2024 (1) TMI 1225 - AT - Income Tax

Validity of reopening u/s 147 r.w.s. 148 - addition as income from business by treating sale consideration in respect of property owned by the firm which was given for the development and addition on account of deposits made in the bank account - HELD THAT - AO despite taking note of the fact of the sale deed which was between the two partnership firms and not by the assessee in his individual capacity nor anything pertain to the assessee in his individual capacity qua the said transaction, he still proceeded to entertain his reason to believe . Even the partnership deed and the PAN of M/s. Sai Developers were also filed during the course of assessment proceedings, which AO has ignored. Once, assessee has brought the facts on record, then ld. AO could not have proceeded to tax the above transaction in the hands of the assessee, because the agreement and transaction was not with the assessee, albeit between two partnership firm. In fact, AO should have issued notice u/s. 148 to the partnership firm. He has simply gone by ITS records, i.e., information from the individual transaction statement and that there is no return of income filed by the name of Sai Developers. Therefore, he presumed that all the transactions belong to assessee. Once the sale deed or the agreement is between the two partnership firms, then how the transaction can be viewed in the individual hands by the ld. AO, is beyond comprehension. Even the reasoning given by the AO as incorporated above is not based on rationale reasoning either on facts or in law. Thus, reasons recorded by the ld. AO based on certain information that assessee has entered into transaction of immovable property itself is incorrect and based on such incorrect assumption of facts, notice u/s. 148 cannot be issued nor the same amount can be taxed in the hands of the assessee. At least when assessee has raised this objection and has filed all the documents like partnership deed, PAN of the partnership firm and more specifically the developer s agreement entered between two different parties. When all these documents were filed before him then how the assessment can be made u/s. 148 in the hands of the assessee. Accordingly, the reasons recorded itself in the case of the assessee do not give jurisdiction to the ld. AO to make any assessment or issue notice u/s. 148 and accordingly, same is quashed. Accordingly, the entire proceedings u/s. 148 is held to be invalid. Appeal of the assessee is allowed.

Summary

Issues Involved:
1. Validity of reopening u/s. 147 r.w.s. 148.
2. Addition of Rs. 4,07,20,000/- as income from business by treating sale consideration of property.
3. Addition on account of deposits made in the bank account aggregating to Rs. 49,85,200/-.

Summary:

Validity of Reopening u/s. 147 r.w.s. 148:
The assessee challenged the reopening of the assessment under sections 147 and 148. The AO based the reopening on information from the Non Filers Monitoring System (NMS) indicating the assessee's involvement in a transaction of sale of immovable property valued at Rs. 4,07,20,000/- during FY 2010-11, which was not disclosed. The AO issued a notice u/s. 148 on 26/03/2018. The assessee objected, stating he neither sold nor purchased any property during the relevant year and that the transaction pertained to the transfer of development rights by a partnership firm, M/s. Sai Developers, where he was a partner. The AO rejected the objections, maintaining that the transaction was not disclosed by the firm and thus attributed it to the assessee individually. The Tribunal found that the AO proceeded based on incorrect assumptions and did not consider the documents provided by the assessee, such as the partnership deed and the sale agreement. The Tribunal held the reopening invalid as the reasons recorded did not give jurisdiction to the AO to issue notice u/s. 148.

Addition of Rs. 4,07,20,000/- as Income from Business:
The AO treated the sale consideration of Rs. 4,07,20,000/- as 'income from business and profession' due to the lack of documentary evidence showing the transaction was disclosed by the partnership firm. The Tribunal noted that the transaction was between two partnership firms and not in the individual capacity of the assessee. The AO's action of taxing the entire transaction value in the hands of the assessee was found to be incorrect, as the transaction pertained to the firm, and the AO should have proceeded against the firm instead.

Addition on Account of Deposits Aggregating to Rs. 49,85,200/-:
The AO also made an addition of Rs. 49,85,200/- as 'undisclosed income' based on receipts appearing in the assessee's bank account. The Tribunal did not provide specific details on this issue but quashed the entire assessment order due to the invalidity of the reopening.

Conclusion:
The Tribunal quashed the entire proceedings under section 148, holding the assessment order invalid. Consequently, the appeal of the assessee was allowed.