2017 (4) TMI 471 - AT - Income Tax

Validity of reopening of assessment - assessment u/s 153A - Held that - The original return of income was filed on 6.11.2007 whereas the search had taken place on 11.09.2007. Therefore the search had taken place prior to the assessee s filing of the original return of income on 6.11.2007 and therefore the assessment completed u/s 153A of the Act is a regular assessment and the AO had an opportunity to verify and complete the assessment u/s 153A r.w.s. 143(3) of the Act and the AO is therefore required to record reasons for reopening of the assessment and further record the finding that there is an escapement of income due to the failure of the assessee to disclose fully and truly all material facts for computation of assessee s income is also the condition precedent to be fulfilled. Initiation of the re-assessment proceedings by issuance of notice u/s 148 without recording a finding that the escapement of income is due to the failure of the assessee to disclose fully and truly all material facts is void ab initio. In view of these findings on the validity of the assessment and the assessment being held to be void ab initio we see no reason to adjudicate the appeal on merit. - Decided in favour of assessee.

Summary

Issues:
Validity of reassessment proceedings; Merits of additions made by AO

Validity of Reassessment Proceedings:
The assessee challenged the validity of reassessment proceedings, arguing that the notice u/s 148 was issued beyond the 4-year limit and lacked a finding of failure to disclose material facts. The CIT (A) rejected this, stating that the assessment u/s 153A was not a regular assessment and upheld the reopening. However, the tribunal disagreed, noting that the assessment u/s 153A was a regular assessment, and the AO must record reasons for reopening. As the AO failed to do so, the tribunal held the reassessment void ab initio, citing relevant case law supporting this view.

Merits of Additions Made by AO:
Regarding the merits of the additions, the CIT (A) upheld the AO's decision, stating that capital gains should be computed based on the full value of consideration as per section 50C. The assessee claimed the difference as a gift to his wife, but the CIT (A) rejected this, deeming it an application of income, not diversion by overriding title. The tribunal did not delve into the merits due to the void reassessment, hence not adjudicating on this issue.

In conclusion, the tribunal found the reassessment proceedings invalid due to the lack of a finding on failure to disclose material facts, rendering the assessment void ab initio. As a result, the appeal was partly allowed, with the tribunal refraining from addressing the merits of the additions made by the AO.