2024 (12) TMI 252 - AT - Income Tax

AO validly issued notice under section 148 based on tangible material showing investment exceeding declared income but addition under section 69 deleted after adequate explanation

Gajendra Pal Sharma C/o Kashyap & Co. Versus The Income-tax Officer Ward – 1 (2), Ghaziabad

ITAT Delhi held that the AO validly formed reason to believe (not mere suspicion) for issuing notice u/s 148 based on tangible material showing assessee's ... Validity of the notice issued u/s 148 - ‘reason to believe’ - valid approval granted u/s 151(2) or not? - HELD THAT:- We agree with the revenue contention that the AO formed a ‘reason to believe’ and not ‘reason to suspect’. AO had verified information in his possession that the assessee had made investment in the said property. Besides, the AO had in front of him the ITR of the assessee showing meager income not commensurate with the investment made. Following the principal of natural justice, the AO gave the opportunity to the assessee to explain the investment before taking recourse to section 148. In absence of any explanation in response to the notice u/s 133(6), in respect of investment, the AO formed a ‘reason to believe’ and reopened the assessment u/s 148. It does not lie in the mouth of the assessee now to say that the AO should have verified from the AO of the wife of the assessee whose name/PAN featured in the purchase deed when he himself failed to avail the opportunity to explain the entire transaction. There was sufficient tangible material on record which justifies the prima facie belief of the AO regarding the escapement of taxable income. The facts noted above clearly demonstrate that the AO indeed had tangible material having a live link to the “reasons to believe” for arriving at a prima facie opinion that the income has escaped assessment. We find that the PCIT has recorded her satisfaction after clearly applying her mind on the reasons recorded by the AO before giving approval. The approval, reproduced as above, amply demonstrate that the PCIT has examined the reasons recorded by the AO, agreed and was satisfied with the views of the AO for issuance of notice u/s 148. We therefore hold that the approval u/s 151(2) was not granted mechanically but was accorded after careful thought. We are of considered view that the approval u/s 151(2) was properly granted, and there was reason to believe on the basis of prima facie tangible materials on record leading to the conclusion that the assumption of jurisdiction by the AO u/s 148 is valid and legally permissible. Accordingly, the Ground No. 1 is dismissed. Addition u/s 69 - Assessee has duly explained the source of his share of the investment made in the property purchased. As far as the veracity of unsecured loan taken by the wife of the assessee and amount received on account of jewellery is concerned the same may be decided at appropriate time in appropriate case as the neither the AO nor the CIT(A) has examined/ adjudicated on this issue. We therefore direct the AO to delete the addition on account of unexplained investment made u/s 69. Issues Involved:1. Validity of the notice issued under Section 148 of the Income Tax Act.2. Justification for the addition of Rs. 70,95,000/- under Section 69 by the Assessing Officer.3. Alleged mechanical approval by the Principal Commissioner of Income Tax (PCIT) under Section 151(2).Issue-wise Detailed Analysis:1. Validity of the Notice under Section 148:The primary contention was the issuance of the notice under Section 148 based solely on AIR information without tangible material. The assessee argued that the Assessing Officer (AO) lacked proper grounds to form a 'reason to believe' that income had escaped assessment, asserting that the AO's actions were based on incorrect facts and mechanical approval by the PCIT.The tribunal examined the reasons recorded by the AO for reopening the assessment. It was noted that the AO had AIR information regarding the purchase of immovable property, which was not commensurate with the income declared by the assessee. The AO issued a notice under Section 133(6) to verify the transaction, which remained uncomplied with by the assessee. The tribunal found that the AO had tangible material in the form of AIR information and the ITR of the assessee, which justified the reopening of the assessment. The tribunal concluded that the AO had a 'reason to believe' and not merely a 'reason to suspect', thus validating the issuance of the notice under Section 148.2. Justification for the Addition under Section 69:The AO initially added Rs. 70,95,000/- as unexplained investment under Section 69, which was later restricted to Rs. 41,47,382/- by the CIT(A). The assessee argued that the investment in the property was made jointly with his wife and that his share was only 50% of the total investment. The assessee provided evidence of various sources of funds, including a housing loan, sale proceeds from land and jewelry, unsecured loans, and savings.The tribunal reviewed the evidence provided by the assessee, including bank statements and loan confirmations. It was found that the assessee had adequately explained the source of his share of the investment. The tribunal noted that the AO and CIT(A) had not fully considered the evidence regarding the unsecured loans taken by the wife. Consequently, the tribunal directed the AO to delete the addition of Rs. 41,47,382/- on account of unexplained investment, allowing this ground in favor of the assessee.3. Alleged Mechanical Approval by the PCIT:The assessee contended that the PCIT's approval under Section 151(2) was mechanical, merely appending 'I am satisfied' without proper application of mind. The tribunal examined the approval process and found that the PCIT had indeed applied her mind to the reasons recorded by the AO before granting approval. The tribunal distinguished the present case from others cited by the assessee, where approvals were found to be mechanical. It concluded that the approval was not ritualistic but was accorded after careful consideration, thus upholding the validity of the approval process.Conclusion:The tribunal dismissed the ground challenging the jurisdiction under Section 148, upholding the validity of the notice. However, it allowed the appeal concerning the addition under Section 69, directing the deletion of Rs. 41,47,382/-. The tribunal also upheld the PCIT's approval process, finding it to be valid and not mechanical. The appeal was partly allowed in favor of the assessee.