Reopening proceedings under Section 147 invalid where AO taxed partnership firm transactions in individual's hands without proper verification

ITAT Mumbai held that reopening proceedings u/s 147 r.w.s. 148 were invalid where AO taxed property sale transactions in individual assessee's hands despite evidence showing transactions were between two partnership firms. AO ignored partnership deed, PAN details, and developer agreement filed during assessment proceedings. The tribunal ruled that since sale deed was between partnership firms and not involving assessee individually, AO should have issued notice to partnership firm instead. Reasons recorded by AO were based on incorrect assumptions from ITS records without proper verification. Entire proceedings u/s 148 were quashed as invalid and assessee's appeal was allowed.

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Issues Involved:
1. Validity of reopening u/s. 147 r.w.s. 148.
2. Addition of Rs. 4,07,20,000/- as income from business by treating sale consideration of property.
3. Addition on account of deposits made in the bank account aggregating to Rs. 49,85,200/-.

Summary:

Validity of Reopening u/s. 147 r.w.s. 148:
The assessee challenged the reopening of the assessment under sections 147 and 148. The AO based the reopening on information from the Non Filers Monitoring System (NMS) indicating the assessee's involvement in a transaction of sale of immovable property valued at Rs. 4,07,20,000/- during FY 2010-11, which was not disclosed. The AO issued a notice u/s. 148 on 26/03/2018. The assessee objected, stating he neither sold nor purchased any property during the relevant year and that the transaction pertained to the transfer of development rights by a partnership firm, M/s. Sai Developers, where he was a partner. The AO rejected the objections, maintaining that the transaction was not disclosed by the firm and thus attributed it to the assessee individually. The Tribunal found that the AO proceeded based on incorrect assumptions and did not consider the documents provided by the assessee, such as the partnership deed and the sale agreement. The Tribunal held the reopening invalid as the reasons recorded did not give jurisdiction to the AO to issue notice u/s. 148.

Addition of Rs. 4,07,20,000/- as Income from Business:
The AO treated the sale consideration of Rs. 4,07,20,000/- as 'income from business and profession' due to the lack of documentary evidence showing the transaction was disclosed by the partnership firm. The Tribunal noted that the transaction was between two partnership firms and not in the individual capacity of the assessee. The AO's action of taxing the entire transaction value in the hands of the assessee was found to be incorrect, as the transaction pertained to the firm, and the AO should have proceeded against the firm instead.

Addition on Account of Deposits Aggregating to Rs. 49,85,200/-:
The AO also made an addition of Rs. 49,85,200/- as 'undisclosed income' based on receipts appearing in the assessee's bank account. The Tribunal did not provide specific details on this issue but quashed the entire assessment order due to the invalidity of the reopening.

Conclusion:
The Tribunal quashed the entire proceedings under section 148, holding the assessment order invalid. Consequently, the appeal of the assessee was allowed.

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