Forming Opinion on assumption of incorrect facts that income has escaped assessment bad in Law

Forming Opinion on assumption of incorrect facts that income has escaped assessment. Reopening quashed as AO did not verify AIR information before taking any action against the assessee

ABCAUS Case Law Citation:
ABCAUS 2505 (2018) 09 ITAT

The instant appeal was filed by the appellant assessee against the Order of the CIT(A), challenging the initiation of reassessment proceedings under section 147 of the Income tax Act, 1961 (the Act) and consequent addition on account of short term capital gains.

reasons to believe

The Tribunal observed from the “reasons to believe” recorded that the AO had not mentioned PAN of the assessee and had noted that as per AIR information, the assessee had sold immovable property.However, the AO in the reasons, mentioned incorrect amount of consideration which was the total of the actual sale consideration and the value as per Circle rate.

Further, the AO in the reasons mentioned that assessee had not filed income tax return and capital gain had not been shown. The assessee had however, filed the return of income. Therefore, AO again incorrectly reported in the reasons that assessee had not filed return of income.

The assessee had further explained that property was situated at 13 KM away from Nagar Palika Parishad which was supported by Certificate issued by Tehsildar. The AO however, did not bring any evidence on record to show that property falls within 8 KM from the Municipal limit of Palika Parishad.

Thus the Tribunal opined that the AO recorded non existing and incorrect reasons in the reasons for reopening of the assessment.

Further, the AO noted in the reasons that inquiry letter were issued to the assessee against which no reply have been filed. The AO did not explain as to under which provision of law, he had issued the letter to the assessee to seek explanation of assessee when no return for assessment year under appeal was legally pending for assessment before AO.

Thus, the Tribunal opined that as appeared, the AO merely in absence of any reply from the assessee and on assumption of incorrect facts, formed his opinion that income chargeable to tax has escaped assessment.

The Tribunal observed that the AO did not verify the AIR information before taking any action against the assessee because the assessee did not sold the property for the total sale consideration as noted in the reasons. It was the case of non-application of mind by the AO to the AIR information and that the AO recorded incorrect facts in the reasons for reopening of the assessment.

The Tribunal was of the view that since the AO did not apply his independent mind to the AIR, information received which was also incorrect, therefore, the very basic requirement for reopening of the assessment was not satisfied. In the instant case, the crucial link between the information made available to the AO and the formation of belief was absent.

The Tribunal opined that the “reasons to believe” recorded were incorrect and mere conclusion of the AO based on incorrect and non-existing facts. There were no basis to record reasons for reopening of the assessment. The reasons recorded failed to demonstrate the link between the tangible material and the formation of the reason to believe that income chargeable to tax has escaped assessment. The AO had not independently considered and verified the AIR information which formed the basis for the reasons to believe that income chargeable to tax has escaped assessment. Therefore, on this reason alone, the reopening of the assessment was illegal and bad in law.

The Tribunal held that the initiation of re-assessment proceedings was bad and illegal and without any basis. Accordingly, it set aside the orders of the authorities below and quashed the reopening of the assessment under section 147/148 of the Act.

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