2023 (10) TMI 264 - AT - Income Tax

Reopening of assessment u/s 147 - reason to believe - notice beyond four years - HELD THAT - As in the absence of anything in the reasons recorded to suggest that the income chargeable to tax which has escaped assessment i.e. one lakh rupees or more, the notice issued u/s 148 of the act beyond four years of the end of the relevant Assessment Year, is treated as invalid, therefore, in our considered opinion, the said ratio is applicable to the present case in to-to and the Ld. CIT(A) erred in upholding the validity of the assessment order, accordingly, we allow Ground No. 1 2 of the assessee by setting aside the orders of the Lower Authorities.

Summary

Issues Involved:

1. Validity of notice issued u/s 148 of the Act.
2. Service of notice and validity of assessment.
3. Transactions of sale of land and their tax implications.
4. Principles of natural justice.

Summary:

Validity of Notice Issued u/s 148 of the Act:
The Assessee contended that the notice issued u/s 148 was based on incomplete information and lacked the "reason to believe" for escapement of income. The Tribunal noted that the A.O. had information about the sale of property but did not verify the cost of acquisition or whether the property was a capital asset. The Tribunal cited precedents where mere suspicion or incomplete information was deemed insufficient for issuing such notices. The Tribunal concluded that the A.O. did not satisfy the essential requirement of having a "reason to believe" that income chargeable to tax had escaped assessment, thus quashing the reassessment proceedings.

Service of Notice and Validity of Assessment:
The notice issued u/s 148 was returned unserved with a remark of refusal. Subsequent notices were also not properly served, as the addressee, Shri Tej Singh, had expired. The Tribunal observed that the A.O. failed to ensure proper service of notice to all legal heirs, which is a prerequisite for a valid assessment. The Tribunal emphasized that the A.O. should have made a diligent effort to serve the notice correctly, considering the death of the original assessee.

Transactions of Sale of Land and Their Tax Implications:
The Tribunal discussed whether the sale of land constituted a business transaction or was amenable to being charged as capital gains. The Ld. CIT(A) had directed the A.O. to allow the cost of acquisition of the property and deleted an addition of Rs. 1,20,000/-. However, the Tribunal noted that the A.O. did not make any attempt to find out the cost of acquisition and treated the entire sale consideration as income, which was incorrect.

Principles of Natural Justice:
The Tribunal highlighted that the assessment order was passed without proper service of notice and without giving the legal heirs an opportunity to be heard, which violated the principles of natural justice. The Tribunal observed that the A.O. shifted the onus to the appellant without justified reasons and failed to appreciate the facts and circumstances of the case.

Conclusion:
The Tribunal allowed the appeal, setting aside the orders of the lower authorities, and quashed the reassessment proceedings due to the invalidity of the notice issued u/s 148 and improper service of notice. Consequently, the other grounds of appeal were deemed academic and required no further adjudication. The appeal of the assessee was partly allowed.