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May 25, 2022

In law, starting a reassessment based on a false assumption of facts is unethical.

by CA Shivam Jaiswal in Income Tax

In law, starting a reassessment based on a false assumption of facts is unethical.

Facts and Issue of the case

The cross appeal is filed by the assessee  and revenue against the order of the CIT(A)-32, Mumbai passed u/s 143(3) r.w.s 147 and 250 of the Act.

In ITA No.2797/Mum/2016 the assessee has challenged the validity of reassessment proceedings, being   the  legal &  jurisdictional issue. The  assessee has raised the following grounds of appeal.

  • The orders passed by the  learned lower  authorities are bad in law and bad in facts.
  • The notice  issued  u/s  148  of  the   I.T.Act,1961,  by the learned Assessing  Officer and  upheld by the learned CIT(A) is ab-initio void, inasmuch as, no material having live link with  the  formation  of  belief, was available on record, prior to issue of impugned notice. Consequently the assessment order passed in pursuance of aforesaid notice is also void ab-initio.
  • The learned lower authorities have grossly erred in construing the general observation  of the Honble Income Tax Appellate Tribunal  in  another  assessees case as  findings or  directions, though there  was  neither a finding nor  a  direction given  by  the  Honble Tribunal in the appellate order of another assessee.
  • The assessment order passed by the learned Assessing Officer by recourse to sec  147  r.w.s 150  of the l.T.Act,1961 and upheld by the learned CIT(A) is ab-initio void , inasmuch as, no opportunity of being heard, in terms of Explanation 3 below section 153 of the I.T.Act,1961 was granted.
  • The notice issued under section  148  is  void  ab- initio, inasmuch as no satisfaction  of  the   Jt  CIT   in terms of sec 151(2) of the  I.T.Act,1961,  was  obtained prior to issue of notice u/s 148 of the I. T. Act, 1961.
  • The Learned lower authorities have grossly erred in holding that the status of the appellant was that of an ” Association of Persons instead of Joint  Owners’ of separately and  distinctly identifiable properties, and have further erred in framing the impugned assessment order.
  • The learned lower authorities have grossly erred in making! upholding an addition of Rs 13,39,433/- in the hands of the appellant,  inasmuch  as  ,  the  appellant was neither a legal owner nor a beneficial owner of the leased properties. The reasons assigned for the impugned additions are wrong and contrary to accepted factual position.
  • The learned lower authorities have grossly erred in making/  upholding an   addition   of   Rs   25.00.015/-   in the hands of the  appellant even  though  the  learned CIT(A), has categorically held that the appellant  was neither a legal owner nor a beneficial owner  of  the leasehold  property. Thus  any   income   accruing   or arising  in  relation  to  said  properties  could  not  have been taxed in the hands of the appellant.

The assessee is assessed as AOP. The Assessing officer(A.O) has received the information  from  ITO-6(1)(4),  Mumbai, that the Hon’ble ITAT  in  the  case  of M/s  Industrial Estate Pvt Ltd has passed the order for A.Y 2005-06, 2006-07 & 2007-08 and upheld  the  CIT(A)  decision and dismissed the revenue appeal. The A.O. is of the opinion that, as per the observations of the ITAT, the addition in the hands of M/s Industrial Estate Pvt Ltd is  deleted and is   taxable in  the hands of   joint lessees of Industrial Estates(assessee). Whereas, in the assessment of Industrial Estate Pvt Ltd for the A.Y 2007-08, the A.O. has held the given incomes belong to the assessee and not to the joint lessees.

The Hon’ble ITAT has deleted the additions in the hands of the  company  treating  the  same  as  income  of the  joint  lessee  of Industrial  Estate(assessee)  who have  filed  the  return  of  income  for  the A.Y  2008-09 and  2009-10  in  the  status  of  AOP. The  A.O.  find  that the assessee  for the A.Y  2007-08  has  not  filed  the return of  income  and  the A.O.  has  reason  to  believe that there is a income  escaped  the assessment  and issued  the notice  u/s  148  of the Act  on 27.03.2014 after obtaining the sanction u/s 151 of the Act. Subsequently the notice u/s 143(2)  and  142(1)  of  the Act are  issued.  In  compliance  to  notice,  the  assessee has filed the return of income on 02.06.2014. Subsequently,  the Ld.  AR of the assessee   appeared from time to  time  and  submitted  the  details  as  called for  and  the case  was   discussed.   The   assessee  has filed the objections on the initiation of reassessment proceedings vide letter dated 13.02.2015 and the reply to the  objections was  provided  to  the  assessee on 18.02.2015.

The assessee is a AOP and having  income  from house property, capital gains and other sources. The assessee has submitted the details by letter dated 10.10.2014 referred at Para 4 of the order whereas, the A.O. has considered the facts  of rental income from property/other incomes and observed On the disputed issue (i) with respect to income from house property, the assessee has disclosed  the loss from house property of  Rs.  5,88,542/- in  respect of payment of land revenue tax, property tax and bad debts. Whereas, the assessee has  submitted  the details of land revenue tax and therefore the A.O has considered the deduction of land revenue tax on the house property income and assessed the income from house property  of  Rs.  3,22,080/-  as  against  the  loss of Rs. 5,88,542/- claimed by the assessee. (ii) The A.O has made an addition of long term capital gains Rs.13,30,000/- from receipt of transfer fees/ compensation of tenancy  rights  and  short  term capital gains of Rs.9,433/-  under  the head  income from capital gains.(iii) on applicability of provisions of Sec. 50C of the Act, the A.O. observed that in the assessee’s case the market value exceeded the sale consideration. The property value is less than the stamp duty value of S.R.O  disclosed  by  the  assessee and made an addition of differential value of Rs.2,91,20,000/-.(iv) the A.O. observed that  the assessee has  not  offered the    long term  capital gains on sale of property and made addition of Rs. 4,02,89,600/-.(v) the A.O. find that the assessee has received the consideration towards the improvement and up gradation of amenities along with the other income and is taxed under income from other sources Rs.  25,11,248/-.Finally the A.O.  has  assessed   the total income of Rs.11,34,85,740/- and  passed  the order 143(3) r.w.s 147 of the Act dated 31.03.2015.

Aggrieved by the order, the assessee has filed the appeal before the CIT(A) challenging the validity of reassessment proceedings  and  treat  the  assessment as illegal and void and additions made by the A.O. Whereas the CIT(A) has considered  the  facts  of  the case  referred at  page 4  of  the  CIT(A) order. Further, on the issue of validity of reassessment proceedings, the assessee has filed  the submissions,  agreements and relied on the judicial decisions. The CIT(A)  has dealt on the issue referred at Para 5  page 19  to  21  of the order and also relied on the observations of the Honble Tribunal in M/s Industrial Estates Pvt Limited and has up held the Validity of reassessment proceedings.

Whereas in respect of grounds of  appealno.3,4& 5, the CIT(A) considering the merits of case in respect of income from house property, capital gains,  income from other sources has dealt on the  facts, provisions and the judicial decisions and  granted  partial  relief and partly allowed the assessee appeal.  Aggrieved by the order of the CIT(A), the assessee  has  filed  an appeal before the Hon’ble Tribunal.

At the time of hearing, the Ld. AR  has submitted that the CIT(A) has erred in confirming the validity of reassessment proceedings. The Ld.AR  has  restricted his arguments to the  extent  of validity  of reassessment proceedings and emphasized that the A.O. based on the observations of the Honble ITAT in other assessee case and without conducting the independent enquiry of facts / opinion has  issued notice and passed the assesseement order. The Ld. AR has substantiated the arguments/  submissions  with the paper book and judicial decisions and prayed for allowing the appeal. Contra, the Ld. DR supported the order of the CIT(A) on the validity of re-assessment.

Observation of the court

Court has heard the rival submissions and perused the material on record  and  judicial  decisions. The assessee has filed  the grounds  of appeal  on legal issue of validity of assesseement  u/s  147  of  the  Act and on the merits of the case. The Ld. AR emphasized that the A.O has issued the notice based on the observations of the Honble ITAT in the case of M/s industrial estates Pvt Ltd and no independent enquiry was conducted for recording the reasons and purely relied on the findings of the  other  assessing  officer. The Ld. AR has demonstrated the reasons recorded for the reopening of assessment at page 9 of  the  paper book. The Ld. AR submitted  that  the  assessee  is  an AOP and has filed the return of income for the A.Y 2008-09 and 2009-10 in  the  status of  AOP.  Whereas for the A.Y 2007-08, the assessee has not filed  the return of income and the A.O. has issued notice u/sec148  of the Act  after  recording  the reasons based on the observations of the  Honble  Tribunal in ITO Vs. Industrial Estates Pvt Ltd in ITA No.4171,4920&4671/Mum/2009 for A.Y 2005-06, 206-07 &2007-08. 2006-07 order dated 30-08-2013 at Page 5 Para 13 to 15.          

The Ld. AR contentions are that  the A.O.  has issued notice based on the findings of the Hon’ble Tribunal in particular at Para 15 of the order. Further the   time  limit  for  issuing  notice  u/s  148  of  the   Act has to  be  considered  before  any  decision  is  taken  by the A.O.  The  Ld. AR   demonstrated  the   notice  issued u/s 148 of the Act dated 27.03.2014 at  page  8  of  the paper  book served  on 16-04-2014  and  read the specific Para on reasons recorded placed at page 9 for issuing notice.        

The Ld.AR  made  submissions  on  the  applicability of provisions and the time limit for completion of assesseement u/s 153(1) &153(3) of the Act read with explanation 2(b) of the Act, were any income is excluded from total income  of  one  person  and  held  to be the income of the other person. The A.O. has considered/formed a belief that the income which is excluded  in  the  hands  of  M/s  Industrial  Estates  Pvt Ltd has to taxed as income of the assessee. Court  on  perusal of  the  notice issued u/s 148 of  the Act find that the A.O has recorded the reasons for reopening purely based on the observations of the Tribunal. Where the Honble ITAT has deleted the addition in the hands of the appellant  before  the Tribunal.  Since  the   assessee  has   not  filed  the   return of income for the A.Y 2007-08, the A.O has reason to believe that the income has escaped assessment and issued notice u/s 148 of the Act. The  sole  crux  of  the issue was pointed  out  on the  validity  of  assessment were the notice was issued  without  independent enquiry of the information or formation  of belief available  on record.  The  Ld.AR  explained  the facts with voluminous information  in  paper book  and  relied on the judicial decisions

Court considering the facts, information and interpretation on the provisions of law, find reasonableness in the submissions of the Ld.AR duly supported with judicial decisions and  provisions  of law and the discussions held in  the  above paragraphs on the  facts with respect to  issue of  notice u/s 148 of the Act and the provisions of Sec. 153(1) and 153(3) of the Act. The Ld.AR has empathetically dealt on each aspect of provisions of Act relating  to  reassessment and duly supported with the judicial decisions and is appreciated.

Whereas in the  present case, the  A.O. has issued the notice in the  year 2014 and  the  Ld.AR has  raised one  of the objections  that  no satisfaction  of   the Jt.CIT was obtained u/sec151 of the Act  before  the issue of impugned notice and the prior sanction of appropriate authority. Since the issue pertains to A.Y 2007-08, the revenue has expressed the difficulty in providing the records/material to verify the factual aspects on sanctioning authority. Court finds that the assessee has filed the return of income for the A.Y.2007-08 in the status  of A.O.P.  with  taxable income of Rs.Nil in  compliance to  notice u/sec148 of the Act. The Ld.AR demonstrated that the income is distributed among the six Joint Lessees with the percentages referred in the  assesseement  order  and the shares are determinate and known, which is not disputed by the revenue.  Further  they  have  offered the share of income of joint lessees in their hands/assessments with the jurisdictional income authorities. We considering the  facts  and circumstances are of the opinion that the  reopening is on the wrong assumption of facts and the information received from another    assessing officer    would not by itself be the  basis to  have a  belief that the income has escaped assesseement . Accordingly, we find the reassessment is bad in law and quash the assessment order passed u/s 143(3)  r.w.s  147  of  the  Act.  Since the legal issue  is  decided  in  favour  of  the  assessee and again adjudicating on merits becomes  academic and are left open and  we  allow the  grounds of  appeal in favour of the assessee. Since the reassessment proceedings are invalid, and the Assesseement order is quashed, therefore the appeal of the revenue becomes infractious and is dismissed.

Conclusion

The appeal filed by the revenue was dismissed and the assessee appeal was allowed by the court.

Joint-Lessees-of-Industrial-Estate-Vs-ITO-ITAT-Mumbai

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