ITAT Upholds Reopening of Assessment, Emphasizes AO's Duty to Ascertain Facts

The ITAT upheld the reopening of assessment despite irregularities, emphasizing the AO's duty to ascertain true facts. Regarding property income, evidence showed the property solely belonged to one partner post-dissolution, supported by documentation. The ITAT criticized the Department for relying on hostile partners' information without allowing the affected partner to respond, violating natural justice principles. It ruled no firm income arose from the property, citing legal precedents and relevant case law. The CIT(A)'s decision was set aside, and the appeals were accepted in favor of the assessee.

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Issues:
Reopening of assessment and status of property income.

Reopening of Assessment:
The appeals involved identical questions of law and fact for the assessment years 1997-98 to 1999-2000. The firm, M/s G. Veeranna & Co., did not engage in business activities from 31st March 1992 onwards, leading to non-filing of income tax returns. The AO issued notices under section 148 of the IT Act, 1961, to one partner only. The assessment was completed ex parte, treating rent received from a residential property as notional income. The first issue raised was the alleged wrongful reopening of assessment, contending that the partnership was dissolved and the property belonged solely to one partner. The ITAT found no fault in the reopening, despite irregularities, emphasizing the need for the AO to ascertain the true facts.

Status of Property Income:
The second issue focused on the assessment of property income in the firm's name post-dissolution. Evidence indicated that the property exclusively belonged to one partner, supported by lease agreements, property ownership records, and tax documents. The ITAT observed a hostile relationship between partners, leading to an attempt to discredit one partner. The Department relied on information from hostile partners without allowing the affected partner to refute the claims, violating principles of natural justice. The ITAT ruled that no firm income arose from the property and criticized the Department's failure to consider crucial evidence and rectification requests. The judgment cited legal precedents and supported the decision with relevant case law, ultimately setting aside the CIT(A)'s order and accepting the appeals in favor of the assessee.

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