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2023 (9) TMI 1334 - AT - Income TaxReopening of assessment u/s 147 - Addition made in respect of unexplained investment towards purchase of agricultural land - HELD THAT - AO observed that since the assessee had purchased part of such land from one of the parties to the aforesaid MOU, the AO was of the view that since the aforesaid MOU mentioned the price of properties at a much higher value, the AO had reason to believe that substantial cash consideration was given by the assessee for the purchase of the aforesaid land and therefore, income had escaped assessment. It was on the basis of the aforesaid facts, that the Assessing Officer initiated proceedings u/s 147 of the Act. In our view, the AO has given detailed reasonings on the basis of which he formed the belief that looking into the instant set of facts, the AO had reasonable belief that the assessee had made cash payments in respect of purchase of the aforesaid properties, thereby leading to escapement of income. It is a well settled principle of law that that while recording the reasons, the AO need not establish the actual escapement of income. The belief at that time is only prima-facie and not conclusive. In the case of Raymond Woollen Mills Ltd. 1997 (12) TMI 12 - SUPREME COURT observed that the Court has only to see whether there was prima-facie some material on the basis of which the Department could reopen the case. The sufficiency or correctness of the material is not a thing to be considered at this stage. Accordingly, in our view, the AO had sufficient material to form a prima facie belief that the assessee had made cash payments for purchase of aforesaid properties, thereby leading to escapement of income. Therefore, we find no infirmity in the order of Ld. CIT(Appeals) when he held that issuance of notice under Section 147 of the Act was valid in the instant set of facts. Violation of Rule 46 of the Income Tax Rules - allegation of Department that there was violation of Rule 46A of the Income Tax Rules in the instant set of facts, wherein the CIT(Appeals) did not confront the AO with the additional information on the basis of which the relief was granted to the assessee - HELD THAT - As relief has been granted to the assessee only on the basis of the fact that on comparison of the MOU and the Registration Deed of properties which were purchased by the assessee, there was only one plot of land pertaining to survey number 171 palki which was mentioned in the MOU. The other plots of land which were purchased by the assessee did not form part of the MOU and were purchased from third parties / persons. Accordingly, we observe that no additional documents / information formed the basis for Ld. CIT(Appeals) allowing relief to the assessee which was not present before the AO. During the course of appellate proceedings, Ld. CIT(Appeals) made a comparison between the contents of MOU and the details of properties which were purchased by the assessee, and on comparison of the two, CIT(A) was of the view that since there was only one common property in the aforesaid agreements, and therefore the additions could be made only on the basis of the aforesaid property which was mentioned in the MOU and not with respect to other properties not forming part of the MOU. We are of the considered view that there was no violation of Rule 46A of the Income Tax Rules, since no additional documents / information / data was made the basis of allowing relief to the assessee which was not before the Assessing Officer at the time of framing the assessment. CIT(A) giving part relief to the assessee and excluding those plots of land which should not form part of the MOU - HELD THAT - CIT(Appeals) while allowing the assessee s appeal observed that no additions have been made by the Assessing Officer in the case of the other family members, who were the joint holders in the aforesaid property. We observe that in the instant facts the additions were made only on the basis of MOU entered between third parties and there was no mention of the assessee s name in the MOU. Further, the aforesaid MOU on the basis of which additions were made by the Assessing Officer had also been subsequently cancelled and was not acted upon. Therefore, in view of the aforesaid judgements cited above, we are of the considered view that CIT(Appeals) has not erred in facts and in law in holding that it would not be legally correct to extrapolate the addition in the hands of the assessee on the basis of facts relating to 1.25 bighas mentioned in the MOU, to the total land of 13.75 bighas purchased by the assessee.
Issues Involved:
1. Validity of reopening assessment under Section 147 of the Income Tax Act. 2. Confirmation of addition for unexplained investment towards the purchase of agricultural land. 3. Deletion of addition made by the Assessing Officer for unexplained investment towards the purchase of land. 4. Violation of Rule 46A of the Income Tax Rules. Summary of Judgment: 1. Validity of Reopening Assessment under Section 147 of the Act: The Assessee challenged the initiation of proceedings under Section 147 of the Income Tax Act. The Assessing Officer (AO) formed a reasonable belief that the Assessee had made cash payments for the purchase of land based on an MOU found during a search operation. The Tribunal upheld the AO's decision, stating that the AO had "reason to believe" that income had escaped assessment, which is sufficient for reopening the case. The Tribunal referenced several judgments, including Raymond Woollen Mills Ltd. v. ITO and Priya Blue Industries (P.) Ltd. v. ACIT, affirming that the AO need not establish actual escapement of income at the time of recording reasons for reopening. 2. Confirmation of Addition for Unexplained Investment: The Assessee contested the addition of Rs. 22,49,614/- made by the CIT(A) for unexplained investment in agricultural land. The CIT(A) had restricted the addition to the plot of land mentioned in the MOU and provided relief for the remaining land. The Tribunal found no error in the CIT(A)'s decision to restrict the addition to the land mentioned in the MOU, as extrapolation of the addition to other lands was not legally correct. 3. Deletion of Addition Made by the Assessing Officer: The Revenue appealed against the deletion of Rs. 2,51,95,680/- made by the AO for unexplained investment. The CIT(A) observed that the MOU was not executed and only one plot of land purchased by the Assessee was mentioned in the MOU. The Tribunal upheld the CIT(A)'s decision, noting that the addition based on the MOU was not sustainable since the MOU was not acted upon and the Assessee was not a party to it. The Tribunal referenced judgments such as A. Shivashankar vs. DCIT and Kantibhai Revidas Patel, supporting the view that extrapolation of income based on unexecuted documents is unsustainable. 4. Violation of Rule 46A of the Income Tax Rules: The Revenue alleged that the CIT(A) violated Rule 46A by not confronting the AO with additional information used to grant relief. The Tribunal found no violation of Rule 46A, stating that the CIT(A) based the relief on a comparison of the MOU and the registration deeds, which were already on record. No new documents or information were introduced that were not before the AO. Conclusion: The Tribunal dismissed the Department's appeal and partly allowed the Assessee's appeal, confirming the validity of the reopening of assessment under Section 147, upholding the restricted addition for unexplained investment, and finding no violation of Rule 46A. The Tribunal ordered the deletion of the addition made by the AO based on the unexecuted MOU.
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