ADAPA VENKATESWARULU,ONGOLE vs. ITO, WARD-1, ONGOLE

Succinctly stated, the AO, based on information gathered through the Risk Management Strategy (RMS), observed that though the assessee during the subject year had sold immovable property for a consideration of Rs.51,20,000/-, besides having made substantial cash deposits and withdrawals in his bank account, but had not filed his return of income for the year under consideration, initiated proceedings under Section 148A of the Act. Notices issued by the AO under Section 148A(b) of the Act dated 22.01.2024 and 27.02.2024 remained uncomplied with. Consequently, the AO passed an order under section 148A(d) of the Act and issued notice under Section 148 on 13.03.2024. In response thereto, the assessee filed his return of income declaring “Long Term Capital Gain” (LTCG) of Rs. 4,90,296/- after claiming indexed cost of acquisition and indexed cost of improvement.

During the assessment proceedings, the AO, while computing the LTCG, accepted the indexed cost of acquisition but disallowed the claim of indexed cost of improvement for want of supporting evidence and consequently made an addition of Rs.15,19,553/-.

Aggrieved, the assessee carried the matter in appeal before the CIT(A) but without success.

The assessee, aggrieved with the CIT(A) order, has carried the matter in appeal before us.

Mrs. A. Aruna, Advocate, the Ld. Authorized Representative (for short, “AR”) for the assessee reiterated the submissions advanced before the authorities below. The Ld. AR submitted that the notice issued under Section 148 is barred by limitation under Section 149(1) of the Act since the income escaping assessment was admittedly less than Rs.50 lakh. Elaborating further on her contention, the Ld. AR submitted that the reopening was based on erroneous information available on the ITBA portal, wherein the sale transaction was duplicated, and the cash deposits were wrongly reflected at three times the actual amount. On merits, it was submitted that the AO ought to have allowed the claim of cost of improvement while computing LTCG.

Per Contra, Shri Laxmi Kanth, Learned Senior Departmental Representative (for short, “Sr-DR”), on the other hand, supported the orders of the authorities below. It was submitted by him that at the stage of initiating proceedings under Section 147 of the Act, the AO had before him tangible material and information gathered from the RMS/Insight Portal which disclosed sale of immovable property of Rs.51,20,000/- coupled with substantial cash deposits and withdrawals. The Ld. DR submitted that as the assessee admittedly did not respond to the notices issued by the AO under Section 148A(b) of the Act, therefore, at the stage of recording satisfaction, there was no material before the AO to conclude that the income of the assessee chargeable to tax escaping assessment was less than Rs.50 lakh. It was submitted that the validity of reopening has to be tested on the basis of the material available with the AO at the stage of formation of belief and not on the basis of the ultimate outcome of the reassessment proceedings.

We have heard the Ld. Authorized Representatives of both parties, perused the orders of the authorities below and the material available on record.

As the Ld. AR has assailed the validity of the jurisdiction assumed by the AO under Section 147 of the Act, we shall first deal with the said material aspect.

We find that the principal contention of the Ld. AR is that since the income ultimately assessed as having escaped assessment was only Rs.15,19,553/-, the extended limitation provided under section 149(1)(b) was not available and consequently the notice issued on 13.03.2024 was barred by limitation. We are unable to accept the aforesaid contention. In our view, the validity of the assumption of jurisdiction has necessarily to be examined with reference to the material available before the AO at the time when he initiated proceedings under Section 148A and issued notice under Section 148 of the Act. At that stage, the information available through the Risk Management Strategy (RMS) indicated sale of immovable property of Rs.51,20,000/- besides substantial banking transactions. It would be relevant to point out that despite issuance of notices under section 148A(b) of the Act, the assessee chose not to furnish any explanation whatsoever, as a result whereof the AO had no occasion to verify the factual correctness of the information or to infer that the income chargeable to tax escaping assessment was less than Rs.50 lakh. We find that the Hon'ble Supreme Court in Raymond Woollen Mills Ltd. v. ITO (1999) 236 ITR 34 (SC) has held that at the stage of reopening, the Court is only required to examine whether there existed prima facie material before the AO, and the subsequent outcome of reassessment proceedings cannot invalidate a reopening which was otherwise valid on the basis of the material then available before the AO.

We are of firm conviction that, in the present case before us, the material available with the AO at the stage of initiation of proceedings was sufficient to form the requisite belief contemplated under the Act. In our view, merely because, during reassessment proceedings, part of the information stood explained and ultimately the addition survived only to the extent of Rs.15,19,553/-, the same cannot retrospectively invalidate the assumption of jurisdiction.

Apropos the Ld. AR’s contention regarding incorrect reporting on the ITBA/Insight Portal, the same also does not find favor with us. We say so, for the reason that such discrepancies, even if assumed, came to light only during the reassessment proceedings. We are of a firm conviction that the legality of the reopening cannot be examined with the benefit of subsequent developments when the assessee himself had failed to furnish any explanation in response to the notices issued under Section 148A(b) of the Act.

Coming to the addition on merits, we find that the assessee claimed indexed cost of improvement of Rs.15,19,553/- while computing Long Term Capital Gains. However, despite repeated opportunities, neither before the AO nor before the CIT(A) nor even before us has the assessee produced any documentary evidence to establish that any improvement expenditure was actually incurred on the property sold during the year under consideration. As is discernible from the record, the assessee had not produced any bills, vouchers, contractor's bills, payment details or any other supporting evidence to substantiate his aforesaid claim of deduction. As the burden to establish the allowability of deduction towards cost of improvement squarely rests upon the assessee, therefore, in the absence of any evidence substantiating such expenditure, the authorities below, in our view, were fully justified in rejecting the claim and recomputing the Long Term Capital Gains. We, therefore, finding no infirmity in the orders of the authorities below in sustaining the addition of Rs.15,19,553/-, uphold the same.

In the result, the appeal of the assessee being devoid and bereft of any substance is dismissed.