Re-opening of the assessment could not be exercised on mere verification of the claim: ITAT Delhi
ITAT, Delhi: The reasons to believe for reassessment u/s 147 of the IT Act, that income chargeable to tax has escaped Assessment must be on correct facts. Further, for a mere verification of the claim, the power of re-opening of the assessment could not be exercised.
- Assessee is an individual who is stated to be having income from business, house property, capital gains and other sources.
- Assessee had filed his original return of income for A.Y. 2011-12 on 27.08.2011 declaring loss of Rs. 8,27,977/-. Subsequently, the AO has noted in the assessment order that information was received from the office of ADIT (Inv.), New Delhi about assessee having rental income from various properties and the income from such properties was not disclosed by the Assessee.
- Accordingly, notice u/s 148 of the Act was issued to the Assessee on 29.03.2018 wherein the assessee was inter alia asked to file the return of income. In response to the aforesaid notice, assessee filed the return of income on 22.10.2018 declaring Nil taxable income.
- Thereafter, the case of the assessee was taken up for scrutiny and consequently, the assessment was framed u/s 147 r.w.s 143(3) of the Act vide order dated 27.12.2018 and the total income was determined at Rs.20,77,592/- on account of deemed rental income and after adjusting the loss of Rs.8,27,977/- , the total taxable income was determined at Rs.12,49,610/-.
- Aggrieved by the order of AO, assessee carried the matter before CIT(A) who vide order dated 28.06.2019 in Appeal No.230/18-19 granted partial relief to the assessee.
- Aggrieved by the order of CIT(A), assessee is now in appeal.
Issues raised before the Tribunal:
- The addition by AO and confirmation by CIT[A] are incorrect and against the provision of section 22/23(1)(a) which is without any basis or cogent evidence, therefore addition of Rs.400000/- and Rs.1440000/- sustained ,deserves to be deleted.
- The reopening by AO and further assessment was not in line with apex court , therefore, assessment be annulled.
Observations and Findings:
- The assessee is challenging the assumption of jurisdiction for reopening the assessment u/s 147/148 of Act and also challenging on merits the addition made.
- The law on reopening of an assessment under the Act, is fairly settled. It is only on the AO strictly satisfying the provisions of Section 147 of the Act that he acquires jurisdiction to re-open an assessment.
- As per section 147 of the Act, the AO can reopen an assessment on satisfaction of the following:
- The AO must have reason to believe that
- Income chargeable to tax has escaped the assessment and
- In cases where the assessment sought to be reopened is beyond the period of four years from the end of the relevant assessment year, then an additional condition is to be satisfied viz: there must be failure on the part of the Assessee to fully and truly disclose all material facts necessary for assessment.
- In present case the reopening of assessment is beyond the period of four years from the end of relevant assessment year. Therefore, no action for initiation of reassessment proceedings for A.Y. 2011-12 could have been taken unless the AO had reason to believe that income chargeable to tax had escaped the assessment for a reason of failure on the part of assessee to disclose fully and truly all material facts necessary for assessment.
- It is a settled law that the reasons which are recorded by the Assessing officer for reopening an assessment are the only reasons which can be considered when the formation of the belief is impugned and that the reasons which are recorded by the A.O. for reopening the assessment are the only reasons which can be considered and no substitution or deletion is permissible.
- From the record of the case it is seen that there is not even an allegation that there was any failure on the part of the assessee to disclose any material facts which lead to any income chargeable to tax had escaped the assessment.
- Further, even on the reading of the reasons recorded, it cannot be said that it suggests about any failure on the part of the assessee to disclose truly and fully all material facts necessary for assessment.
- It is shown from the record of the case that the first allegation, namely not disclosing the deemed rental income from the 4 properties is concerned, the properties from which the AO wants to tax the deemed rental income does not belong to the assessee.
- It is a settled position that even where an assessment has been only processed under Section 143(1) of the Act, the reopening notice must satisfy the test of having reason to believe that the income chargeable to tax has escaped assessment.
- Mere receipt of information from any source would not by itself tantamount to reason to believe that income chargeable to tax has escaped assessment. When the property does not belong to the assessee, the question of taxing the deemed rental income does not arise.
- The AO prima facie has not done the bare necessary enquiry into the material received before he concluded that income chargeable to tax has escaped assessment.
- In the case of Ankita A. Choksey vs. ITO  411 ITR 207 (Bom) has held that the reasons to believe that income chargeable to tax has escaped Assessment must be on correct facts.
- The second allegation, namely the verification of source of commodity transactions and its income is concerned, I find that as per the reasons recorded, the AO wants to verify it.
- In view of the settled position of law that for a mere verification of the claim, the power of reopening of assessment cannot be exercised.
- Hon’ble Gujarat High Court in the case of Inductotherm (India) P. Ltd. Vs. M. Gopalan, reported in 2013 356 ITR 481 has held that for a mere verification of the claim, the power of re-opening of the assessment could not be exercised and it further held that AO under the guise of power to re-open the assessment cannot seek to undertake an undertaking a fishing or roving inquiry or seek to verify the claim as if he is the scrutiny officer.
- In the present case, the reading of the reasons for re-opening of the assessment, it is seen that the notice has been issued and reassessment has been sought for verification of the cash and cheque transactions in the bank account of the assessee.
In the present case, notice for re-opening of the assessment u/s 147 of the Act is not as per the mandate of Sec.147 of the Act and therefore the re-opening is not permissible. In view of the aforesaid, the Tribunal held that the notice issued for reopening has to be set aside and the same decision made.
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