2018 (8) TMI 266 - AT - Income Tax

Reopening of the assessment under section 147/148 - transaction of purchase of property requires verification because of Non-PAN financial transaction relate to assessment year under appeal - Held that - The reasons recorded for reopening of the assessment shows that A.O. received the information that assessee purchased immovable property for which verification is required for Non-PAN financial transaction related to A.Y. 2009-2010. A.O. in order to verify the transaction, issued notice to the assessee. In the absence of any reply from the side of the assessee, A.O. noted that same established that assessee has willfully concealed her income by way of not disclosing the source of the investment. A.O. in the reasons did not record if he has reason to believe that income chargeable to tax has escaped assessment which is mandatory condition for reopening of the assessment. A.O. also noted in the reassessment order that assessee, in reply to the notice under section 148, submitted that return originally filed for assessment year under appeal on 30.07.2009 may be treated as return filed in compliance to the notice under section 148. Copy of the return originally filed by assessee along with other annexures are filed in the paper book, which shows that assessee has filed original return of income within time mentioning her PAN, supported by computation of income, in which the major source of income of the assessee is income from salary, on which, tax at source have been deducted and supported by Form-16. Therefore, A.O. has wrongly mentioned in the reasons for reopening of the assessment that the transaction of purchase of property requires verification because of Non-PAN financial transaction relate to assessment year under appeal. A.O. in the reasons for reopening of the assessment, reopened assessment merely because assessee has nothing to say in the matter which is irrelevant to the reopening of the assessment. Since the A.O. did not apply his mind to the information and that A.O. did not record in the reasons that he has reason to believe that income chargeable to tax has escaped assessment, therefore, A.O. recorded incorrect and non-existing reasons for reopening of the assessment in the matter. - Decided in favour of assessee

Summary

Issues Involved:
1. Reopening of assessment under section 147/148 of the I.T. Act.
2. Validity of additions made on account of disallowance of interest on borrowed capital and disallowance of claim of LTA.

Issue-wise Detailed Analysis:

1. Reopening of assessment under section 147/148 of the I.T. Act:

The primary issue in this case revolves around the reopening of the assessment under sections 147 and 148 of the Income Tax Act, 1961. The Assessing Officer (A.O.) initiated the reassessment proceedings based on AIR information that the assessee had purchased an immovable property for ?1,00,96,750/- during the financial year 2008-09. The A.O. issued a notice under section 148 after the assessee failed to provide information regarding the source of investment in response to a notice issued under section 133(6). The assessee contended that the reopening was invalid as the A.O. did not have any independent material or findings and relied solely on the AIR information.

The Tribunal analyzed the validity of the reopening of the assessment and emphasized that the A.O. must have "reason to believe" that income has escaped assessment, which should be based on relevant and cogent material. The Tribunal referred to several judgments, including the Delhi High Court's decisions in cases like Ranbaxy Laboratories Ltd. vs. CIT, G&G Pharma India Ltd., Meenakshi Overseas Pvt. Ltd., and RMG Polyvinyl (I) Ltd., which highlighted the necessity of the A.O. applying his mind to the material before initiating reassessment proceedings.

The Tribunal found that the A.O. did not record any reasons to believe that income chargeable to tax had escaped assessment. Instead, the A.O. merely noted that the assessee did not respond to the notice, which led to the conclusion that the assessee had willfully concealed income. The Tribunal held that this was a case of non-application of mind by the A.O., as the reasons for reopening did not exist. Consequently, the Tribunal quashed the reopening of the assessment under section 147, deeming it invalid and bad in law.

2. Validity of additions made on account of disallowance of interest on borrowed capital and disallowance of claim of LTA:

Since the Tribunal quashed the reopening of the assessment under section 147, it did not find it necessary to address the merits of the additions made by the A.O. These additions included ?1,50,000/- on account of disallowance of interest on borrowed capital and ?72,332/- on account of disallowance of the claim of Leave Travel Allowance (LTA). The Tribunal stated that these issues had become academic and did not require further discussion.

Conclusion:

The appeal of the assessee was allowed, with the Tribunal setting aside the orders of the authorities below and quashing the reopening of the assessment under section 147 of the I.T. Act. Consequently, the entire additions made by the A.O. were deleted. The Tribunal's order was pronounced in the open court.