Reasons to believe vs reasons to suspect-ITAT quashed reassessment

Reopneing-AO had to act on the basis of reasons to believe and not on reasons to suspect. ITAT quashed the reopening of the assessment.

ABCAUS Case Law Citation:

ABCAUS 2916 (2019) (05) ITAT

Important Case Laws Cited/relied upon by the parties

Aas per AIR information, assessee had sold immovable property for. Proceedings under section 148 were initiated. The A.O. issued statutory notices also. Since, there was no compliance, therefore, A.O. proceeded to pass the assessment order under section 144 of the I.T. Act, 1961 (the Act).

The AO found that the assessee had sold ancestral agricultural land and also purchased agricultural land within the prescribed period, he was entitled for deduction under section 54B to that extent.

However, on the balance capital gain assessee was liable to pay tax of long term capital gains, which had not been disclosed.

The CIT(A) confirmed the reopening of the assessment.

The assessee, in the appeal before the Tribunal, challenged the reopening of the assessment as well as addition on merits on several grounds of appeal.

The assessee pointed out that in case of co-owner, the A.O. had passed the assessment order under section 147/143(3) accepting the returned income.

It was submitted that the AO had not verified any information and did not apply the mind to the facts of the case. The entire amount of sale consideration could not be disclosing capital gains, therefore, there were no reason to believe to the A.O. to have reopened the assessment.

The Tribunal noted that the issue was covered by the Order of Coordinate Bench of ITATin which under similar circumstances, reopening of the assessment had been quashed.

The Tribunal stated that it is well settled Law that validity of reopening of the assessment shall have to be judged with reference to the reasons recorded for reopening of the assessment. In the present case, the A.O. had mentioned in the reasons that assessee had sold the property. Since, no compliance was made by the assessee, the A.O, therefore, presumed that there is an escapement of income on account of long term capital gains. The A.O, therefore, recorded reasons to believe that capital gains on total sale consideration chargeable to tax has escaped assessment.

The Tribunal opined that the AO did not verify the information and even did not compute as to how much capital gain have been escaped assessment. The reasons were thus, vague and did not show any application of mind on the part of the A.O.

The Tribunal pointed out that the AO in the case of the co-owner of the same property had accepted the long term capital gains on a lower amount on the same set of facts. It would show that AO did not verify the information as to how much capital gains has escaped assessment.

The Tribunal opined that the AO, therefore, acted only on the basis of suspicion and it could not be said that it was based on belief that income chargeable to tax had escaped assessment. The AO had to act on the basis of the reasons to believe and not on reasons to suspect.

Following the decision of the coordinate bench, the Tribunal set aside the Orders of the authorities below and quashed the reopening of the assessment.

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