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TMI Blog2015 (11) TMI 576X X X X Extracts X X X X X X X X Extracts X X X X ..... on 147 is bad in law as there is no reason to believe or any relevant material on the basis of which the assessee's case can be reopened. Accordingly, the entire proceedings initiated vide notice under section 148 of the Act, is void ab initio and consequently the assessment orders are quashed. - Decided in favour of assessee. - I. T. A. Nos. 8315 and 8323 /Mum/ 2011andC. O. Nos. 241 /Mum/ 2012 - - - Dated:- 8-4-2015 - B. R. BASKARAN (Accountant Member) and AMIT SHUKLA (Judicial Member) Love Kumar for the Department. Firoze B. Andhyarujina for the respondent. ORDER The order of the Bench was delivered by 1. Amit Shukla (Judicial Member).-The aforesaid appeals have been filed by the Revenue and cross-objections by the assessee against the order dated September 26, 2011 and September 27, 2011, passed by the learned Commissioner (Appeals), Mumbai, for the assessment years 2003-04 and 2004-05 respectively, for the quantum of assessment passed under section 143(3) read with section 147 of the Income-tax Act, 1961. In the cross- objections the assessee has challenged the validity of reopening of the assessment under section 147 of the Act on the ground that init ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e from house property, which has been wrongly claimed as income from business. Against this income you have claimed expenditure, which is not allowable. The income under the head house property was more than ₹ 25 lakhs for the assessment year 2003-04. On such income expenditure was allowable only as per section 24(i) of the Act. However, you have claimed the expenditure at a figure more than what was allowable as per provisions of section 24(1) of the Act. In view of the above, there being abundant reason to believe that there has been a substantial escapement of income under section 147 of the Act and after taking the approval of the Additional Commissioner of Income-tax, Range-2(1), Mumbai, the assessment for the assessment year 2003-04 has been reopened after issue of notice under section 148 of the Act on March 23, 2010. 3. In response, the assessee raised its objection vide letter filed on August 20, 2010 on the following grounds : A reading of the recorded reason conveyed through your letter under reference shows that you have proceeded to initiate proceeding under section 147 of the Act on misconception of law as well as without proper appreciation of facts ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessment years 2003-04 and 2004-05. It is well-settled that belief entertained by the Assessing Officer must not be arbitrary or irrational. It must be reasonable or in other words must be based on reasons which are relevant and material to the facts on record. The expression 'reason to believe' does not mean a purely subjec tive satisfaction. The belief must be held in good faith, it cannot merely be a pretence. There must be some direct nexus between the conclusion of facts arrived by the authority concerned and the primary facts upon which that conclusion is based. The use of extra neous and irrelevant material in arriving at that conclusion would vitiate the conclusion of fact. Reliance is placed on the decisions in CIT v. Daulat Ram Rawatmull [1973] 87 ITR 349 (SC) and ITO v. Lakhmani Mewal Das [1976] 103 ITR 437 (SC). In the circumstances, proceedings initiated under section 147 of the Act in respect of the assessment years 2003-04 and 2004-05 are required to be dropped. 4. The learned Assessing Officer dismissed the assessee's objection on the ground that on the same flats, the income has been treated as income from house property in the assessmen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... T [2013] 356 ITR 481 (Guj) ; and 4. Indivest P. Ltd. v. Addl. DIT [2013] 350 ITR 120 (Bom). 7. Thus, he submitted that the reasons recorded by the Assessing Officer for reopening the case are not based on reasons to believe as contemplated under the law and therefore, the entire proceedings initiated vide notice dated March 23, 2010 under section 148 of the Act is bad in law. 8. On the other hand, the learned Departmental representative submitted that, at the time of reasons recorded , the Assessing Officer did have prima facie reasons to believe which was based on the fact that the receipts accrued to the assessee were from house property and therefore, the same should have been assessed under the head income from house property, instead of business income, therefore, the assessee's claim of various expenditures were not allowable under the law. He further relied upon the order of the Commissioner of Income-tax (Appeals) holding that in the assessment year 2007-08 also the Assessing Officer had held that income of the assessee received from tenancy is taxable under the head Income from house property , therefore, it was sufficient material for reopening the case ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Income from house property . The learned Commissioner of Income-tax (Appeals) has tried to justify the belief of the Assessing Officer on the ground that in the assessment order for the assessment year 2007-08, income received from tenancy has been held to be taxable under the head Income from house property . If this is the alleged material, then also same cannot be held to be relevant for reopening the case under section 147 of the Act, because it is a matter of record that the assessment order for the assessment year 2007-08 has been partly reversed by the Tribunal, wherein it was held that the income of the assessee in the form service charges and other receipts from the flats not owned by the assessee cannot be taxed under the head Income from house property . It is also a matter of record that during the relevant assessment years 2003-04 and 2004-05, the assessee was not the owner of the flats as they were purchased in the subsequent year. Hence forth the income from these flats were accepted to be assessed under the head Income from house property . This finding of fact itself vitiates the formation of reason to believe by the Assessing Officer. In any case in the reaso ..... X X X X Extracts X X X X X X X X Extracts X X X X
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