2024 (3) TMI 662 - AT - Income Tax

Reopening of assessment u/s 147 - reopening done beyond the period of four years - Reasons to believe - action of the AO holding that cost claimed is neither through transfer of asset nor part of cost of acquisition/improvements - CIT (A) has confirmed the action of the AO holding that there was a clear link between information available with the ld. AO and the reason of belief that income chargeable to tax had escaped escapement - HELD THAT - After examining these details and computation of short term capital gain,AO has accepted the claim of the assessee and the short term capital gain disclosed by the assessee was accepted. From the perusal of the reasons recorded as noted above, it is seen that nowhere there is any reference of any information or material coming on record and it is only from verification of same records which was there before the ld. AO during the course of original assessment proceedings, the ld. AO has entertained the reason to believe interest paid on closure of loan cannot be added to the purchase value and therefore, there short term capital gain has been worked less and excess claim has been made Admittedly, the reopening has been done beyond the period of four years from the end of the relevant assessment year and since original assessment was completed u/s. 143(3), therefore, limitation provided in proviso to Section 147 has to be strictly adhered to. The permissible condition for reopening the assessment beyond the period of four years is that there should be a failure on the part of the assessee to file the return of income or failure to disclose fully and truly all material facts necessary for assessment. There is neither failure on part of the assessee to file return of income nor failure to disclose wholly and truly all material facts, nor there is any material or information on record to show that there is failure on the part of the assessee. In fact assessee has made full disclosure in the return of income and also before the AO during the course of assessment proceedings. Once these material facts were there on the record, AO cannot reopen the case beyond the period of four years without fulfilling the conditions laid down in the proviso to Section 147. Thus, the entire reasons recorded for reopening the computed assessment beyond the period of four years is bad in law and is hereby quashed. Accordingly, the entire assessment is being quashed as same is beyond the time limit provided under proviso to Section 147. Decided in favour of assessee.

Summary

Issues Involved:
The judgment involves the following issues:
1. Reopening of assessment u/s 148 - Change of opinion, time-barred reassessment, and lack of information for income escaping assessment.
2. Disallowance of interest paid - Direct attribution to asset transfer, lack of reasoning, and acceptance in other co-owner's case.
3. Condonation of delay in filing appeal.

Reopening of Assessment u/s 148:
The appellant challenged the reopening of the assessment u/s 148 on various grounds, including the claim of change of opinion, time-barred reassessment, and lack of information for income escaping assessment. The appellant contended that there was no failure on their part to disclose material facts during the original assessment proceedings. The AO had accepted the computation of capital gain in the original assessment under Section 143(3). The AO's reasons for reopening the assessment beyond the four-year limit were found to be without merit, as the appellant had made full disclosure in the return of income and during the assessment proceedings. Therefore, the Court quashed the entire assessment as it was beyond the time limit provided under proviso to Section 147.

Disallowance of Interest Paid:
The main issue revolved around the disallowance of interest paid by the appellant, which was claimed in the computation of short term capital gain on the sale of property. The AO disallowed Rs. 8,51,107/- for being added to the purchase value, stating it was not allowable as part of cost of acquisition/improvements. The CIT (A) upheld this decision, citing a clear link between the information available and the belief that income had escaped assessment. However, upon review, it was found that the reasons for disallowance were based on information that was already before the AO during the original assessment. As there was no failure on the part of the appellant to disclose material facts, the Court ruled in favor of the appellant, quashing the assessment.

Condonation of Delay:
The appellant's appeal was initially time-barred by 146 days. The delay was attributed to the appellant not being aware of the order passed by the CIT (A) due to it being sent to the spam folder. The Court, upon considering the circumstances, condoned the delay in filing the appeal, as there were no lapses on the part of the appellant's accountant, who failed to track the order, leading to the delay in filing.

Separate Judgement by Judges:
The judgment was delivered by Shri Amit Shukla, Judicial Member, and Shri S Rifaur Rahman, Accountant Member, of the Appellate Tribunal ITAT Mumbai on 13th March 2024.