2024 (2) TMI 108 - AT - Income Tax

Validity of Reopening of assessment - reasons to believe - unexplained investment in construction of house property and no return of income has been filed by the assessee for the year under consideration - information received from DDIT(Inv.) that assessee has invested more than 15 crores in construction of house property - HELD THAT - Apparent from factual inconsistencies in the reasons recorded there is no live link between the materials and the belief of the AO that the income to the extent of more than 15 crores has escaped assessment. Apparently, there is no enquiry made by the AO to find out whether the assessee has filed return of income or not and whether the report of the DDIT(Inv.) which is stated to be the basis for reopening of assessment that the income had escaped more than 15 crores. In the course of assessment proceedings, it appears that nothing was put to assessee to explain the escaped income of 15 crores but the matter of valuation of the property constructed was referred to Valuation Officer who ultimately valued the property at Rs. 58,93,050/-. All these goes to show that absolutely there is no application of mind by the AO before recording reasons to believe that the income of the assessee had escaped assessment more than 15 crores for the assessment year under consideration. The Hon ble Delhi High Court in the case of Pr. CIT vs. RMG Polyvinyl (I) Ltd. ( 2017 (7) TMI 371 - DELHI HIGH COURT ) held that the information received from the Investigation Wing cannot be said to be tangible material per se without a further enquiry being undertaken by the AO and the AO deprived himself of that opportunity by proceeding on the erroneous premise that assessee had not filed a return when in fact it had. AO is not disputing that the assessee filed return of income. If this is the fact, there is certainly a factual inconsistency in reopening the assessment that the assessee has not filed any return of income. Secondly, in the reasons stated the AO believed that the income escaped assessment only based on the report of the DDIT(Inv.) that the income had escaped more than 15 crores. However, we observe that what is the basis for 15 crores is not specified in the reasons. This is only a bald statement that the income of the assessee has escaped assessment for more than 15 crores without spelling out any details which is said to have been given in the DDIT report. Therefore, the reasons recorded in the present case at best can be treated to be a reason to suspect which is not sufficient for reopening the assessment u/s 148 - The requirement of application of mind is missing the present case, there is no independent application of mind by the AO to tangible materials and reasons and the AO failed to demonstrate live link between tangible material and formation of reason to believe that income had escaped assessment. Decided in favour of assessee.

Summary

Issues Involved:
1. Validity of reopening of assessment under Section 147/148.
2. Confirmation of additions on account of unexplained investment.
3. Validity of reference to the Departmental Valuation Officer (DVO).
4. Adjustment of agricultural income and loan in assessment.
5. Compliance with CBDT instructions in passing the order.

Summary:

1. Validity of Reopening of Assessment under Section 147/148:
The assessee challenged the reopening of assessment under Section 148, arguing that the initiation was based on incorrect facts and lacked a live link between the material and the belief formed. The Tribunal noted that the reasons recorded for reopening were factually incorrect, as the assessee had filed a return of income, contrary to the AO's belief. The Tribunal cited several precedents, including *PCIT vs. RMG Polyvinyl (I) Ltd.* and *CIT vs. Kamdhenu Steel & Alloys Ltd.*, to emphasize that reopening based on mere suspicion or borrowed satisfaction is invalid. The Tribunal concluded that there was no independent application of mind by the AO and quashed the reassessment.

2. Confirmation of Additions on Account of Unexplained Investment:
The Tribunal addressed the assessee's challenge to the addition of Rs. 29,00,000/- on account of unexplained investment in house property under Section 69. The Tribunal found that the AO's reliance on the DVO's estimation was flawed due to procedural lapses and lack of proper evidence. The Tribunal emphasized that the addition was confirmed arbitrarily, rejecting the explanations and evidence provided by the assessee.

3. Validity of Reference to the Departmental Valuation Officer (DVO):
The Tribunal examined the validity of the reference to the DVO and found that the estimation made by the DVO was bad in law due to the absence of proper procedure. The Tribunal highlighted that the AO had no material evidence and initiated proceedings based solely on the DDIT's report, which lacked specificity and details.

4. Adjustment of Agricultural Income and Loan in Assessment:
The Tribunal noted that the CIT(A) erred in not giving the assessee the benefit of agricultural income and failing to adjust the loan taken by the assessee. The Tribunal found that the addition was confirmed without making necessary adjustments, which was arbitrary and unjust.

5. Compliance with CBDT Instructions in Passing the Order:
The assessee contended that the CIT(A) violated CBDT Instruction No. 20/2003 by not passing the order within 15 days of the last hearing. However, the Tribunal did not specifically address this issue in detail, focusing instead on the substantive grounds of reopening and additions.

Conclusion:
The Tribunal held that the reassessment under Section 143(3) read with Section 147 was bad in law due to lack of proper reasons and independent application of mind by the AO. Consequently, the reassessment order was quashed. The appeal of the assessee was partly allowed, and the Revenue's appeal was dismissed as infructuous.