2023 (3) TMI 712 - AT - Income Tax

Tribunal quashes reassessment proceedings & notice under section 148 due to invalidity. Delhi HC judgment cited.

The Tribunal allowed the appeal filed by the assessee, quashing the initiation of reassessment proceedings under section 147 and the issuance of notice ... Admission of additional legal ground - reopening of assessment - reason to believe - non-application of mind - tangible material - notice under section 148 - reassessment under section 147Admission of additional legal ground - Application to admit additional ground No.7.2 challenging validity of notice under section 148 was allowed for adjudication before the Tribunal. - HELD THAT: - The Tribunal applied the principle that purely legal objections which go to the root of the matter may be entertained for the first time before the Tribunal. The assessee sought admission of a legal ground challenging the initiation of reassessment on the basis that the AO did not conduct an independent inquiry before forming a reason to believe. The Revenue did not dispute that the ground was purely legal. On this basis the Tribunal allowed the application and admitted ground No.7.2 for adjudication. As the assessee withdrew its request to admit ground No.7.1, that part was not pressed. [Paras 5]Application to admit additional ground No.7.2 allowed; application for No.7.1 not pressed.Reopening of assessment - reason to believe - non-application of mind - tangible material - notice under section 148 - reassessment under section 147 - Reopening of assessment and issuance of notice under section 148 and consequent reassessment under section 147 were quashed for want of jurisdiction due to non-application of mind and absence of link between tangible material and reason to believe. - HELD THAT: - The Tribunal examined the reasons recorded by the Assessing Officer and the material on record and concluded that the AO proceeded on an erroneous premise that no return had been filed for AY 2009 - 10 despite the assessee having filed a return. The Tribunal held that the AO failed to apply his mind to available relevant material and did not create any link between the information received from the Investigation/AIR and the formation of a reason to believe that income had escaped assessment. Relying on the jurisprudence of the jurisdictional High Court (as discussed in RMG Polyvinyl (I) Ltd. reproduced in the order) the Tribunal found that information from the Investigation Wing is not tangible material per se unless followed by further inquiry or linkage by the AO. In the absence of such application of mind and verification, the assumption of jurisdiction to reopen assessment was held to be invalid and the notice under section 148 and consequent proceedings under section 147 were quashed. As the legal ground was allowed, the Tribunal did not adjudicate merit grounds which became academic. [Paras 8, 9, 11]Initiation of reassessment under section 147, issuance of notice under section 148 and consequent proceedings/quasi-orders quashed for non-application of mind and lack of tangible link.Final Conclusion: The Tribunal admitted the additional legal ground No.7.2 and, on its merits, allowed that ground by quashing the notice under section 148 and all consequential reassessment proceedings under section 147 for non-application of mind and absence of a link between the Investigation/AIR information and a reason to believe; consequential merit grounds were left academic and the appeal was allowed. Issues Involved:1. Denial to admit additional evidence under Rule 46A(1)(d) of the Income Tax Rules.2. Ignorance of the terms and conditions of the collaboration agreement.3. Rights of the second floor with roof as a result of the transaction.4. Consideration mentioned in the transfer deed for stamp duty purposes.5. Ignoring the contents of the order of CIT-Appeals, Aligarh.6. Opportunity to produce evidence for justice.7. Issuance of notice u/s 148 without proper application of mind and independent inquiry.Summary:1. Denial to Admit Additional Evidence:The assessee argued that the CIT(A) Ghaziabad erred by denying the opportunity to file additional evidence under Rule 46A(1)(d) of the Income Tax Rules. This denial was claimed to be against the principles of law, natural justice, and humanitarian grounds.2. Ignorance of Collaboration Agreement:The assessee contended that the CIT(A) Ghaziabad ignored the terms and conditions of the collaboration agreement, which were fundamental to the transactions between the property owner and the builders/co-builder.3. Rights of the Second Floor with Roof:The appellant claimed that they were entitled to the rights of the second floor with roof as a result of the transaction for constructing the building and were not to receive anything else.4. Consideration in Transfer Deed:The assessee argued that the consideration mentioned in the transfer deed of the second floor with roof rights was only to ascertain the stamp duty based on the prevalent circle rate, without which the execution of the sale deed was not possible.5. Ignoring Order of CIT-Appeals, Aligarh:The assessee pointed out that the CIT(A) Ghaziabad ignored the order of CIT-Appeals, Aligarh, which addressed similar issues regarding the same property and owner, Mrs. Gurbachan Kaur, for AY 2009-10.6. Opportunity to Produce Evidence:The assessee emphasized the need for an opportunity to produce evidence, such as confirmations and affidavits from the property owner, to deliver justice. They prayed for the order of the CIT(A) Ghaziabad to be quashed due to undue hardship.7. Issuance of Notice u/s 148:The assessee raised an additional legal ground challenging the issuance of notice u/s 148 of the Act without proper application of mind and without conducting an independent inquiry by the AO. The Tribunal, relying on the Supreme Court's judgment in NTPC vs. CIT, allowed this ground for adjudication.Tribunal's Findings:Issuance of Notice u/s 148:The Tribunal noted that the AO erroneously mentioned that the assessee did not file a return for AY 2009-10, whereas the return was indeed filed. This demonstrated non-application of mind by the AO. The Tribunal referred to the Delhi High Court's judgment in PCIT vs. RMG Polyvinyl (I) Ltd., which held that information from the Investigation Wing alone is not tangible material without further inquiry by the AO. Consequently, the Tribunal quashed the notice u/s 148 and the consequent reassessment proceedings.Conclusion:The appeal filed by the assessee was allowed, and the initiation of reassessment proceedings u/s 147 and issuance of notice u/s 148, along with all consequent proceedings and orders, were quashed. The grounds on merits were not adjudicated as they became academic. The order was pronounced on 13.03.2023.