Reasons recorded for reopening without quantifying amount escaped. Notice u/s 148 held null and void ab-initio

Reasons recorded for reopening without quantifying amount escaped. Notice issued u/s 148 and reassessment proceedings held null and void ab-initio.  

ABCAUS Case Law Citation:
ABCAUS 2395 (2018) 07 ITAT

The instant appeal had been filed by the assessee challenging the order of the Commissioner of Income Tax (Appeals) in upholding the initiation of proceedings u/s 148 of the Income Tax Act 1961 (the Act) when it was contented by the assessee that the ‘Reasons recorded’ were No ‘Reasons’ in the eyes of Law.

The Assessing officer (AO) on the basis of the information received came to know that the assessee had sold a property for a consideration less than the value adopted for stamp duty purposes. The AO in the reasons recorded stated that taking into the value according to section 50C of the Act, taking its purchase cost, the net capital gain does arise above the taxable limit prevailing in the year in question. He further recorded that the assessee had not filed its return for the year under consideration therefore the income as a result of capital gains resulted into escarpment of assessment.

Accordingly notice u/s 148 of the Act was issued to the assessee.

The assessee took objections to the reassessment proceedings before the AO and stated that the resons recorded did not specify the quantum of income. It was submitted that the ‘Reasons’ recorded were no ‘reasons’ in the eyes of law and the proceedings were initiated for verification based on pure suspicion and surmises. It was also mentioned that as apparent from the reasons recorded, no sanction had been sought from the Joint Commissioner.

However the AO disposed off the objections by rejecting them as not tenable.

The assessee challenged the initiation of proceedings u/s 148 of the Act before CIT(A). The CIT-A held that he assessing officer is required to form a prima facie reasonable belief that there was income that has escaped assessment. The assessing officer need not prove that there was escapement of income at that point of time. The adequacy or sufficiency of reasons could not be gone into at the time of reopening of assessment. Accordingly he dismissed the appeal.

Eventually the assessement was completed by the AO by making addition to the income returned.

Before the Tribunal, the assessee contended that the purported reasons were no reasons in the eyes of law in the light of the fact that no amount of escapement was quantified in the so called reasons recorded, and as such, the reopening was bad in law in view of the binding decision of the Hon’ble jurisdictional High Court.

It was contended that during the course of assessment proceedings before the AO, it was specifically submitted before the AO that the alleged escapement of income had been presumed without having any idea about the purchase cost, or the year in which purchase was made and without which, no working of capital gain could have been arrived at by any person of ordinary prudence and reasonable intelligence and, therefore, no allegation can be made that sale of property resulted into capital gain, which capital gain, whether it was long term or short term and which represents income that had escaped assessment.

It was contended that while recording the reasons, the AO had only mentioned the sale consideration as mentioned in the sale deed along with deemed consideration under section 50-C of the Act; that however, in the reasons recorded, nowhere the amount of escapement was quantified and it was also not mentioned that the escapement was of more than Rs.1,00,000/-; that besides non quantification of income, the assessee had wrongly been stated as having not filed income tax return, leading to presumption of escapement on wrong assumption of facts and total non-application of mind.

The Tribunal observed that the assessee’s contention regarding having filed the return of income was correct.

The ITAT opined that the very basis leading to the issuance of the notice was shown to be wrong before the AO, as in its first communication made in compliance to the notice issued under section 148. The assessee intimated the AO that the return stood filed and also enclosed copy of the acknowledgment of the return originally filed, in which, long term capital gain was declared. This specific objection raised by the appellant was not rebutted by the AO. The objection regarding computation of income having not been filed with the return of income, this objection nowhere arises from the reasons recorded. The reasons recorded, as trite law, are to be read as they are, they cannot be improved upon. Further, as per the reasons, the AO had taken the entire sale consideration as income escaping assessment and there was no quantification.

The Tribunal noted that section 149(1)(b) of the Act states that no notice u/s 148 shall be issued for the relevant assessment year, if four years, but not more than six years, have elapsed from the end of the relevant assessment year, unless the income chargeable to tax which has escaped assessment amounts to, or is likely to amount to, Rs. 1 lacs or more for that year. Thus, the requirement of section 149(1)(b) of the Act clearly is that notice u/s 148 of the Act can only be issued if the income escaping assessment amounts to, or is likely to amount to Rs. 1 lacs. However, in the reasons recorded there was no mention that income amounting to Rs. 1 lacs or more was believed to have escaped assessment.

The Tribunal opined that it is well settled that the reasons recorded are to be considered ipso facto, as they are, without supplementing them, without bolstering them.

It was observed that the Hon’ble jurisdictional High Court had held that on a true and proper construction of the proviso it is imperative that the Assessing Officer in his reason should state that the escaped income is likely to be Rs. 1 Lakh or more so that the Chief Commissioner or the Commissioner may record his satisfaction. The sanctioning authority must be aware that it has exercised power of extended period of limitation under 149 (1) (b) of the Act. Exception has been carved out by clause (b) to section 149(1) in respect the income chargeable to tax which has escaped assessment, amounts to Rs.1 Lakh or more. To fall within exception clause the relevant facts should have been recorded by the Assessing Authority in its order while recording the reason so that a sanctioning authority may apply its mind to the proposition while granting the sanction.

The Tribunal opined that the ratio decidendi of the decisions of the Hon’ble Jurisdictional High Court evidently was that in the absence of anything in the reasons recorded to suggest that the income chargeable to tax which has escaped assessment is one lacs rupees or more, the notice issued u/s 148 of the Act beyond four years of the end of the relevant assessment year, is invalid.

Accordingly, the ground raised by the assessee accepted as justified and the notice issued u/s 148 of the Act and all proceedings pursuant thereto, including the order under appeal were held to be null & void ab-initio.

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