SHRI IKBALBHAI JUMABHAI KHIRANI,RAJKOT vs. THE ITO WARD-1 (2) (1), RAJKOT

The facts of the case which can be stated quite shortly are as follows: The assessee has filed return of income for assessment year (AY) 2018-19. In assessee`s case, information received from Insight Portal that the assessee has sold immovable property for a consideration of Rs. 96,00,000/- during the financial year 2017-18 relevant to the assessment year 2018-19. On going through the return of income filed by the assessee for assessment year (AY) 2018-19, it was noticed that sale of above immovable property does not corroborate with the figures disclosed in the return of income. In view of the above transactions in immovable property, the Jurisdictional Page 2 of 15 Assessing Officer (JAO) has reopened the case for the AY 2018-19 and notice u/s 148 of the Act dated 31.03.2022, was served on the assessee's registered e-mail after obtaining the approval of the competent authority. Subsequently, the assessee`s case has been transferred to the assessing officer for completion of assessment proceedings u/s 144B of the Act by the NFAC. Subsequent to the notice u/s.148 of the Act, assessee’s case was assigned to the Faceless assessment proceedings u/s 147 r.ws 144B of the Act. Accordingly, assessee has been issued notice u/s. 142(1) of the Act dated 06.10.2022 by the assessing officer calling for details such as financial statements annexures thereto statutory audit report, ledger copies, capital account, computation of total income, Form 26AS, ledger copies, all bank account statements held in assessee’s name etc.

In response to the notice of the assessing officer, the assessee furnished the information on 01.11.2022. The assessee filed return of income in response to the notice u/s 148 of the Act. In response to the notice u/s 142(1), the assessee has furnished bank account statement, computation of total income, copy of sale deed copy 1A and 1B which is written in regional language and copy of ITR in response to the notice u/s 148 of the Act was also furnished. The assessee in his submissions explained that his main business is purchase of land to do constructions on it and sale the constructed property and further stated that his source of income is construction of building, hence income derived by selling constructed property is business income only and copies sale deed of construction of shop (in Gujarathi Language) of one shop and gross revenue from sale of shops are 33,75,000/- for one shop only which is taken as turnover. With regard to sale of immovable property for a consideration of Rs. 96,00,000/- the assessee stated those details are not found in his record and requested the undersigned to provide such sale consideration. As the Page 3 of 15 assessee has not responded to the assessing officer, therefore, as a principle of natural justice, the sale deed copy provided by the SRO and by the buyer of the property have been verified and found that the assessee sold the property for a consideration of Rs. 32,00,000/-. On further verification of the copy of purchase deed of the property, it was noticed that the assessee has originally purchased the property on 03.05.2014 and registered with the SRO vide sale deed No. 2247. During the course of assessment proceedings, the assessee has not explained the source of income for the purchase of original property. Hence, the assessing officer as a principle of natural justice, considered the cost of purchase of original property at Rs. 10/- in FY 2014-15 and calculated the indexed cost of acquisition of the property at Rs. 12/- and arrived at net capital gain income of Rs. 31,99,988/- (Rs. 32,00,000/- Rs 12). Accordingly, an amount of Rs. 31,99,988/- was added to the total income under the head Capital Gain income instead of business income rejecting the assessee's contention of the business income. During the course of assessment proceedings, the assessee filed computation of total income wherein the assessee has admitted under the business head u/s 44AD of the Act, Gross Receipts (banking channel) is Rs. 32,00,000/- and an amount of Rs. 1,75,000/- (other mode) aggregating to Rs 33,75,000/- but not explained about the nature of the receipt of income by other mode during the course of hearing. Therefore, amount of Rs. 1,75,000/- (Rs 33,75,000- Rs. 32,00,000) was considered under income from other Sources and added to the total income.

Aggrieved by the order of the assessing officer, the assessee carried the matter in appeal before the Ld. CIT(A) who has dismissed the appeal of the assessee, on merit, and ld.CIT(A) also dismissed the technical ground raised by the assessee, challenging the reopening of assessment under section 147/148 of the Act. During Page 4 of 15 the appellate proceedings, the assessee submitted that the assesssing officer was wrong on two counts in issuance of notice u/s 148 of the Act, as in his order passed u/s 148A(d) of the Act, the AO, had mentioned that assessee had purchased the alleged immovable property based on the Return of Income filled by the assessee. However, neither did the assessee file his return u/s 139 of the Act, nor was the alleged transaction a purchase transaction. The assessee had filed return in response to the notice issued by the assesssing officer u/s 148 of the Act and the alleged transaction was sale of immovable property and not of purchase thereof. The ld.CIT(A) examined the contentions of the assessee, and it was found that if the assessee had not filled his ITR for the concerned Assessment Year as per the provisions of Section 139 of the Act then, all the more, the alleged transactions entered into by the assessee with respect to sale of immovable property become income escaping assessment in his hands. Further, the ld.CIT(A) noticed that the transaction was of purchase of immovable property or sale of immovable property would not make any difference when the assessee was a non-filer, and in both cases the income escaping assessment to the tune of Rs.32,00,000/- exists and therefore re-opening made by the assesssing officer u/s 147 of the Act, by way of issuance of notice u/s 148 of the Act, was correct.

Aggrieved by the order of the Ld. CIT(A), the assessee is in appeal before this Tribunal.

I have heard both the parties and carefully gone through the submission put forth on behalf of the assessee along with the documents furnished and the case laws relied upon, and perused the fact of the case including the findings of the ld CIT(A) and other materials brought on record.Learned Counsel for the assessee submitted that Page 5 of 15 the reasons recorded by the assesssing officer are defective and for that Ld. Counsel for the assessee took me through the reasons recorded by the assesssing officer, which are placed at paper book page no.22 and stated that in the reasons recorded it is mentioned the terminology (sale by any person) which is a general observation which is not applicable to the assessee under consideration. Further, Ld. Counsel for the assessee took me through para no.5 of the reasons recorded which are reproduced below: “5. As per information available with this office, you had sold immovable property(ies) during the year, details of which are as under: Information Description Source Amount Description Amount Sale by any person Sub Registrars Transaction amount 96,00,000/- immovable of property Gondal related to the person

The Ld. Counsel also submitted that the amount mentioned in the reasons recorded was Rs.96,00,000/- but, the assessing officer made addition to the tune of Rs.32,00,000/-, after allowing indexed cost of accusation. That is, reasons were recorded for Rs. Rs.96,00,000/-, whereas true, and actual amount was to the tune of Rs.32,00,000/-. Therefore, the amount mentioned in the reasons recorded have not been added in the hands of the assessee. Therefore, initial action of the assesssing officer in the reason recorded, is itself bad in law.

We do not see any reason to differ with the view expressed by the Tribunal. No substantial question of law arises for our consideration. The appeals are dismissed. There shall be no order as to costs.” 7.1 Similarly, in the case of PCIT vs. Meenakshi Overseas (P) Ltd. (supra), the Hon’ble Delhi High Court held that there is no independent application of mind by the Assessing Officer to the tangible material which form the basis of reasons to believe that income has escaped assessment and further held that the conclusions of the Assessing Officer are at best a reproduction of the conclusion in the investigation report and indeed it is a borrowed satisfaction as the reasons fail to demonstrate the link between the tangible material and the formation of the reasons to believe that income has escaped assessment. 7.2 Similarly, in the case of PCIT vs. G & G Pharma India Ltd. (supra), the Hon’ble Delhi High Court has held as under:

On the other hand, Ld. DR for the Revenue, argued that reasons were recorded by the assessing officer, as per new Scheme of Section 147/148A of the Act. The Ld. DR, further submitted that the assessing officer has followed procedure given in the Act, therefore, reasons recorded by the assessing officer are in accordance with the provisions of the Act.

I have considered the submissions of both the parties. The assessment of the assessee is reopened by way of issuing notice u/s 148 of the Act. The Assessment has been merely reopened on the basis of information received from the sub registrar, Gondal, regarding a transaction amounting to Rs 96,00,000/-. The sub -registrar office maintains the records of property transactions including the sale of immovable properties. The re-opening is based on the basis of the information received from sub- registrar, Gondal. The notice u/s 148 of the Act has been issued on 31/03/2022 proposing to assess/reassess the income stating that there is reason to believe that income chargeable to tax for assessment year (AY) 2018-19, has escaped assessment within the meaning of section 147 of the I.T. Act, 1961. In the reasons for the Page 10 of 15 reopening of the assessment, the Ld. assesssing officer has observed the following transactions during the F.Y.2017-18 related to A.Υ. 2018-19.

Further, the "Amount Description" column in the above table has mentioned "Transaction amount related to the person" but not specified whose transaction it is. Whether transaction amount is related to the assessee or any third person, therefore, failure to specify the name of the assessee makes the reasons recorded, incorrect.

Further, I note that in the reasons recorded, the description has not clarified what is the nature of transaction, and has also not clarified whether the transaction is related to purchase or sale of immovable property.

Further, the Ld. assessing officer has stated in the last column of the above table, that the amount of Rs. 96,00,000/-, as escaped assessment, which is also incorrect.

It is settled principle that the reason for reopening is the basis of assessment, the reason is the foundation of the entire reopening proceedings. The assessing officer has to demonstrate by way of reason that there is escapement of income and it has to be based, on his own belief, and the assessing officer cannot take action merely on the basis of borrowed satisfaction. Therefore, the notice has not provided sufficient information to ascertain whether the assessee is involved in a sale or a purchase of the transaction. Therefore, all this information on the basis of which the reopening has been made is totally incorrect information. Therefore, the reasons recorded by the Ld. assessing officer are erroneous and fictitious. The reasons are recorded on completely wrong factual premises as there was no live link with the formation of belief for reopening of assessment u/s 148 of the I.T. Act. The Hon'ble Supreme Court in the case of CIT v. Kelvinator of India Ltd. (187 Taxman 312) held that Assessing Officer has power to reopen, provided there is 'tangible material’ to come to conclusion that there is escapement of income from assessment; reasons must have a live link with formation of belief. Thus, it is clearly evident from the above that Ld. assessing officer in reasons recorded, proceeded on erroneous footing and the very foundation of the reopening is vague. On identical facts, reliance can be placed on judgement of jurisdictional High Court of Gujarat in the case of Amar Jewellers Ltd. vs. DCIT [2018] 92 taxmann.com 4 (Guj.), where in it was held that a plain reading of the reasons recorded for reopening the assessment reveals that the basis for formation of belief that the transaction made by the assessee with MSTC is bogus in nature is that AJ and PJ admitted to carrying on the business of giving accommodation entries in the names of various entities and upon verification it was Page 12 of 15 found that one such entity handled by them was MSTC. As noted hereinabove the information which was received by the Assessing Officer nowhere disclosed that MSTC was an entity handled by AJ and PJ. All that was disclosed was that MSTC was linked with JC and that PJ had accepted that he had financial transactions with JC which was a concern operated by a cheque discounter and he used to give him cash and in return, he used to get cheques/RTGS through JC. Thus, no nexus has established between AJ and PJ who had made the statements under section 131 and MSTC. Thus, the reasons are based upon a factually incorrect premise that MSTC was being handled by AJ and PJ, thus, the absence of any material on record to indicate any nexus between MSTC and AJ and PJ, erodes the very substratum for formation of belief that income had escaped assessment. Consequently, once there is no foundation for such belief, the reasons based thereupon have no legs to stand hence; on the reasons recorded, the Assessing Officer could not have formed the belief that any income chargeable to tax has escaped assessment. Therefore, the assumption of jurisdiction on the part of the Assessing Officer under section 147 to reopen the assessment by issuing the impugned notice under section 148 was without authority of law, which renders the impugned notice unsustainable.

It is clear that Assessing Officer had no material to suggest that assessee had purchased property at Rs. 96,00,000/-, therefore notice for reopening assessment was based on completely wrong reasons. In view of the reasons set out above, as also bearing in mind entirety of the case, I am of the considered view that the reasons recorded by the Assessing Officer, as set out earlier, were not sufficient reasons for reopening the assessment proceedings. I, therefore, quash the reassessment proceedings. As the reassessment itself is quashed, all other issues on merits of the Page 13 of 15 additions, in the impugned assessment proceedings, are rendered academic and infructuous.

In the result, the assessee`s appeal is allowed in the terms indicated above.

In view of the aforesaid reasons, the impugned reassessment proceedings deserved to be quashed, and accordingly, I quash the same.

In the result, appeal filed by the assessee is allowed.