2025 (1) TMI 99 - AT - Income Tax

Assumption of jurisdiction u/s 147 - unexplained investment u/s 69 - legitimacy of additions in the re-assessment proceedings dehors the reasons recorded - AO alleged assessee has purchased certain immovable property (particulars not provided) as a co-sharer - HELD THAT - As alleged that the investment has not been disclosed in the inquiry proceedings. The allegation of escapement was also made u/s 56(2)(vii)(b) of the Act. Another allegation of escapement arose towards under valuation of immovable property sold. AO however, while framing the assessment has made additions towards purchase of agricultural land, the payment of which was made through bank account. The aforesaid transaction is unconnected to the allegation of escapement in the reasons recorded. AO had made another additions u/s 69 towards purchase of agricultural land where the payment was made through banking channel which again is not shown to be connected to the allegations made in the reasons recorded. The stamp duty paid on the purchases made amountingis yet another addition made in the re-assessment order which again is wholly unconnected to the allegations of escapement in the reasons recorded. Thus, where the ground on which the jurisdiction under s. 147 of the Act was exercised have not been reckoned and acted upon in the re-assessment proceedings and no additions were carried out for any of such ground recorded, the AO could not make additions on an altogether different ground which did not form part of the reasons recorded by him. Revenue could not controvert the fact that the additions on the points derives its genesis from the ground taken in the reasons recorded. In the light of the settled position of law, we find strong force in the plea of the assessee for reversal of the additions made. Also potency in the plea of the assessee that reasons recorded are plagued by the vice of being vague, non-descript and unintelligible. The reasons recorded do not identify the immovable property purchased at a certain consideration. Same is the case with reference to other immovable properties referred in the reasons recorded. Mere reference of purchase of immovable property without specifying the particulars do not provide cause of action u/s 147. The issuance of reopening notice based on vague particulars is unsustainable as held in CIT vs Insecticide India Ltd 2013 (5) TMI 691 - DELHI HIGH COURT - Assessee appeal allowed.

1. ISSUES PRESENTED and CONSIDERED

The legal judgment revolves around the following core issues:

Whether the reassessment order under Section 147 of the Income Tax Act, 1961, was validly initiated and executed, considering the alleged lack of jurisdiction and non-compliance with statutory conditions.
The legitimacy of the additions made under Section 69 for unexplained investments and whether these additions were justified based on the evidence and legal framework.
The validity of denying the deduction for stamp duty expenses incurred on the purchase of property.
Whether the reassessment proceedings were barred by limitation.
The correctness of interest charged under Sections 234A, 234B, and 234C of the Income Tax Act, 1961.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Validity of Reassessment under Section 147

Legal Framework and Precedents: The reassessment under Section 147 requires valid reasons for believing that income has escaped assessment. The reasons must be specific and based on concrete information.
Court's Interpretation and Reasoning: The Tribunal noted that the reasons recorded for initiating reassessment were vague and lacked specificity. The reasons did not provide clear particulars of the alleged escapement of income.
Key Evidence and Findings: The reasons cited by the Assessing Officer (AO) were deemed generic and not acted upon in the reassessment order.
Application of Law to Facts: The Tribunal applied precedents from various High Courts, emphasizing that additions made on grounds not forming part of the recorded reasons are unsustainable.
Treatment of Competing Arguments: The Revenue's argument that the AO's power to make additions was not curtailed was rejected due to the lack of a valid basis for the initial reassessment.
Conclusions: The reassessment order was found to be bad in law due to jurisdictional defects and vague reasons.

Issue 2: Additions under Section 69 for Unexplained Investments

Legal Framework and Precedents: Section 69 deals with unexplained investments, requiring the assessee to satisfactorily explain the nature and source of investments.
Court's Interpretation and Reasoning: The Tribunal observed that the additions made were unrelated to the reasons recorded for reopening the assessment.
Key Evidence and Findings: The AO made additions for investments in agricultural land, which were not part of the original reasons for reopening.
Application of Law to Facts: The Tribunal held that the AO could not make additions on grounds not specified in the reasons for reopening.
Treatment of Competing Arguments: The assessee's argument that the additions were based on incorrect facts and without due process was upheld.
Conclusions: The additions under Section 69 were invalidated due to lack of connection with the recorded reasons.

Issue 3: Deduction for Stamp Duty Expenses

Legal Framework and Precedents: Stamp duty expenses are generally deductible if incurred in connection with the acquisition of property.
Court's Interpretation and Reasoning: The Tribunal found no basis for disallowing the stamp duty expenses.
Key Evidence and Findings: The expenses were related to the purchase of property, which is typically deductible.
Application of Law to Facts: The Tribunal concluded that the disallowance was unjustified.
Treatment of Competing Arguments: The assessee's plea for deduction was accepted.
Conclusions: The disallowance of stamp duty expenses was overturned.

Issue 4: Limitation on Reassessment Proceedings

Legal Framework and Precedents: Reassessment proceedings must be initiated within prescribed time limits.
Court's Interpretation and Reasoning: The Tribunal did not find explicit evidence of the proceedings being time-barred but focused on jurisdictional defects.
Key Evidence and Findings: The timeline of the proceedings was not the primary basis for the decision.
Application of Law to Facts: The primary focus was on jurisdictional validity rather than limitation.
Treatment of Competing Arguments: The Tribunal's decision did not hinge on this argument.
Conclusions: The issue of limitation was secondary to jurisdictional defects.

Issue 5: Interest Charged under Sections 234A, 234B, and 234C

Legal Framework and Precedents: Interest under these sections is charged for defaults in furnishing return, advance tax, and deferment of advance tax, respectively.
Court's Interpretation and Reasoning: The Tribunal did not specifically address this issue in detail, given the primary focus on jurisdictional defects.
Key Evidence and Findings: The interest charges were not the central issue.
Application of Law to Facts: The Tribunal's decision on the main issues rendered this point moot.
Treatment of Competing Arguments: The Tribunal did not delve into arguments on this issue.
Conclusions: The interest charges were not specifically addressed due to the primary focus on other issues.

3. SIGNIFICANT HOLDINGS

Preserve Verbatim Quotes: "The reasons recorded are plagued by the vice of being vague, non-descript and unintelligible."
Core Principles Established: Additions in reassessment proceedings must be based on the specific grounds recorded for reopening; vague and generic reasons are insufficient for jurisdiction under Section 147.
Final Determinations on Each Issue: The reassessment order was invalidated due to jurisdictional defects and lack of specificity in recorded reasons; additions under Section 69 were overturned; stamp duty expenses were allowed; the issue of limitation and interest charges were secondary to the primary jurisdictional issues.

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