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.
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