2021 (5) TMI 957 - AT - Income Tax

Tribunal Quashes Assessments, Emphasizes Evidence & Natural Justice

M/s Fateh Softech Pvt. Ltd. Versus Income Tax Officer, Ward-1 (4)

M/s Fateh Softech Pvt. Ltd. Versus Income Tax Officer, Ward-1 (4) - TMI Issues Involved:1. Validity of re-opening of assessment under Section 147 read with Section 148 of the Income Tax Act, 1961.2. Validity of assessment without issuance of valid notice under Section 143(2) of the Income Tax Act, 1961.3. Additions made on account of construction expenses.4. Addition of income from agricultural operations as 'income from other sources'.5. Adherence to principles of natural justice and allegations of biased assessment.Issue-wise Detailed Analysis:1. Validity of Re-opening of Assessment under Section 147 read with Section 148 of the Income Tax Act, 1961:The assessee challenged the validity of the re-opening of assessments for the assessment years (A.Y.) 2008-09, 2009-10, and 2011-12. The reasons recorded by the Assessing Officer (AO) for re-opening were deemed vague and based on assumptions and presumptions. It was observed that the AO did not have reliable material to form the belief that the income had escaped assessment. Specifically:- For A.Y. 2008-09, the AO's belief was based on the possession of fixed assets without evidence of rental or business income.- For A.Y. 2009-10, the AO's belief was based on alleged use of assets for marriage functions and unaccounted construction expenses, but no addition was made on these grounds.- For A.Y. 2011-12, the reasons were identical to A.Y. 2009-10 and were deemed invalid.The re-opening of assessments was quashed for being bad in law.2. Validity of Assessment without Issuance of Valid Notice under Section 143(2) of the Income Tax Act, 1961:The assessee contended that the assessment was completed without the issuance of a valid notice under Section 143(2). This issue was raised for A.Y. 2008-09 and 2011-12. The Tribunal did not specifically address this issue separately as the re-opening of assessments itself was quashed.3. Additions Made on Account of Construction Expenses:The AO made additions based on a report from the Punjab Vigilance Bureau, which indicated construction/development work amounting to Rs. 32.84 lakhs on the assessee's property. The AO added proportionate amounts for various years:- For A.Y. 2008-09, Rs. 2.05 lakhs.- For A.Y. 2009-10, Rs. 8.21 lakhs.- For A.Y. 2011-12, Rs. 8.21 lakhs.The Tribunal found that the AO did not have independent evidence regarding the date of construction and relied on an estimation basis. The assessee provided a valuation report indicating construction in 2006-07 by a lessee, M/s. ICRMS Pvt. Ltd. The AO failed to refer the matter to the Departmental Valuation Officer (DVO) for an accurate assessment. The additions were set aside as they were based on mere suspicion and not sustainable in law.4. Addition of Income from Agricultural Operations as 'Income from Other Sources':For A.Y. 2008-09, the AO added Rs. 1.20 lakhs as 'income from other sources' instead of agricultural income. The assessee provided an affidavit from the lessee, Mr. Kuldeep Singh, confirming the agricultural income. The Tribunal found that the AO did not justify the addition, especially since the assessee was in possession of agricultural land and the lessee admitted to paying the batai (share of produce). The addition was deleted.5. Adherence to Principles of Natural Justice and Allegations of Biased Assessment:The assessee argued that the assessment was conducted in haste and without reasonable opportunity, violating principles of natural justice. The Tribunal observed that the AO acted on borrowed satisfaction without independent investigation. The assessments were found to be biased and prejudiced, further supporting the decision to quash the re-openings and set aside the additions.Conclusion:The Tribunal allowed the appeals for all the assessment years (2008-09, 2009-10, 2011-12), quashing the re-opening of assessments and setting aside the additions made by the AO. The judgments emphasized the need for reliable evidence and adherence to principles of natural justice in assessment proceedings.