2014 (12) TMI 465 - AT - Income Tax

ITAT Agra Bench quashes assessment reopening for lack of valid reason, deletes additions, allows assessee's appeal.

Shri Kaushal Versus Income-tax Officer

The ITAT Agra Bench quashed the reopening of assessments for both assessment years 2005-06 and 2006-07, as the AO lacked a valid 'reason to believe' ... Validity of reopening of assessment u/s 148 –Capital asset u/s 2(14) - Adoption of wrong rate of valuation as on 01.04.1981 – Expenses on sale of land disallowed – Held that:- Following the decision in Rameshwar S/o Dayaram alias Kallu Versus Income-tax Officer 6(2), Jhansi [2014 (10) TMI 332 - ITAT AGRA] and as held in Badam Singh Rajpali, Versus Income-tax Officer [2012 (7) TMI 160 - ITAT, AGRA] - The AO has not verified the information issued notice u/s. 133(6) to the assessee and required to confirm the transaction as to how the capital gains arise out of the transaction - There was no material with the AO to prima facie prove that the assessee earned capital gain because he wanted the assessee to intimate as to how capital gain arises out of the transaction - The AO had acted only on the basis of suspicion and it could not be said that it was based on belief that income chargeable to tax had escaped assessment - AO had to act on the basis of “reason to believe” and not on “reason to suspect” - the AO has not satisfied the ingredients of section 147 of the Act in the reasons recorded for reopening of assessment - the AO has not correctly assumed jurisdiction u/s. 147 /148 of the IT Act – the order is to be set aside – Decided in favour of assesse. Issues Involved:1. Reopening of assessment under Section 148 of the Income Tax Act.2. Adoption of incorrect rate of valuation as on 01.04.1981.3. Disallowance of expenses related to the sale of land.Issue-wise Detailed Analysis:1. Reopening of Assessment under Section 148 of the IT Act:The primary issue in both appeals was the reopening of assessment under Section 148. For the assessment year 2006-07, the AO reopened the assessment after discovering that the assessee had sold agricultural land within 8 kilometers of Municipal Limits of Jhansi, making it a capital asset under Section 2(14) of the IT Act. The AO believed that capital gains from this sale had escaped assessment and issued a notice under Section 148. The CIT(A) confirmed the reopening, but the ITAT Agra Bench quashed the reopening of assessment based on a precedent case (Badam Singh Rajpali Vs. ITO), where it was held that the AO must have 'reason to believe' that income chargeable to tax had escaped assessment. The ITAT found that the AO acted on suspicion rather than a definitive belief, making the reopening invalid.2. Adoption of Incorrect Rate of Valuation as on 01.04.1981:In both assessment years, the assessee contested the rate of valuation adopted by the AO as on 01.04.1981. The AO's valuation affected the computation of long-term capital gains. The CIT(A) partially accepted the revised computation submitted by the assessee, which resulted in a lower capital gain than initially assessed by the AO. For the assessment year 2006-07, the CIT(A) accepted a revised capital gain of Rs. 11,02,152, and for 2005-06, Rs. 1,17,120. However, since the ITAT quashed the reopening of assessment, the question of valuation became moot.3. Disallowance of Expenses Related to the Sale of Land:The assessee also challenged the disallowance of expenses incurred in relation to the sale of the land. The AO initially disallowed these expenses, impacting the computation of capital gains. The CIT(A), upon reviewing the revised computation, accepted the expenses claimed by the assessee, leading to a partial allowance of the appeals. However, with the ITAT's decision to quash the reopening of assessment, the disallowance of expenses was also rendered irrelevant.Conclusion:The ITAT Agra Bench quashed the reopening of assessments for both assessment years 2005-06 and 2006-07, following the precedent set in the case of Shri Rameshwar, the assessee's brother. The ITAT found that the AO did not have a valid 'reason to believe' that income had escaped assessment, as required under Section 147 of the IT Act. Consequently, all additions made by the AO were deleted, and the appeals were allowed in favor of the assessee. The issues of incorrect valuation and disallowance of expenses became academic and were not separately adjudicated.