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Income Tax Appellate Tribunal, “C” BENCH, AHMEDABAD
Before: SHRI PRADIP KUMAR KEDIA & SHRI MAHAVIR PRASAD
PER PRADIP KUMAR KEDIA - AM:
The captioned appeal has been filed at the instance of the assessee against the order of the Commissioner of Income Tax (Appeals), Gandhinagar (‘CIT(A)’ in short), dated 10.09.2018 arising in the assessment order dated 26.02.2016 passed by the Assessing Officer (AO) under S. 143(3) r.w.s. 147 of the Income Tax Act, 1961 (the Act) concerning AY 2012-13.
ITA No. 2260/Ahd/18 [Chirag B. Masani vs. DC IT] A.Y. 2012-13 - 2 - The ground of appeal raised by the assessee reads as under: 2.
“1. Ld. CIT(A) erred in law as well as on fact in confirming addition of Rs.27,61,307 made by A.O. on account of disallowance of cost of improvement incurred by appellant.”
The assessee has also challenged the assumption of jurisdiction under s.147 of the Act as per its additional ground of appeal which reads as under:
“2. Ld. CIT(A) erred in law as well as on fact in upholding assessment made u/s. 143(3) r.w.s. 147, which was reopened by A.O. on the basis of suspicion and for fishing inquiry.”
Since the assessee has raised legal question on the usurpation of jurisdiction by the AO to reopen the completed assessment under s.143(1) of the Act in the instance case, it would be pertinent to deal with the aforesaid question at the outset as it goes to the root of the matter. The learned AR for the assessee at the outset submitted that the AO has wrongly assumed jurisdiction for making re-assessment by issuing notice under s.148 of the Act without authority of law. The learned AR submitted that the ingredients of Section 147/148 of the Act are not fulfilled in the instance case to enable the AO to exercise jurisdiction and to proceed with re-assessment proceedings. The learned AR further submitted that the assessment has been reopened without meeting the requirement of main provision to Section 147 of the Act. The learned AR submitted that the AO was entitled to exercise jurisdiction under s.147 of the Act only upon fulfillment of the indispensible requirement of formation of ‘reason to believe’ that chargeable income has escaped assessment. It was alleged that the AO has issued notice under s.148 of the Act without meeting this basic requirement and therefore, the entire action of initiation of reopening proceedings and framing of re-assessment order is a complete non- starter nullity. Adverting to the reasons recorded by the AO (as reproduced in para 3.1 of the assessment order) under s.148(2) of the
ITA No. 2260/Ahd/18 [Chirag B. Masani vs. DC IT] A.Y. 2012-13 - 3 - Act, the learned AR submitted that AO has merely doubted the claim of costs of improvement incurred by the assessee as ‘doubtful’ which is quite distinct from the expression ‘reasons to believe’. The learned AR submitted that the doubt howsoever strong would not replace the expression ‘believe’ as held in long line of judicial precedents. The learned AR submitted that in view of mere doubt, the AO has sought to reopen the time barred assessment for making roving and fishing inquiry or investment which is not permissible in law in view of the decision of the Hon’ble Gujarat High Court in case of Krupesh Ghanshyambhai Thakkar vs. DCIT [2017] 17 taxmann.com 293 (Gujarat), Manzil Dineshkumar Shah vs. Principal CIT [2018] 95 taxmann.com 46 (Gujarat) and ITO vs. Amit K. shah [2016] 71 taxmann.com 256 (Ahmedabad – Trib.).
The learned DR for the Revenue, on the other hand, relied upon the order of the AO.
We have carefully considered the rival submissions. The assessee in the instant case has inter alia raised its grievance of jurisdictional defect i.e. validity of assumption of jurisdiction under s.147/148 of the Act.
6.1 The reasons recorded under s.148(2) of the Act giving cause for issuance of notice under s.148 of the Act is pertinent to determine the issue. Accordingly, the reasons so recorded by the AO is reproduced hereunder:
"The. information available on the records of this office that one person Shri M.I.K. Tinmizi has sold the property being agriculture land situated at Survey No. 70, Koteshwar, Ta- Gandhinagar. The assessee is the confirming party in agriculture land situated at Survey No. 70, Koteshwar, Ta- Gandhinagar. Out of total consideration of Rs. 3,00,00,000/-, an amount of Rs.2,50,00,000/- have been paid to the assessee on various dates being the confirming party. Shri Chirag B. Masani (Assessee PAN:- AHCPM7191F) has claimed cost of improvement
ITA No. 2260/Ahd/18 [Chirag B. Masani vs. DC IT] A.Y. 2012-13 - 4 - of Rs.27,61,307/- in the computation of long term capital gain. The claim of cost of improvement of assessee is doubtful Further, the assessee has also claimed exemption of Rs.50,00,000/ -from the LTCG. Therefore, I have reason to believe that the income chargeable to tax had escaped assessment to that extent, for A.Y. 2012-13, within the meaning of Section 147 of the Act. Hence, in my opinion, this is a fit case for re- opening of assessment u/s. 147 of the Income Tax Act, 1961.”
6.2 A bare perusal of the reasons recorded suggests that the AO has propelled himself to reopen the time barred assessment on the ground of doubts on the correctness of claim of cost of improvement by the assessee. Although, the AO has reiterated the statutory language implied in Section 147 of the Act that he holds ‘reasons to believe’ that chargeable income has escaped assessment, we do not find any process of reasoning for holding such belief. On the contrary, it is clearly discernable from the reasons recorded that the AO has merely expressed his doubt on the claims towards ‘cost of improvement’. It is well settled that reopening on ‘reason to doubt’ on the existing facts is wholly unsustainable in law. The reopening of a completed assessment/time barred assessment is not permissible unless essential pre-requisites of Section 147 of the Act are strongly observed. Noticeably, the Section 147 of the Act uses the expression ‘reasons to believe’ which is the bedrock for assumption of jurisdiction. The significant word in the main provisions to Section 147 of the Act is ‘belief’ and not ‘suspicion’. It is well settled that ‘reason to believe’ is not the same as ‘reason to doubt’ or ‘reason to suspect’. Difference between two steps are vital and substantial as held in Jamnadas Madhavji and Co. (1986) 162 ITR 331 (Bom.). Thus ‘reason to believe’ is of higher pedestal and requires fulfillment of strictier test. The ‘belief’ cannot be a mere pretense nor can it be a mere doubt or suspicion. The Hon’ble Supreme Court in Lakhmani Mewal Das (1976) 103 ITR 437 (SC) also underscored the fact that the words of the statute are ‘reasons to believe’ and not ‘reason to suspect’. The vague feeling or suspicion of the AO towards possible escapement
ITA No. 2260/Ahd/18 [Chirag B. Masani vs. DC IT] A.Y. 2012-13 - 5 - would not permit him to reopen a completed/ time barred assessment in defiance of the statutory requirement of substantial nature. Therefore, we see considerable force in the plea of the assessee for non-maintainability of re-assessment order passed in pursuance of a notice under s. 148 of the Act which is vitiated in law. Accordingly, the re-assessment notice under s.148 of the Act is quashed and consequently the re-assessment order appealed against is also quashed and set aside.
6.3 The additional ground raised by the assessee is accordingly allowed.
6.4 Having held that the re-assessment order passed is bad-in-law, we do not considered it necessary to look into other grounds of appeal.
In the result, appeal of the assessee is allowed.
This Order pronounced in Open Court on 30/04/2019
Sd/- Sd/- (MAHAVIR PRASAD) (PRADIP KUMAR KEDIA) ACCOUNTANT MEMBER JUDICIAL MEMBER Ahmedabad: Dated 30/04/2019 True Copy S. K. SINHA आदेश क� ��त�ल�प अ�े�षत / Copy of Order Forwarded to:- 1. राज�व / Revenue 2. आवेदक / Assessee 3. संबं�धत आयकर आयु�त / Concerned CIT 4. आयकर आयु�त- अपील / CIT (A) 5. �वभागीय ��त�न�ध, आयकर अपील�य अ�धकरण, अहमदाबाद / DR, ITAT, Ahmedabad 6. गाड� फाइल / Guard file. By order/आदेश से,
उप/सहायक पंजीकार आयकर अपील�य अ�धकरण, अहमदाबाद ।