2022 (11) TMI 1209 - AT - Income Tax

Tribunal Invalidates Reopening of Assessment

The Tribunal upheld the decision to quash the reassessment proceedings, stating that the reopening was invalid due to incorrect assumptions and ... Reopening of assessment u/s 147 - reasons to believe - Whether reopening was made based on incorrect assumption of fact as is evident from the reasons recorded? - HELD THAT:- From the perusal of the entire reasons recorded by the ld.AO for reopening the assessment, we have absolutely no hesitation to hold that the entire reopening had been triggered by AO based on complete incorrect assumption of fact that no return of income was filed by the assessee for the A.Y. 2011-12, wherein a financial transaction of purchase of property was made. The letter to assessee by the AO calling for income tax return based on report received in the non-filers list was never issued by the AO for A.Y. 2011-12 i.e. the year under consideration before us. Factually it was issued only for A.Y.2010-11 as stated supra. Hence, we hold that the reasons recorded for reopening has been made without application of mind by the ld. AO. Now the moot question that arises for our consideration is as to whether the reopening which is made based on incorrect assumption of fact and non-application of mind by the ld. AO could be held to be valid. No infirmity in ld. CIT(A) quashing the re-assessment proceedings. Hence, the ground raised by the Revenue challenging the validity of quashing the re-assessment is dismissed. Issues Involved:1. Validity of reopening the assessment under Section 147 of the Income Tax Act, 1961.2. Whether the Assessing Officer (AO) issued notice under Section 148 without any tangible material.3. Whether the AO assumed incorrectly that the assessee did not file a return for A.Y. 2011-12.4. Examination of the assessee's explanation for the source of funds used for property purchase.5. Examination of the assessee's explanation for the source of funds invested in LIC.6. Examination of the assessee's proof of investment for claiming deductions under Chapter VI-A.Detailed Analysis:1. Validity of Reopening the Assessment:The Tribunal examined whether the reopening of the assessment under Section 147 was valid. The AO reopened the assessment based on the mistaken belief that the assessee had not filed a return for A.Y. 2011-12. The Tribunal found that the assessee had indeed filed the return on 21/07/2011. The reopening was initiated based on incorrect facts, and the Tribunal concluded that the reopening was made without proper application of mind. The Tribunal cited the Hon'ble Jurisdictional High Court's decision in Dhiren Anantrai Modi vs. Income Tax Officer, which emphasized that reopening based on erroneous and incorrect facts indicates non-application of mind and is invalid.2. Issuance of Notice under Section 148 Without Tangible Material:The Tribunal noted that the AO issued the notice under Section 148 without any tangible material on record. The AO's belief that the assessee had not filed the return was incorrect, as the return was filed within the due date. The Tribunal observed that the AO failed to show any failure on the part of the assessee to make a full and true disclosure, which is necessary for reopening beyond four years. The Tribunal upheld the CIT(A)'s decision that the notice under Section 148 was without jurisdiction and quashed it.3. Incorrect Assumption by AO:The Tribunal found that the AO's assumption that the assessee had not filed the return for A.Y. 2011-12 was incorrect. The AO had referred to letters dated 25/07/2015 and 03/08/2015, which pertained to A.Y. 2010-11, not A.Y. 2011-12. The Tribunal held that the reopening was based on an incorrect assumption of fact, demonstrating non-application of mind by the AO.4. Source of Funds for Property Purchase:The Tribunal did not delve into the merits of the source of funds for the property purchase, as the reopening itself was quashed. The CIT(A) had noted that the assessee informed the AO about the property being purchased jointly with his wife and that the AO did not take any action against the wife. The Tribunal did not address this issue further since the main issue of reopening was decided in favor of the assessee.5. Source of Funds Invested in LIC:Similar to the property purchase issue, the Tribunal did not examine the merits of the source of funds invested in LIC. The CIT(A) had noted that the AO failed to appreciate the assessee's explanations and supporting evidence. However, since the reopening was quashed, this issue was not addressed further.6. Proof of Investment for Deductions under Chapter VI-A:The Tribunal did not address the issue of the assessee's proof of investment for claiming deductions under Chapter VI-A. The CIT(A) had noted that the AO did not appreciate the assessee's submissions and supporting evidence. As the reopening was quashed, this issue was not examined further.Conclusion:The Tribunal upheld the CIT(A)'s decision to quash the reassessment proceedings, finding that the reopening was based on incorrect assumptions and non-application of mind by the AO. The Tribunal dismissed the Revenue's appeal and the assessee's cross-objections as infructuous. The order was pronounced on 25/11/2022.