2021 (7) TMI 108 - AT - Income Tax

Tribunal quashes reassessment due to incorrect reasons, rendering additions invalid. Assessee's appeal allowed.

The tribunal quashed the reassessment proceedings as the reasons for re-opening the assessment were found to be incorrect, rendering all additions made ... Validity of reopening of assessment - assessee is admittedly a company engaged in the real estate business - un-explained investment in purchase of land and profit on sale of land - CIT(A) has affirmed the same - HELD THAT:- As noticed from a perusal of the case file that the Forest Department of the Government of Andhra Pradesh through the DFO, Hyderabad had cancelled the assessee’s sale deed itself on 20-11-2008 for the reason that the land in question was government/reserve forest land. This in our considered opinion, sufficiently takes care of the AO’s sole re-opening reason alleging escapement of income with the assessee’s taxable income derived from sale of properties during FY.2008-09. No other sale deed other than that cancelled has been executed at the assessee’s behest. The Assessing Officer’s corresponding sole re-opening reason does not survive anymore therefore. In view of all the preceding facts that the assessee could not have been held to have derived any taxable income once the sale deed itself stood annulled by the state Government. Hon'ble apex court’s landmark decision in Chainrup Sampatram [1953 (10) TMI 2 - SUPREME COURT] held long back that “while anticipated loss is thus taken into account, anticipated profit is not brought into the account, as no prudent trader would care to show increased profits before its realisation” as per the conservative spectrum of accounting. We therefore hold that the Assessing Officer’s re-opening reasoning itself does not hold ground in light of all these facts and circumstances. We find no substance in the Revenue’s stand as per tribunal’s co-ordinate bench’s decision in Joginder Sing [2015 (6) TMI 1217 - ITAT AMRITSAR] - We adopt the foregoing detailed reasoning mutatismutandis to accept assessee’s former substantive grievance challenging validity of the impugned re-opening. The same stands quashed. Issues Involved:1. Validity of the re-opening of the assessment under Section 147 of the Income Tax Act, 1961.2. Legality of the reassessment proceedings and the additions made therein.Detailed Analysis:1. Validity of the Re-opening of the Assessment:The primary issue for adjudication was the validity of the re-opening of the assessment. The assessee, a company engaged in real estate, had not filed a return of income for AY 2009-10. The Assessing Officer (AO) recorded reasons for re-opening the assessment on 21-06-2013, based on information from the DIT(Int), Hyderabad, suggesting transactions in selling properties during FY 2008-09. The AO believed that income chargeable to tax had escaped assessment within the meaning of Section 147 and issued a notice under Section 148.Upon review, it was found that the Forest Department of Andhra Pradesh had canceled the assessee’s sale deed on 20-11-2008, as the land was government/reserve forest land. This annulment meant that the assessee could not have derived any taxable income from the sale of the property. The AO’s sole reason for re-opening the assessment, alleging escapement of income from the sale of properties, was thus invalid. The tribunal referenced the apex court’s decision in Chainrup Sampatram Vs. CIT, emphasizing that anticipated profits should not be accounted for before realization. Consequently, the re-opening reasoning did not hold ground, and the re-opening of the assessment was quashed.2. Legality of the Reassessment Proceedings and Additions:The Revenue contended that the AO could take up other issues during reassessment as per Section 147, Explanation-3, inserted by the Finance Act (2) 2009 with retrospective effect from 01-04-1989. However, the tribunal found no substance in this argument, citing the co-ordinate bench’s decision in Joginder Singh Vs. ITO. The tribunal noted that if the addition made by the AO based on the reasons for re-opening is deleted, the reassessment itself should be considered unsustainable in law.The tribunal examined the case file and found that the AO made twin additions of unexplained investment in the purchase of land and profit on the sale of land. However, since the sale deed was annulled, the assessee could not have derived any taxable income from the transaction. The tribunal held that the reassessment proceedings were unsustainable, as the reasons for re-opening the assessment were incorrect.The tribunal also addressed the Revenue’s reliance on the judgment of the Punjab & Haryana High Court in Manjinder Singh Kang Vs CIT, which allowed additions on grounds not specified in the re-opening notice. However, the tribunal distinguished the present case, noting that the reasons for re-opening were found to be incorrect, and thus, the reassessment proceedings were invalid.The tribunal emphasized that the validity of reassessment proceedings is a prerequisite for any additions made during reassessment. The tribunal concluded that the CIT(A) should have quashed the reassessment proceedings based on the uncontroverted findings that the reasons for re-opening were incorrect.Conclusion:The tribunal quashed the reassessment proceedings, rendering all other pleadings on merits infructuous. The assessee’s appeal was allowed, and the order pronounced in the open court on 2nd July 2021.