2025 (8) TMI 952 - AT - Income Tax

Reassessment under s.147 upheld for nondisclosure of immovable-property transfer; AO to verify Rs.5,00,000 cheque and s.48 deduction

Shri Puneet Singhvi Versus The ITO Ward 2 (1) Kota

Shri Puneet Singhvi Versus The ITO Ward 2 (1) Kota - [2025] 125 ITR (Trib) 378 1. ISSUES PRESENTED AND CONSIDERED 1.1 Whether the reassessment proceedings under section 147 read with section 148 were validly initiated - i.e., whether the Assessing Officer had 'reason to believe' that income had escaped assessment based on material on record. 1.2 Whether the Assessing Officer's framing of assessment under section 144 (best judgment) complied with the statutory requirements and salutary judicial principles governing best-judgment assessments. 1.3 Whether the levy of long-term capital gains (LTCG) by applying section 50C was justified where the assessee acted as a special power of attorney (POA) holder and alleged that sale consideration was received by the principals (owners), not the POA holder. 1.4 Whether the appellate order of the Commissioner (Appeals)/NFAC complied with principles of natural justice and statutory mandate under section 250(6), in view of alleged inadequate opportunity and ex parte disposal. 1.5 Whether, in light of the factual matrix and conduct of parties, the appropriate remedy was to quash the reassessment proceedings or to restore the matter to the Assessing Officer for fresh adjudication with directions. 2. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Validity of Reopening under sections 147/148: Legal framework 2.1 Legal framework: Section 147 permits reopening where the Assessing Officer has reason to believe that income chargeable to tax has escaped assessment; that belief must rest on tangible information/material and a proximate nexus between that material and the belief (Gangasharan & Sons v. ITO; Lakhmani Mewal Das). 2.2 Precedent treatment: The judgment cites and relies on authorities holding that reasons must be concrete and not mere suspicion or conjecture (Gangasharan; Lakhmani Mewal Das) and recent decisions quashing reopenings founded on erroneous factual premises (e.g., Satish Kumar Khandelwal; Ashok Commercial Enterprises; Narendra Kumar Shah; Rajhans Processors). The Court treated these precedents as instructive and supportive of the principle that reopening must be founded on verified, tangible material. 2.3 Interpretation and reasoning: The Tribunal examined the registered sale deed, POA, bank cheque evidence and the AO's reasons. The AO's recorded satisfaction rested on the fact of non-disclosure of LTCG because stamp-duty valuation (Rs. 30,56,063) exceeded declared sale consideration (Rs. 5,00,000). However, the sale deed itself and other material indicated the assessee acted as POA holder and the Rs.5,00,000 was paid to the original owners by cheque. The Tribunal observed that if the material relied upon (registered sale deed, POA, bank evidence) prima facie showed that the assessee did not receive consideration and acted only as agent, the foundational factual premise for belief in escapement vis-à-vis the assessee was weak or non-existent. 2.4 Ratio vs. Obiter: Ratio - reopening must be based on tangible material which, prima facie, indicates escapement of income in the hands of the person whose assessment is sought to be reopened; where available material contradicts the AO's factual premise, reopening is vitiated. Obiter - references to numerous High Court/ITAT rulings are explanatory and supportive but the key ratio rests on application of settled principles. 2.5 Conclusion: While the Tribunal noted the AO recorded satisfaction, it found the factual matrix raised a substantial issue as to whether any income had escaped assessment in the assessee's hands. Given admitted facts that the assessee acted as POA and that consideration was paid to owners, the reasons to believe were rooted in contestable factual premises. The Tribunal did not finally quash the reopening on merits but observed the need for adjudication on merits and restored the matter to the AO for fresh decision after providing opportunity - thereby treating the reopening as requiring further inquiry rather than affirming categorical validity. Issue 2 - Validity and conduct of assessment under section 144 (best judgment): Legal framework 3.1 Legal framework: Section 144 permits best-judgment assessment where a return is not filed or procedure not complied with; however, the AO must make an honest, fair estimate guided by justice, equity and good conscience and not act capriciously, vindictively or arbitrarily (authorities cited in commentary and case law). 3.2 Precedent treatment: The Tribunal reiterated settled judicial guidance that best-judgment assessments require 'honest guess-work' informed by local knowledge, past returns and material on record (citing classic precedents and commentary). The AO must also consider relevant documents and cannot ignore exculpatory material. 3.3 Interpretation and reasoning: The Bench observed that the AO made a section 144 addition of Rs.30,56,063 by applying section 50C without adequately reconciling documentary material (POA, cheque payment) that suggested absence of income in assessee's hands. The Tribunal emphasised that section 144 is not a license for arbitrary quantification and must conform to judicial principles of fair estimation. 3.4 Ratio vs. Obiter: Ratio - best-judgment assessment under section 144 must be a fair, reasoned estimate and cannot ignore material that negates the basis of assessment. Obiter - specific remedial directions in case of AO's non-compliance are procedural guidance. 3.5 Conclusion: The Tribunal held that the AO's exercise under section 144 required fresh consideration in light of the material indicating POA role and payment to owners; accordingly the matter was restored to the AO to decide afresh, with a direction to afford opportunity and to act in accordance with settled principles of best-judgment assessment. Issue 3 - Application of section 50C and capital gains where assessee was POA holder: Legal framework 4.1 Legal framework: Section 50C deems the stamp-duty valuation to be sale consideration for computing capital gains unless the assessee disputes ownership/sale by him; applicability depends on whether the person claiming capital gain was the owner/transferor. 4.2 Precedent treatment: The Tribunal noted decisions where transactions executed by POA holders did not attract capital gains in their hands where sale proceeds were accounted to principals or where there was no transfer/enabling enjoyment (Vishnubhai Desai; CIT v. C. Sugumaran). These authorities were treated as directly applicable illustrations. 4.3 Interpretation and reasoning: The Tribunal assessed the registered sale deed, POA terms and bank cheque showing payment to owners. It observed contested facts: sale deed showed assessee as seller with other named co-sellers but signatures of others were allegedly absent on the deed, and POA was notarised (not registered). The AO doubted the POA's effect/consideration. The Tribunal concluded that the question whether section 50C applies depends on factual determinations about ownership, effective transfer and receipt of consideration; those questions require fresh adjudication after giving the assessee an opportunity to substantiate his POA role and payments to owners. 4.4 Ratio vs. Obiter: Ratio - section 50C cannot be mechanically applied where prima facie material indicates the transfer/receipt of consideration occurred in the hands of principals and not the person assessed; fact-finding is required. Obiter - procedural observations on types of evidence to be verified. 4.5 Conclusion: The Tribunal did not finally decide the applicability of section 50C; it directed verification of the cheque payment to original owners and allowed that, if proved, deduction under section 48 in respect of Rs.5,00,000 might be permitted against the deemed value. The matter was remitted for fresh factual determination. Issue 4 - Adequacy of opportunity and compliance with section 250(6) by the Commissioner (Appeals)/NFAC: Legal framework 5.1 Legal framework: Section 250(6) requires the first appellate authority to record points for determination, decisions thereon and reasons in writing; principles of natural justice (audi alteram partem) require reasonable opportunity to be heard before ex parte disposal. 5.2 Precedent treatment: The Tribunal cited authorities establishing that the Commissioner (Appeals) is obliged to decide appeals on merits and cannot merely dismiss in limine for non-prosecution; the appellate power is co-terminus with the Assessing Officer and an appellate order must be speaking and reasoned (corporate international authority; Premkumar Luthra; other ITAT decisions followed). 5.3 Interpretation and reasoning: The Tribunal examined the notice chronology and found the appellant had not responded to several short-notice windows; however, the Tribunal emphasised that given the factual complexity and the assessee's assertions of technical/infrastructural limitations, the dispute ought to be decided on merits. Although the CIT(A) recorded limited directions (verification of Rs.5,00,000 payment), the appellate order was ex parte and arguably did not fully comply with section 250(6) requirements to decide points with reasons on merits. 5.4 Ratio vs. Obiter: Ratio - appellate authority must afford adequate opportunity and render a reasoned speaking order under section 250(6); ex parte disposal and non-application of mind to merits when material exists justifies restoration for fresh adjudication. Obiter - observations on practical difficulties with electronic notices. 5.5 Conclusion: The Tribunal restored the matter to the Assessing Officer for fresh adjudication and directed the assessee to cooperate; the appeal was allowed for statistical purposes, thereby acknowledging procedural infirmities and the need for a merits decision in conformity with section 250(6) and natural justice. Issue 5 - Remedy and final disposition: Legal framework and reasoning 6.1 Legal framework: Where factual issues crucial to validity of reassessment/assessment remain unresolved or where procedural lapses impair adjudication, the proper course is restoration to AO/CIT(A) to decide afresh after affording opportunity. 6.2 Interpretation and reasoning: Given (i) competing materials (sale deed, POA, bank cheques) bearing on whether income accrued to the assessee, (ii) concerns about AO's application of section 50C and section 144, and (iii) appellate procedure and opportunity issues, the Tribunal chose a remedial approach of restoration rather than outright quashing of assessments on merits. 6.3 Conclusion: The Tribunal restored the matter to the Assessing Officer for fresh adjudication after affording opportunity to the assessee and directed cooperation; the appellate order was set aside for statistical purposes only, with no expression on the ultimate merits, leaving the AO to decide in accordance with law.