2018 (9) TMI 1776 - AT - Income Tax

Illegal Re-Assessment Initiation Quashed, Short-Term Gains Deletion Upheld

The Tribunal found the initiation of re-assessment proceedings under section 147 of the I.T. Act to be illegal and without basis, quashing the reopening ... Validity of re-assessment proceedings u/s 147 - addition on account of short term capital gains - non-application of mind by the A.O. to the AIR information - Held that:- A.O. in the reasons has mentioned that assessee has not filed income tax return and capital gain on the property have not been shown. The assessee however, filed original return of income on 22.10.2008 mentioning PAN also for assessment year under appeal. Therefore, A.O. again incorrectly reported in the reasons that assessee has not filed return of income. The assessee further explained that property is situated at 13 KM away from Kot Gram Nagar Palika Parishad, Dadri which is supported by Certificate issued by Tehsildar, Dadri. The A.O. however, did not bring any evidence on record to show that property falls within 8 KM from the Municipal limit of Dadri Nagar Palika Parishad. Thus the A.O. recorded non-existing and incorrect reasons in the reasons for reopening of the assessment. A.O. did not explain as to under which provision of law, he has issued the letter to the assessee to seek explanation of assessee on 17.09.2014 when no return for assessment year under appeal was legally pending for assessment before A.O. It, therefore, appears that the A.O. merely in absence of any reply from the assessee and on assumption of incorrect facts, formed his opinion that income chargeable to tax has escaped assessment. The A.O. did not verify the AIR information before taking any action against the assessee because the assessee did not sold the property for a total sale consideration of ₹ 65,84,000/- as noted in the reasons. It is the case of non-application of mind by the A.O. to the AIR information We are of the view that initiation of re-assessment proceedings in this case is bad and illegal and without any basis. We, accordingly, set aside the orders of the authorities below and quash the reopening of the assessment under section 147/148. Resultantly, the addition stands deleted. - Decided in favour of assessee. Issues Involved:1. Initiation of re-assessment proceedings under section 147 of the I.T. Act.2. Addition of Rs. 37,91,000/- on account of short-term capital gains.Detailed Analysis:1. Initiation of Re-assessment Proceedings under Section 147 of the I.T. Act:The Assessee challenged the initiation of re-assessment proceedings. The case was reopened under section 147 based on AIR information that the assessee sold immovable property worth Rs. 65,84,000/- during the assessment year 2008-2009. The A.O. issued a notice under section 148 on 17.03.2015 after the assessee failed to respond to multiple queries. The A.O. believed that the capital gains from the sale of the property had escaped assessment.The Tribunal noted that the A.O. did not mention the PAN of the assessee and incorrectly stated the sale consideration as Rs. 65,84,000/-, which was actually Rs. 20 lakhs. The A.O. also incorrectly mentioned that the assessee had not filed a return of income, while the assessee had filed the return on 22.10.2008. The property was situated 13 KM away from the municipal limits of Dadri Nagar Palika Parishad, supported by a certificate from the Tehsildar. The A.O. did not provide evidence that the property fell within 8 KM of the municipal limits.The Tribunal found that the A.O. recorded non-existent and incorrect reasons for reopening the assessment. The A.O. did not verify the AIR information and formed his opinion based on incorrect facts and assumptions. The Tribunal relied on the decisions of the Hon'ble Delhi High Court in Pr. CIT vs. GANDG Pharma India Ltd., and Pr. CIT vs. Meenakshi Overseas Pvt. Ltd., which emphasize the necessity of a tangible link between the information and the belief that income has escaped assessment.The Tribunal concluded that the initiation of re-assessment proceedings was illegal and without basis, quashing the reopening of the assessment under sections 147/148 of the I.T. Act.2. Addition of Rs. 37,91,000/- on Account of Short-term Capital Gains:The A.O. computed the short-term capital gain at Rs. 37,91,000/- by taking the sale consideration under section 50C at Rs. 45,84,000/- and excluding the cost of acquisition and stamp duty. The assessee contended that the property was sold for Rs. 20 lakhs, not Rs. 65,84,000/-, and provided a certificate from the Tehsildar confirming the property's distance from the municipal limits.The Tribunal observed that the A.O. did not provide evidence to contradict the Tehsildar's certificate and failed to verify the AIR information. The A.O.'s reasons for reopening the assessment were based on incorrect and non-existent facts, leading to an invalid assumption of jurisdiction.Since the initiation of re-assessment proceedings was quashed, the addition of Rs. 37,91,000/- on account of short-term capital gains was also deleted. The Tribunal did not address the remaining grounds on merit, considering them academic.Conclusion:The appeal of the Assessee was allowed, quashing the re-assessment proceedings and deleting the addition of Rs. 37,91,000/-. The Tribunal pronounced the order in the open court.