessment under Section 147 of the Income Tax Act, disallowance claimed under Section 54B of the Act, and disallowance of brokerage amounting to Rs. 2,25,000.

Reopening of Assessment under Section 147:
The ground raised challenges the validity of the order passed under Section 147 of the Act. The contention was that there was no live link between the information available with the Assessing Officer and the formation of belief of escapement of income. The reasons for reopening the assessment were scrutinized, revealing that the Assessing Officer's belief of escapement of income lacked a connection with the information available. It was noted that the Assessing Officer's conclusion of tax evasion was not adequately supported by the information at hand. The judgment emphasized the necessity of a live link between the material available and the formation of belief for initiating action under Section 147 of the Act, citing relevant legal precedent. Consequently, the assessment order was quashed due to insufficient reasons for assuming a valid jurisdiction to frame assessment under Section 147.

Disallowance under Section 54B of the Act:
The Assessing Officer's decision to disallow Rs. 17,90,000 claimed under Section 54B of the Act was contested by the assessee. However, since the assessment was quashed based on the lack of a valid jurisdiction under Section 147, the specific issue of disallowance under Section 54B did not require adjudication.

Disallowance of Brokerage Amount:
Another ground raised was the disallowance of brokerage amounting to Rs. 2,25,000. As the assessment was quashed due to the insufficient reasons for assuming jurisdiction under Section 147, this issue, along with other grounds raised on merits, did not necessitate further examination and were considered academic in nature.

Conclusion:
The judgment ultimately allowed the assessee's appeal based on the quashing of the assessment order due to inadequate reasons for assuming jurisdiction under Section 147 of the Act. The decision highlighted the importance of a live link between available information and the formation of belief for initiating actions under Section 147. Consequently, the appeal was allowed, and the assessment order was directed to be quashed, rendering the other grounds raised on merits unnecessary for adjudication.