2015 (1) TMI 362 - AT - Income Tax

Tribunal invalidates reassessments due to lack of grounds and justification

Smt. Shobha Prajapati Versus Income Tax Officer-1, Faizabad

The Tribunal allowed both appeals of the assessee, holding that the reassessments for the years in question were invalid due to the lack of proper grounds ... Validity of reassessment u/s 147 and 148 – Understatement of income filed in the return or not – Held that:- In assessee’s husband’s case the matter has been decided as the valuation of cost of construction was referred to the DVO u/s 142A(1), whose report was received on 21.11.2006 - In the report cost of construction has been fixed as shown by the assessee - The investment declared by the assessee and estimated by the DV - the difference in investment declared by the assessee and the cost of investment estimated by the Valuation Officer has been added u/s 69 to the income as income from undisclosed sources of the assessee – the AO without referring to any material which could justify his conclusion that the income of the assessee escaped assessment, instantiated the proceedings u/s. 147 of the Act, the action was not justified because the action appears to be on suspicion and for making roving enquiries. The basis of the reasons recorded by the AO is that the assessee along with her husband Shri Chunni Lal Prajapati was making huge investment in construction of property - the reopening was not justified because the action was on suspicion and for making roving enquiries - When the investment in house property alleged by the Department is in the joint name of the assessee and her husband, it was held by the Tribunal that the reopening is not valid because the same is on suspicion and for making roving enquiries - it cannot be said that the reopening is valid – Decided in favour of assessee. Issues:Challenging the validity of reassessment based on notice u/s 148, application of mind by the Assessing Officer, existence of relevant material for 'reason to believe,' and the basis for reopening the assessment.Validity of Reassessment:The assessee challenged the validity of reassessment in both years, arguing that no understatement of income or excessive claims were made in the returns. The issue was whether the Assessing Officer had valid reasons to reopen the assessments under section 147 of the Income Tax Act, 1961. The Tribunal considered the reasons recorded by the Assessing Officer, which were based on discrepancies in the valuation of construction costs and investments in a property. The Tribunal referred to a similar case involving the husband of the assessee, where it was held that the reopening was not justified and based on suspicion. Consequently, the Tribunal held that the reopening in the present case was also invalid due to the similarity in facts and basis for reopening.Application of Mind by Assessing Officer:The assessee contended that the Assessing Officer did not apply his mind while initiating the proceedings under section 147. The Tribunal examined the reasons recorded by the Assessing Officer, which highlighted discrepancies in the income declared by the assessee and investments in property. The Tribunal compared these reasons with a previous case involving the husband of the assessee and concluded that the reopening was not based on valid grounds. Therefore, it was held that the Assessing Officer did not properly apply his mind before initiating the reassessment proceedings.Existence of Relevant Material for 'Reason to Believe':The issue revolved around whether there was sufficient material to form a 'reason to believe' that income had escaped assessment. The Tribunal analyzed the reasons recorded by the Assessing Officer, which primarily focused on discrepancies in the valuation of construction costs and investments made by the assessee and her husband. By referencing a previous case involving the husband of the assessee, the Tribunal found that the reopening was not justified and lacked a valid basis. Consequently, it was held that there was no relevant material to support the formation of a 'reason to believe' for reopening the assessments.Basis for Reopening the Assessment:The Assessing Officer based the reopening of assessments on discrepancies in the income declared by the assessee, her husband, and investments made in a property. The Tribunal compared these reasons with a previous case involving the husband of the assessee, where it was held that the reopening was unjustified. The Tribunal concluded that the basis for reopening the assessments in the present case was similar to the earlier case and lacked validity. Therefore, it was held that the reassessment based on these grounds was not legally sound.In conclusion, the Tribunal allowed both appeals of the assessee, holding that the reassessments for the years in question were invalid due to the lack of proper grounds and justification for reopening the assessments.