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Income Tax Appellate Tribunal, DELHI BENCH “SMC”: NEW DELHI
Before: SHRI AMIT SHUKLA
The aforesaid appeal has been filed by the assessee against impugned order dated 19.3.2018, passed by Ld. CIT (Appeals) Ghaziabad for the quantum of assessment passed u/s 143(3)/147 for the assessment year 2009-10. In the grounds of appeal assessee has raised following grounds:- “1. BECAUSE the Ld. CIT (A) Ghaziabad has failed to acknowledge the fact that the very initiation of the proceedings under section 147 of the Act were bad in law.
BECAUSE the Ld. CIT (A) Ghaziabad has erred in not quashing the assessment made under section 147 of the Act in view of the fact there existed no "Reasons to Believe" for reopening of assessment under section 147 of the Act nor any said Reasons were provided to the appellant during the course of assessment proceedings. 3. BECAUSE the Ld. CIT (A) Ghaziabad has erred in law by not following in substance, the outcome of the assessment order passed in preceding previous year in the case of the appellant and thereby, not following the principle of consistency. 4. BECAUSE the Ld. CIT(A)Ghaziabad has erred both on facts and in law by not deleting the addition made in income of Rs. 19,66,000/-under section 45 of the Act by the Ld. AO. 5. BECAUSE the Ld. CIT (A) Ghaziabad has erred in, not allowing the exemption under section 10(23C)(iiiad) of the Act to the surplus generated on sale of property of the society. 6. BECAUSE the Ld. CIT(A)Ghaziabad has erred both on facts and in law by enhancing the income of the appellant by further Rs. 3,30,007/- on grounds of disallowing exemption under section 10(23C)(iiiad) of the Act to the society as a whole. 7. BECAUSE, without prejudice to any of the above grounds, the Ld. CIT (A)Ghaziabad has occurred a factual error in mis- interpreting the "deficit" incurred by the society as "surplus" during the relevant Assessment Year and has rather hastily and illegally made an addition of the "deficit" of Rs. 3,30,007/- by disallowing exemption under section 10(23C)(iiiad) for which, there exists no legal precedent and therefore, the same deserves dismissal from this Ld. Tribunal.
Before us Ld. Counsel for the assessee Shri Akarsh Garg, challenging the validity of reopening u/s 148, submitted that the assessee is a Society, which is registered under Society Registration Act. The Society is running a college name, Bulandshahr College of Pharmacy, at Mohan Kuti, Maman Road, Bulandshahr, from where the assessee is providing diploma in pharmacy course. The assessee has disclosed total receipt of Rs. 61,17,692/-, against which expenditure of Rs. 44,81,699/- was claimed. Since assessee was carrying out educational activities and its receipts were less than Rs. 1 crore, therefore, it had sought exemption u/s 10(23C) (iiiad). Assessee society has filed its return of income on 14.11.2009 declaring ‘Nil’ income after claiming exemption 10(23C). Alongwith the said return of income the assessee had filed receipt and payment account for the year ending 31st March, 2009, along with balance sheet and income and expenditure account. In the said documents, assessee had duly disclosed the sale of land of Rs. 33,46,000/- which was disclosed in the income and expenditure as surplus on sale of land. The entire surplus on land was taken into account as receipt and in the income and expenditure account on which exemption u/s 10(23C) was claimed. The said return was duly accepted and processed u/s 143(1). Thereafter, assessee’s case was sought to be reopened u/s 147 after issuing notice u/s 148 dated 18.3.2016 on the following ‘reasons recorded’ :-
“Reason for the belief that income has escaped assessment :-
Non PAN based AIR information about the immovable property of Rs. 77,00,000/- during the year was received. It is found that M/s. Fiza Educational Society Reg. 11 Satha Nagar, Bulandshahr (U.P) has made a sale transaction for immovable property of Rs. 77,00,000/- In this case an enquiry letter was issued on 12.1.2016 & 12.2.2016. In response Sri Rashid Ali filed letter dated 8.2.2016 in the Dak Counter stating that the property sold belongs to Fiza Educational Society, Bulandshahr. Therefore, above financial transaction of sale of Rs. 77,00,000/- is assessable in the hands of the assessee. I have therefore reason to believe that the income of Rs. 77,00,000/- has escaped assessment within the meaning of section 147 of the Income Tax Act, 1961 and is chargeable to tax for the assessment year 2009-10.”
Ld. Counsel submitted that from the bare perusal of the ‘reasons recorded’ it could be seen that AO on the basis of AIR information has taken the sale transaction of property as his ‘reason to believe’ that income chargeable to tax has escaped assessment. Such a reasons, without even ascertaining the facts and material on record especially the income tax return and the documents annexed herewith, wherein the assessee has duly disclosed the sale of land and gain in the return of income and had claimed exemption u/s 10(23)(iiiad). Even if there was information received by way of AIR, the AO was atleast required to verify the already existing assessment 4
records so as to entertain his reason to believe that, either the said transaction reported in the information has not been disclosed or assessee’s claim is not tenable in law. Simply based on AIR information and without applying the mind, the AO cannot reopen the case for making any kind of inquiry. He has failed to establish any live link nexus with the material /information coming on record and material already available on record with the AO before reaching to prima facie belief that income chargeable to tax has escaped assessment for the reason that assessee has not disclosed the correct facts or has made a wrong claim. Thus, such a ‘reason recorded’ by do not clothe the AO with the jurisdiction to reopen the assessment u/s 147.
On the other hand, Ld. DR submitted that assessee had not raised specific ground before the authorities below challenging the validity of reopening u/s 147; and moreover here in this case there was a specific information that assessee has sold a land for sum of Rs. 77 lacs and such a transaction needs to be examined by the AO. Here in this case assessee has not declared any capital gain on sale of such land, therefore, income arising out of said sale of land has escaped assessment.
In the rejoinder, the Ld. Counsel submitted that, firstly, the validity of reopening u/s 147/148 is a jurisdictional point which can
be raised at any stage; and secondly, all the material facts for deciding this issue is available on record, because the ‘reasons recorded’ are part of the order sheet entries based on which entire reassessment proceedings has been initiated. Therefore, validity of reopening u/s 147 can be decided by this Tribunal.
I have heard the rival submissions qua the issue of validity of reopening u/s 147 and also perused the relevant material placed on record. It is an admitted fact that prior to recording of the reasons and issuance of notice u/s 148 dated 18.3.2016 assessee society has filed its return of income on 14.11.2009 and such a return income was also processed u/s 143(1). From the documents attached alongwith the return of income, it is seen that, in the receipt and payment account for the year ending 31st March, 2009, the assessee has disclosed the sale of land. It is also reflected in the income and expenditure account. The assessee being an educational society running an educational institution and all its receipts are from educational activities, therefore, it has claimed deduction u/s 10(23)(iii ad) as the receipts were less than Rs. 1 crore. The entire factum of disclosure of sale of land and claim of 10(23C) was duly available on record. Almost at the fag end of the 6th year from the end of the relevant assessment year, assessee’s case has been sought to be reopened on the basis of aforesaid ‘reasons recorded’ which is primarily based on AIR information that assessee
has sold immovable property of Rs. 77 lacs. From the bare perusal of the aforesaid ‘reasons’ it is seen that, nowhere AO has even mentioned that assessee has duly disclosed the sale of the land in its income tax return and the documents annexed therewith; and has simply observed that entire sale of Rs. 77 lacs is assessable in the hands of the assessee and therefore, he has ‘reason to believe’ that such a sale is an income which has escaped assessment. If the entire factum of sale transaction has been disclosed and thereafter any information is received, then AO is require to verify from the assessment record to examine, firstly, whether assessee has disclosed the transaction or not; secondly, whether such a transaction has been offered to tax or not; and lastly, whether any gain on sale has been claimed as exempt under any provision of the Act. If on perusal of assessment record, he finds that either the transaction has not been disclosed or the claim made is not acceptable in law, then based on such material or information he can entertain ‘reason to believe’ that income chargeable to tax has escaped assessment. From the bare perusal of the ‘reasons recorded’, it cannot be discerned as to what was the basis for reason to believe, whence the transaction of the sale of the property was already stood disclosed by the assessee.
It is a trite law that Assessing Officer can only acquire jurisdiction if he has 'reason to believe' that Income chargeable to tax
has escaped assessment. The 'reason to believe' entertained by the Assessing Officer can only be culled out from the 'reasons recorded' by the Assessing Officer, because, 'reasons recorded' alone is foundation for reopening the assessment which cannot be substituted by some other records or based on certain assumptions of facts, as it is purely a jurisdictional issue, which has to be acquired by the Assessing Officer based on tangible material and independent application of mind on the assessment record with the Assessing Officer. If at the time of recording the reasons, Assessing Officer has not even perused the assessment records and has mechanically reopened the case u/s.147, then it cannot be held that he has any 'reason to believe'. The tangible material coming on record has to be verified from the existing assessment record and then Assessing Officer can reach to prima-facie belief that income chargeable to tax has escaped assessment. He cannot acquire jurisdiction to reopen the assessment u/s.147 on wrong presumption of facts wholly divorced from the record.
The recording of reason in such a mechanical manner without application of mind on the facts of record cannot clothe the Assessing Officer to the jurisdiction to reopen the assessment u/s.147. Recording of reasons should clearly specify the reason to believe, and is not a mere formality which can be improved upon at the time of
framing of the assessment. If the validity of reopening is challenged on the basis of 'reasons recorded' before the Court, then it is incumbent that the 'reasons recorded' alone should only be seen, whether same are in accordance with law which prima facie justifies the reopening of the completed assessment.
Thus, I hold that the reasons recorded as aforesaid by the AO, do not clothe him with the jurisdiction to reopen the assessment u/s 147 and accordingly, such reason is held to be invalid. Consequently, the entire proceedings u/s 147/148 is quashed.
In the result appeal of the assessee is allowed.
This decision was pronounced in the Open Court on 24th April, 2019. sd/- (AMIT SHUKLA) JUDICIAL MEMBER Dated: 24/04/2019 Veena Copy forwarded to 1. Applicant 2. Respondent 3. CIT 4. CIT (A) 5. DR:ITAT ASSISTANT REGISTRAR ITAT, New Delhi