2016 (8) TMI 1500 - AT - Income Tax

Tribunal quashes reassessments, emphasizes need for independent evidence & proper inquiries

Sri Narayanarao M More Versus The Income Tax Officer, Ward 1, Bidar.

The Tribunal allowed the appeals for Assessment Years 2004-05 to 2008-09, quashing the reopening of assessments due to lack of independent corroborative ... Validity of Reopening of assessment - Reopening on the basis of the DVO’s report and valuation - valuation given by the DVO - HELD THAT:- It is settled proposition of law that the information of the DVO per se is not an information for the purpose of reopening of assessment under Section 147 of the Act. It is mandatory requirement that the Assessing Officer has to apply his mind to the information if any collected and must form the belief thereupon. unless and until there is some other evidence to indicate that extra consideration had flown in the transaction of purchase of property, the DVO report cannot form the basis of any addition on the part of the revenue. In the case on hand apart from the DVO’s report there is no other evidence to indicate that the assessee has invested in the residential property during all these years as alleged in the DVO’s report. Therefore the same cannot be the basis of reopening of the assessment until and unless an independent corroborative material is available with the Assessing Officer to form the belief that the income assessable to tax being the investment made in the residential house during all these years has escaped assessment. Unexplained investment in construction of residential house while framing the reassessment - HELD THAT:- It is clear from the reassessment order that instead of making addition under Section 69 of the Act being the reason for reopening of assessment, the Assessing Officer himself has changed his mind and made the addition only on account of unexplained credit in the capital account. Therefore the basis of reopening itself was not found to be correct reason making any addition of income or reassessment of income when the Assessing Officer has finally framed the reassessment order. In the case of CIT Vs. Jet Airways (I) Ltd [2010 (4) TMI 431 - HIGH COURT OF BOMBAY] has held that the condition precedent to exercise on the jurisdiction under Section 147 is the forming of reason to believe by the AO that income chargeable to tax has escaped assessment and subsequently if the Assessing Officer found that as a matter of fact the same is not escaped assessment, it is not open to him independently to assess some other income. Accordingly, the reassessment of these five years is also not sustainable when the Assessing Officer has not made any addition of income on account of unexplained investment but made some other addition. In view of the above discussion, the reassessment for the Assessment Years 2004-05 to 2008-09 is not sustainable. LTCG on sale of gold - HELD THAT:- Assessee has shown the credit in his capital account of ₹ 1,80,000 as sale of gold and insurance of ₹ 51,244. The Assessing Officer made the addition by allowing only ₹ 10,000 as value of the gold as on the date of sale and consequently the balance amount of ₹ 1,70,000 was brought to tax which was claimed by the assessee as LTCG. It is apparent from the record that the Assessing Officer has not conducted a proper enquiry to find out actual market value of the gold and further whether the assessee has offered to tax the LTCG of ₹ 1,80,000. It is manifest from the assessment order that the Assessing Officer has made these additions purely on the basis of estimate and without conducting any enquiry about the actual amount realized by the assessee from these transactions. Accordingly in the facts and circumstances of the case, the matter is set aside to the record of the Assessing Officer for conducting a proper enquiry and giving an opportunity of being heard to the assessee and then decide the matter as per law. Issues Involved:1. Validity of reopening of assessment under Section 147 for Assessment Years 2004-05 to 2008-09.2. Additions made on account of unexplained credits in capital account.3. Disallowance of agricultural income.4. Addition under the head 'household expenses.'5. Interest charged under Section 234B.6. Validity of assessment under Section 143(3) for Assessment Year 2009-10.Issue-Wise Detailed Analysis:1. Validity of Reopening of Assessment under Section 147 for Assessment Years 2004-05 to 2008-09:The reopening of assessments was challenged on the grounds that it was based solely on the Department Valuation Officer's (DVO) report without any corroborative evidence, violating the principles established by the Hon'ble Supreme Court in ACIT vs. Dhariya Construction Co. The Tribunal found that the Assessing Officer did not apply his mind independently and relied solely on the DVO's report, which is not sufficient for reopening assessments under Section 147. The Tribunal quashed the reopening for these years, emphasizing that the DVO’s report alone cannot form the basis for reopening without independent corroborative material.2. Additions Made on Account of Unexplained Credits in Capital Account:The Tribunal noted that the Assessing Officer made additions for unexplained credits in the capital account instead of the alleged unexplained investment in the residential house, which was the basis for reopening. This change in the basis of addition was found to be unsustainable, as the Assessing Officer did not make any addition related to the reason for reopening. The Tribunal referred to the judgment of CIT vs. Jet Airways (I) Ltd., which mandates that if the reason for reopening is not substantiated, the Assessing Officer cannot independently assess other income.3. Disallowance of Agricultural Income:The assessee contested the addition made regarding agricultural income, arguing that he owned 5 acres of agricultural land and the estimation of Rs. 3,000 per acre by the Assessing Officer was unjustified. The Tribunal did not specifically address this issue in detail due to the quashing of the reopening itself.4. Addition Under the Head 'Household Expenses':The assessee argued that the cost of living in his village was lower compared to a city, and thus the addition under 'household expenses' was unjustified. Again, the Tribunal did not delve into this issue in detail due to the invalidity of the reopening.5. Interest Charged Under Section 234B:The assessee contested the interest charged under Section 234B. The Tribunal did not provide a detailed analysis on this point, as the primary issue of reopening was quashed.6. Validity of Assessment under Section 143(3) for Assessment Year 2009-10:For the Assessment Year 2009-10, the Tribunal addressed the assessment framed under Section 143(3). The assessee declared income from rent and agriculture, and the Assessing Officer made additions regarding the sale of gold and insurance credits. The Tribunal found that the Assessing Officer did not conduct a proper inquiry to determine the actual market value of the gold or verify the declared Long Term Capital Gains (LTCG). The matter was remanded back to the Assessing Officer for proper inquiry and to provide the assessee an opportunity to be heard.Conclusion:The appeals for Assessment Years 2004-05 to 2008-09 were allowed, quashing the reopening of assessments. For Assessment Year 2009-10, the appeal was allowed for statistical purposes, with instructions for the Assessing Officer to conduct a proper inquiry. The Tribunal emphasized the need for independent corroborative evidence beyond the DVO's report for reopening assessments and the necessity of proper inquiries for additions made in assessments.