TaxTMI 
TaxTMI 
2013 (8) TMI 411
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....of Rs.6,82,757/- u/s. 40A(3) of the IT Act. The assessee challenged the initiation of re-assessment proceedings and above addition before the ld. CIT(A) and it was submitted that the AO formed an opinion on the basis of the impounded papers that the assessee was a colonizer during the year under consideration and the purchases were for business. However, no efforts were made to find out by the AO whether the purchase of land considered have been claimed as expenditure in order to invoke the provisions of section 40A(3) of the IT Act. The Bunch marked as X-6 impounded during the course of survey contained the details of all land holdings of the assessee and other associates, which are recorded in the books of account and lands were purchased from various owners/sellers (details of same are filed at page 44 of the paper book). It was submitted that lands were purchased initially for construction of Mall Complex for letting and was held as investment, however, the same was not advised to be economically feasible and as such, later on, same were converted into stock in trade in the name of M/s. Kailash Enclave in the subsequent year. The land was purchased for expansion of Kailash Ston....
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....e belief maintained by the ITO must not be arbitrary or irrational. It must be reasonable or in other words it must be based on the reasons which are relevant or material. He has submitted that there was no material before the AO to prove that the assessee was colonizer or the dealer in real estate in the assessment year under appeal. Therefore, the reassessment proceedings are without jurisdiction and addition on merits should also be deleted. On the other hand, the ld. DR relied upon the orders of the authorities below and submitted that the AO has reason to believe that income chargeable to tax has escaped assessment on account of violation of the provisions of section 40A(3) of the IT Act. Therefore, re-assessment proceedings are valid and addition on merits has been correctly made. 4. We have considered the rival submissions and the material available on record. Section 147 of the IT Act provides as under : "147. If the Assessing Officer has reason to believe that any income chargeable to tax has escaped assessment for any assessment year, he may, subject to the provisions of sections 148 to 153, assess or reassess such income and also any other income chargeable to tax ....
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....has claimed excessive loss, deduction, allowance or relief in the return ; (ba) where the assessee has failed to furnish a report in respect of any international transaction which he was so required under section 92E; (c) where an assessment has been made, but-- (i) income chargeable to tax has been underassessed ; or (ii) such income has been assessed at too low a rate ; or (iii) such income has been made the subject of excessive relief under this Act ; or (iv) excessive loss or depreciation allowance or any other allowance under this Act has been computed; (d) where a person is found to have any asset (including financial interest in any entity located outside India. Explanation 3.--For the purpose of assessment or reassessment under this section, the Assessing Officer may assess or reassess the income in respect of any issue, which has escaped assessment, and such issue comes to his notice subsequently in the course of the proceedings under this section, notwithstanding that the reasons for such issue have not been included in the reasons recorded under sub-section (2) of section 148. Explanation 4.--For the removal of doubts, it is hereby clarified that ....
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....ssessing Officer. If there are no reasons, then the entire foundation for initiating the proceedings is bad and the notice initiating proceedings must be quashed. Mere satisfaction of the Assessing Officer for the issuance of a notice is not enough, there must be reasons on record which led him to believe that a notice should be issued. After a foundation based on information is set up, there must still be some reasons which warrant the holding of a belief so as to necessitate the issuance of a notice under section 148 of the Income-tax Act, 1961. The assessee purchased shares and subsequently sold these shares at a much higher value. For the assessment year 1997-98, the assessees disclosed long-term capital gains arising from the transaction. On the basis of the information received by the Deputy Director (Investigation), the Assessing Officer issued notice under section 148. The files were then put up before the Commissioner and in response to the question whether the Commissioner was satisfied that income had escaped assessment, he wrote "yes". Thereafter, the Assessing Officer reassessed the income and charged interest and levied penalty. The Commissioner (appeals) allowed r....
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....f that the income chargeable to tax had escaped income. The Assessing Officer had to act on the basis of "reasons to believe" and not on "reasons to suspect". The Tribunal rightly concluded that the Assessing Officer had failed to incorporate the material and his satisfaction for reopening the assessment and therefore the issuance of notice under section 148 of the Act for reassessment proceedings was not valid." 4.5 Hon'ble Allahabad High Court in the case of Tin Manufacturing Co. of India vs. CIT, 222 ITR 323 held that in re-assessment proceedings, the burden was on the Revenue to establish that there was income which escaped assessment. 5. Considering the facts of the case in the light of above decisions, we are of the view that initiation of re-assessment proceedings in the facts and circumstances of the case are bad in law and the AO has without jurisdiction wrongly proceeded against the assessee u/s. 147 of the IT Act. The assessee filed return of income declaring total income of Rs.11,35,776/- which was accepted by the AO while computing income of the assessee. Copy of return is filed at page 17 of the paper book, in which above income was declared by the assessee from....