Income Tax Appellate Tribunal

Inderjeet Kohli Vs. DCIT, Circle-38(1)

MANU/ID/0022/2022

10.01.2022

Direct Taxation

Power of reopening of the assessment cannot be exercised for solely to verify the claim

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 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 under Section 148 of the Income Tax Act, 1961 (IT Act) was issued to the Assessee wherein the assessee was asked to file the return of income. In response to the aforesaid notice, assessee filed the return of income declaring Nil taxable income.

Thereafter, the case of the assessee was taken up for scrutiny and consequently, the assessment was framed under Section 147 read with Section 143(3) of the IT Act vide order 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 granted partial relief to the assessee. Aggrieved by the order of CIT(A), assessee is now in appeal.

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. The Assessing Officer (AO) can re-open an assessment only in accordance with the express provisions provided in Section 147/148 of the Act. 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 far as the first allegation, namely not disclosing the deemed rental income from the 4 properties is concerned, it is pointed out that, 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. The reason to believe has to be arrived at after applying one's mind to the material available and to reach a prima facie view that 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. Revenue has not placed any material on record to demonstrate that the submission of the assessee of it not being the owner of the aforesaid properties is false/incorrect. In the present case 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.

The Hon'ble Bombay High Court in the case of Ankita A. Choksey vs. ITO has held that, the reasons to believe that income chargeable to tax has escaped Assessment must be on correct facts. If the facts, as recorded in the reasons are not correct and the assessee points out the same in its objections, then the order on objection must deal with it and prima facie, establish that the facts stated by it in its reasons as recorded are correct. In the absence of the order of objections dealing with the assertion of the assessee that the correct facts are not as recorded in the reason, it would be safe to draw an adverse inference against the Revenue.

As far as the second allegation, namely the verification of source of commodity transactions and its income is concerned, 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. In the present case, notice for re-opening of the assessment under Section 147 of the Act is not as per the mandate of Section 147 of the IT Act and therefore the re-opening is not permissible. The impugned re-assessment proceedings for A.Y. 2011-12 is set aside. Appeal allowed.

Tags : Assessment Notices Legality

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