2021 (3) TMI 104 - AT - Income Tax

Reopening of assessment u/s 147 - whether the AO is in possession of the material/information basis which he has formed the reasonable belief that the income of the assessee has escaped assessment for the impugned assessment year? - HELD THAT - For assumption of jurisdiction u/s 147 AO must form a prima facie view on the basis of tangible material in his possession that there is an escapement of income, the opinion so formed may be subjective but the reasons recorded or the information available on record must show that the opinion is not a mere suspicion, the reasons recorded and/or the documents available on record must show a link/nexus and relevancy to the opinion formed by the AO regarding escapement of income and the reasons are required to be read as they were recorded by the AO. For the AO to disclose and open his mind through the reasons recorded by him and he has to speak through the reasons that the income chargeable to tax has escaped assessment. On the date of recording of reasons by the AO, only piece of information in possession of the AO was the CIB report that the assessee has sold certain immoveable property and the AO was not even having a copy of the sale deed or the specifics of the immoveable property, which to our mind, raises a question mark on the tangible nature of such information in terms of whether it is real or actual rather than imaginary and whether it actually relates to the assessee or not. Where the AO still wishes to rely on the report of CIB, given that such report is more of a generic report and not containing exact specifics of of immoveable property and other particulars of the transaction, it is expected that the AO on receipt of such report should carry out further examination before arriving at the prima facie view that income has escaped assessment and the matter is fit for issuance of notice u/s 148 - Such examination is required to be carried out before issuance of notice u/s 148 as the same is required for the Assessing officer to form his own independent opinion that the income has escaped assessment. In the instant case, there is no such examination and investigation carried out by the AO and infact, only after recording of the reasons, he has sought copy of the sale deed from the Sub-Registrar where the assessee has been shown as power of attorney holder of the owner of the immoveable property which again raises a question mark on the tangible nature of the CIB report. We therefore find that the AO has merely gone by the CIB report and was not even in possession of the sale deed and the exact specifics of the transaction at the time of recording of reasons and therefore, it is a case where the proceedings are vitiated for want of tangible material in possession of the AO and lack of reason to believe which is more in the realm of suspicion rather than formation of opinion that income has escaped assessment. The reasons thus recorded and/or the documents available on record, therefore, don t show a link/nexus and relevancy to the opinion formed by the Assessing Officer regarding escapement of income. Even though the reopening in the present case was after the expiry of four years from the end of the relevant A.Y 2008-09, given that there was no original return of income filed by the assessee and consequent assessment, it was not necessary for the AO to show that there was any failure to disclose fully or truly all material facts necessary for the assessment in terms of proviso to section 147 which is not applicable in the instant case. The assumption of jurisdiction and initiation of the proceedings u/s 147 of the Act to reopen the assessment proceedings are vitiated and does not satisfy the requirement of law and such action on the part of the Assessing Officer cannot be accepted and the notice under section 148 and consequent proceedings are thus set-aside. In the result, ground no. 1 of the assessee s appeal is allowed.

Issues Involved:
1. Jurisdiction and validity of reassessment proceedings under Section 147/148 of the Income Tax Act.
2. Addition of ?7,17,286/- on account of Short Term Capital Gains (STCG).
3. Charging of interest under Sections 234A, 234B, and 234C of the Income Tax Act.

Detailed Analysis:

1. Jurisdiction and Validity of Reassessment Proceedings under Section 147/148:
The primary issue revolves around the jurisdiction and validity of the reassessment proceedings initiated under Section 147/148 of the Income Tax Act. The assessee contended that the reassessment was based on incorrect grounds, as the assessee was merely a Power of Attorney holder and not the owner of the property in question. The Assessing Officer (AO) initiated the reassessment based on CIB information that the assessee had sold an immovable property for ?7,00,000/-, which was valued at ?7,17,286/- for stamp duty purposes. The AO recorded reasons for reopening the assessment on 25.03.2015 and issued a notice under Section 148.

The Tribunal noted that the AO relied solely on the CIB report without possessing tangible material or conducting further examination to establish a nexus between the information and the belief that income had escaped assessment. The Tribunal emphasized that the AO must form a prima facie view based on tangible material, and mere suspicion is insufficient for reopening an assessment. The Tribunal cited the Delhi High Court's decision in Meenakshi Overseas Pvt Ltd vs ITO, which highlighted that the reasons for reopening must be based on tangible material evident from the recorded reasons.

The Tribunal concluded that the AO's action was based on suspicion rather than tangible material, resulting in the reassessment proceedings being vitiated. Consequently, the Tribunal set aside the notice under Section 148 and the consequent proceedings, allowing the assessee's appeal on this ground.

2. Addition of ?7,17,286/- on Account of Short Term Capital Gains (STCG):
Given that the reassessment proceedings were quashed, the Tribunal deemed the issue of the addition of ?7,17,286/- on account of STCG as academic. The addition was initially made by the AO on the premise that the assessee had undisclosed capital gains from the sale of the property. However, since the reassessment itself was invalidated, this ground became infructuous and was dismissed.

3. Charging of Interest under Sections 234A, 234B, and 234C:
Similar to the addition of STCG, the issue of charging interest under Sections 234A, 234B, and 234C became academic following the quashing of the reassessment proceedings. The Tribunal dismissed this ground as infructuous.

Conclusion:
The Tribunal allowed the assessee's appeal, primarily on the grounds of invalid reassessment proceedings under Section 147/148 due to the lack of tangible material and proper examination by the AO. Consequently, other grounds related to the addition of STCG and interest charges were dismissed as academic. The order was pronounced in the open court on 05/01/2021.

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