Loading judgment…
Facts
The assessee filed a return of income for AY 2017-18, which was processed under section 143(1). Subsequently, the AO initiated reassessment proceedings under section 147 based on information from DIT (Investigation) regarding the purchase of an immovable property. The AO believed that the difference between the purchase consideration and the stamp duty valuation represented deemed income under section 56(2)(x).
Held
The Tribunal held that the reopening under section 147 was invalid because it was based solely on third-party information without independent verification or application of mind by the AO. The AO failed to examine the nature of the property, the number of purchasers, and the correctness of the stamp duty valuation. Furthermore, even on merits, the addition was unsustainable as the property was leasehold, only superstructure was transferred, and the assessee was one of three co-purchasers.
Key Issues
Whether the reopening of assessment under Section 147 was valid, and whether the addition made under Section 56(2)(x) was justified on merits.
Sections Cited
139(1), 143(1), 148, 142(1), 147, 144, 56(2)(x), 250
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, BENCH-RANCHI
Before: Shri Sonjoy Sarma & Shri Ratnesh Nandan Sahay
order
: January 06, 2026 ORDER
Per Sonjoy Sarma, Judicial Member:
This appeal filed by the assessee is directed against the order of the NFAC, Delhi (hereinafter referred to as “CIT(A)”) dated 12.09.2024 passed under Section 250 of the Income-tax Act, 1961 (hereinafter referred to as the “Act”).
Brief facts of the case are that the assessee filed its return of income for Assessment Year 2017–18 declaring a total income of ₹43,99,340/- under section 139(1) of the Act. The return was processed under section 143(1) accepting the income as declared. Subsequently, the AO issued a notice under section 148 of the Act after recording reasons and obtaining sanction from the competent authority. The assessee did not respond to the notice under section 148. Thereafter, multiple notices under section 142(1) were issued, including final opportunity notices, which were duly served but remained unanswered.
Naveen Singh Even notices served physically through notice server did not evoke any response. Accordingly, the AO completed the assessment under section 147 read with section 144, based on material available on record. The reasons recorded for reopening under section 147 were that information was received from the Director of Income Tax (Investigation), Patna, that the assessee had purchased an immovable property from Shri Ajanta Chowdhury. As per the information the assessee purchase consideration shown at ₹6,35,00,000, whereas the stamp duty valuation was ₹7,64,10,000. There was difference: ₹1,29,10,000. Therefore, the AO formed a belief that the assessee had earned deemed income under section 56(2)(x) of the Act to the extent of ₹1,29,10,000, which was not offered to tax. Accordingly, reassessment proceedings were initiated, and the said amount was added to the income of the assessee. The total income was assessed at ₹1,73,09,340/-.
The assessee preferred an appeal before the ld. CIT(A). Where, the ld. CIT(A) sustained the addition of ₹1,29,10,000, but directed the AO to reconsider the addition by taxing only one-third share of the property value, since the property was purchased by three co-purchasers.
Aggrieved, the assessee is in appeal before the Tribunal raising both legal as well as merit grounds. The principal contentions of the learned Authorised Representative (AR) is legal ground that invalid reopening of case under Section 147 of the Act. The reopening is based solely on third-party information from DIT (Investigation), Patna and the AO did not conduct any independent enquiry nor applied his own mind. Even, the AO failed to verify that the property was purchased by three joint purchasers, and the entire difference was wrongly added in the hands of the assessee alone. Hence, the reopening is based on borrowed satisfaction and is bad in law.
On merits, the AR submitted that the property consists of leasehold land, and a two-storied residential building with constructed area of 4500 sq. ft., situated at Jamshedpur and as per the rate chart issued by the Government of Jharkhand, there was no rate specified for land, since the area falls under leasehold category only the superstructure rate was prescribed at ₹5,020 per sq. ft. for FY 2016–17. Accordingly, the correct stamp valuation of the property works out to ₹5,020 × 4,500 sq. ft. = ₹2,25,59,000. The value of ₹7,64,10,000 mentioned in the sale deed was arbitrarily insisted upon by the registering authority for registration purposes, without any guideline or basis. The registration certificate itself records only the value of the superstructure and clearly states that only leasehold rights were transferred, not ownership of land. Therefore there was no transfer of land ownership. The assessee acquired only leasehold rights and superstructure, that too as one of three purchasers. Hence, the adoption of ₹7,64,10,000 as stamp duty value is factually and legally incorrect. A remand report was called from the AO vide letter dated 26.11.2024 in the remand report the AO could not explain or justify how the valuation of ₹7,64,10,000 was arrived at. The AO did not dispute that the property was leasehold, and only rights in superstructure were transferred.
On the other hand the learned DR supported the orders of the lower authorities but could not controvert the factual and legal submissions made by the assessee.
We have heard the rival submissions and perused the materials on record. We first take up the legal issue on the point of validity of reopening under section 147 of the Act as the legal issue goes to the root of the matter. From the record, we notice that the reopening under section 147 of the Act is based entirely on third-party information, Naveen Singh without any independent verification by the AO. In the present case of the assessee, the Ld. AO failed to examine the nature of property (leasehold), the number of purchasers (three), the correctness of stamp duty valuation. Such reopening amounts to borrowed satisfaction, which is impermissible in law. From the reference made to the reasons to believe recorded by the Ld. AO and the observations noted in the assessment order as extracted above, we note that in the instant case, the justification of Ld. AO is not amenable to reason since he did not satisfy the basic criteria of independent application of mind on the material supplied by the DIT(I&CI), Patna. It is evident from the recorded by the Ld. AO that the report supplied by the DIT(I&CI), Patna not even verified by him and accordingly, the justification for initiating proceedings u/s. 147 of the Act ceases to exist. Further, the statute requires that two ingredients are to be satisfied for assuming jurisdiction u/s. 147 of the Act. There should be prima facie "reason to believe" and there must be evidence that "Income has escaped assessment". The failure to satisfy or fulfil these conditions simultaneously would vitiate the entire proceeding. It is imperative that the significant word in the enactment relating to reassessment is 'belief' and not 'suspicion'. These essential elements are obviously and glaringly missing in the instant case which renders the reassessment proceedings as well as the order passed ex-facie null in law. 7.1. It is settled that before an AO can be said to have had reasons to believe that some income has escaped assessment, he should have relevant material before him from which he could have drawn such conclusion. His vague imagination that there might have been some escapement of income from assessment is not sufficient [CHHUGANMAL RAJPAL VS. S. P. CHALIHA (1971) 79 ITR 603 (SC)]. It is emphatically Naveen Singh settled in this regard that there can be no doubt that the words "reason to believe" suggest that the belief must be that of an honest and reasonable person based upon reasonable grounds and that the Assessing Officer may act on direct or circumstantial evidence but not on mere suspicion, gossip or rumour. The Ld. AO would be acting without jurisdiction, if the reason for the belief that the conditions required to be satisfied do not exist or is not material or relevant to the belief required by the section [SHEO NATH SINGH VS. AAC. (1971) 82 ITR 147 (SC). 7.2 In the case of PCIT Vs. Meenakshi Overseas (P) Ltd. [2017] 82 taxmann.com 300 (Del.) wherein it has been held as under: “where reassessment was resorted to on basis of information from DIT (Investigation) that assessee had received accommodation entry but and there was no independent application of mind by Assessing Officer to tangible material and reasons failed to demonstrate link between tangible material and formation of reason to believe that income had escaped assessment, reassessment was not justified.”
7.3 Ld. AO simply based his belief on the alleged report supplied by the DIT(I&CI), Patna for assuming jurisdiction u/s. 148 of the Act without adducing on record any evidence in support thereof and without any independent application of mind on the issue. It is an inalienable principle of law that the reasons recorded u/s. 148 of the Act should be based on credible material which must have a live link or nexus with the belief that there was escapement of income. There should be an independent application of mind on such material before recording the reasons and issuing notice u/s. 148 of the Act. The belief should be held in good faith and objectively; it cannot be a mere pretence.
Naveen Singh 7.4 Considering the facts on record and the contents of the reasons to believe recorded by the Ld. AO coupled with his general and casual observations without the conduct of any examination or verification as well as judicial precedents referred above, we hold that the crucial link between the information made available to the AO and the formation of belief is absent. There is no independent application of mind by the AO. Accordingly, the initiation of proceedings u/s. 147 r.w.s. 148 to reopen the assessment does not satisfy the requirements of the law.
Even on merits, we find that the stamp duty value legally applicable is ₹2,25,59,000, being value of superstructure only. since no land ownership was transferred, the assessee was only a one-third purchaser superstructure, therefore, there was no occasion to invoke section 56(2)(x) of the Act or make any addition in the hands of the assessee. In view of the above facts and legal position the reopening under section 147 is held to be invalid. Even otherwise, the addition under section 56(2)(x) of the Act is unsustainable on merits. Accordingly, the appeal filed by the assessee is allowed, and the addition of ₹1,29,10,000 is deleted.
In the result, the appeal of the assessee is allowed. Kolkata, the 6th January, 2026.