2024 (11) TMI 960 - AT - Income Tax

AO cannot reopen assessment under section 147 solely for verification purposes without reason to believe income escaped

Vijaya Vinod Duragkar Versus Income Tax Officer Ward–4 (4), Nagpur

ITAT Nagpur quashed the reopening of assessment under section 147, holding that reassessment cannot be done solely for verification purposes. The AO had ... Reopening of assessment u/s 147 - Reason to believe or review/verification - case reopened purpose of verification of the source of purchase of the property - HELD THAT:- It is now well settled that no re–assessment can be done just to make an enquiry or verification and in support of this, we rely on Chapter–VI of the publication issued by the All India Federation of Tax Practitioners viz. Re–assessment Law, Procedure & Practice (Practical Guide) on the issue of “No Re–assessment Just To Make An Enquiry or Verification”. Hon’ble Bombay High Court in Nivi Trading Ltd. v/s Union of India [2015 (4) TMI 411 - BOMBAY HIGH COURT] has categorically held that the re–assessment under section 147 of the Act cannot be done solely for the purpose of verification. Re–opening was done only for the purpose of verification of the source of investment in the property, which is also evident from the reasons so recorded by the AO and also reproduced herein above. Relying upon the aforesaid judicial propositions, which categorically held that the re–opening cannot be done for verification, therefore, we hold that re–opening of assessment is invalid and accordingly the consequent assessment also becomes invalid, unjustified and bad–in–law. Accordingly, the re–opening of assessment by the AO and confirmed by the CIT(A) is hereby quashed for the reasons stated herein above. Since the re–opening itself is quashed, the corresponding assessment order does not survive as well. Thus, the assessee succeeds in ground no.1. Issues Involved:1. Legality of the reopening of the assessment under Section 148 of the Income Tax Act.2. Addition under Section 69 for unexplained investment in property.3. Addition under Section 56(2)(vii)(b) concerning the stamp duty valuation of the property.Detailed Analysis:1. Legality of the Reopening of the Assessment:The primary issue was whether the reopening of the assessment under Section 148 was valid. The assessee contended that the reopening was solely for verification purposes, which is impermissible under law. The assessee argued that the reasons recorded for reopening were primarily to verify the source of investment in the immovable property, which does not constitute a valid reason to believe that income had escaped assessment. The Tribunal referred to several judicial precedents, notably the Bombay High Court's decision in *Nivi Trading Ltd. v. Union of India*, which held that reopening cannot be done solely for verification purposes. The Tribunal concluded that the reopening was invalid as it was based on a need for verification rather than a substantive belief of income escaping assessment. Consequently, the reopening and the subsequent assessment were quashed as invalid and bad-in-law.2. Addition under Section 69 for Unexplained Investment:The assessee challenged the addition of Rs. 97,53,600 under Section 69, arguing that the source of investment was explained and accepted in the assessment of her co-owner husband. The CIT(A) upheld the Assessing Officer's decision, noting that the assessee failed to furnish explanations or evidence regarding the source of investment during the assessment proceedings. The CIT(A) emphasized that the assessee's declared income did not justify the investment made. Despite the assessee's appeal, the Tribunal did not delve into this issue's merits due to the quashing of the reopening.3. Addition under Section 56(2)(vii)(b) Concerning Stamp Duty Valuation:The assessee contested the addition under Section 56(2)(vii)(b), which was based on the difference between the stamp duty valuation and the actual purchase price of the property. The CIT(A) found no reason to interfere with the Assessing Officer's decision, as the assessee did not object to the valuation adopted by the Stamp Valuation Authority. The CIT(A) held that the provisions of Section 56(2)(vii)(b) were applicable, and the addition was justified. However, since the Tribunal quashed the reopening of the assessment, this issue was rendered academic and was not adjudicated further.Conclusion:The Tribunal's decision primarily hinged on the invalidity of the reopening of the assessment. By determining that the reopening was done solely for verification purposes, which is not permissible, the Tribunal quashed the entire assessment process. Consequently, the other grounds raised by the assessee were deemed academic and were not addressed. The appeal was partly allowed, favoring the assessee concerning the reopening issue.