2019 (5) TMI 1702 - AT - Income Tax

Assessment Reopening Quashed: Officer Lacked Verification, ITAT Precedent Followed

Shri Mohd. Yameen Munna Versus The Income Tax Officer, Ward-2 (1), Ghaziabad.

The Tribunal quashed the reopening of the assessment under Section 148 as the Assessing Officer failed to verify information and acted on suspicion rather ... Reopening of assessment u/s 147 - Reason for the belief that income has escaped assessment - Escaped capital gain on sale of property - HELD THAT:- Validity of reopening of the assessment shall have to be judged with reference to the reasons recorded for reopening of the assessment. In the present case, the A.O. has mentioned in the reasons that assessee sold the property and his share comes to ₹ 43,04,000/-. Since, no compliance was made by the assessee, the A.O, therefore, presumed that there is an escapement of income on account of long term capital gains. A.O, therefore, recorded reasons to believe that capital gains on sale consideration of ₹ 43,04,000/- chargeable to tax has escaped assessment. The A.O. did not verify the information and even did not compute as to how much capital gain have been escaped assessment in the facts of the case. The reasons are thus, vague and did not show any application of mind on the part of the A.O. The A.O. in the case of the co-owner of the same property Shri Iqbal has accepted the long term capital gains in a sum of ₹ 1,47,975/- on the same set of facts. It would show that A.O. did not verify the information as to how much capital gains has escaped assessment. A.O, therefore, 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. The A.O. had to act on the basis of the reasons to believe and not on reasons to suspect. The issue is, therefore, covered in favour of the assessee by the Order of ITAT, Agra Bench in the case of Rameshwar, Jhansi vs. ITO 6(2), Jhansi [2014 (10) TMI 332 - ITAT AGRA] . - Decided in favour of assessee. Issues Involved:1. Reopening of the assessment under Section 148 of the I.T. Act.2. Addition on merits regarding long-term capital gains.Issue-wise Detailed Analysis:1. Reopening of the Assessment under Section 148 of the I.T. Act:The primary issue revolves around the reopening of the assessment based on AIR information indicating that the assessee sold immovable property for Rs. 43,04,000/- during the F.Y. 2008-2009 without declaring any capital gains. The A.O. initiated proceedings under Section 148 and issued statutory notices. Due to non-compliance from the assessee, the A.O. proceeded to pass the assessment order under Section 144, noting that the assessee had sold ancestral agricultural land but did not offer any capital gains for taxation. The A.O. believed that capital gains chargeable to tax had escaped assessment.The assessee challenged the reopening, arguing that the A.O. did not verify the information or apply his mind to the facts of the case. The reasons recorded for reopening were considered vague and based on suspicion rather than belief. The assessee cited the ITAT, Agra Bench's decision in Rameshwar vs. ITO, where under similar circumstances, the reopening was quashed. The Tribunal found that the A.O. acted on suspicion without verifying the information, which did not satisfy the requirement of Section 147. The A.O. must act on the basis of 'reason to believe' and not 'reason to suspect.'The Tribunal concluded that in the present case, the A.O. did not verify the information and did not compute the exact capital gains that escaped assessment. The reasons recorded were vague and showed no application of mind, leading to the reopening being quashed. The Tribunal followed the precedent set by the ITAT, Agra Bench, and quashed the reopening of the assessment, resulting in the deletion of all additions.2. Addition on Merits Regarding Long-Term Capital Gains:The A.O. computed the long-term capital gains at Rs. 18,01,265/- after considering the sale of ancestral agricultural land for Rs. 43,04,000/- and the purchase of another agricultural land for Rs. 20,24,070/-, which was eligible for deduction under Section 54B. The balance amount was considered liable for long-term capital gains tax.The assessee argued that the entire sale consideration could not be disclosed as capital gains, referencing the co-owner's case (Mr. Iqbal), where the A.O. accepted the long-term capital gains at Rs. 1,47,975/-. The Tribunal noted that the A.O. did not verify the information and merely acted on suspicion. The A.O. in the co-owner's case accepted a significantly lower amount of capital gains, indicating a lack of consistency and verification in the assessee's case.The Tribunal found that the A.O. did not apply his mind to the facts and acted on vague reasons. The reopening of the assessment was quashed, and all additions were deleted, following the precedent set by the ITAT, Agra Bench.Conclusion:The Tribunal quashed the reopening of the assessment under Section 148 due to the A.O.'s failure to verify the information and act on a 'reason to believe' rather than 'reason to suspect.' Consequently, all additions made on the merits regarding long-term capital gains were deleted. The appeal of the assessee was allowed.