The Income Tax Appellate Tribunal (ITAT), Delhi Bench ruled that the Assessing Officer can reopen assessment if he reason to believe any income chargeable to tax has escaped.
Further, where reopening is sought of an assessment in a situation where the initial return is processed under Section 143 (1) of the Act, the AO can form reasons to believe that income has escaped assessment by examining the very return and/or the documents accompanying the return. It is not necessary in such a case for the AO to come across some fresh tangible material to form ‘reasons to believe’ that income has escaped assessment.
Facts of the Case:
- The assessee is an individual having income from business, capital gains and other sources. For assessment year 2010 – 11 assessee filed his return of income on 26/07/2010 declaring total income of Rs 29,102,041/– (including capital gains). Such return was processed u/s 143 (1) of The Income Tax Act [The Act] on 8 April 2011 at the same income. No assessment took place thereafter.
- The assessing officer while reopening the assessment has recorded the reasons on 1 March 2012 stating that assessee, Valmik Thapar has made investment in REC capital gain bonds on 24th of February 2009 of Rs.50 lakhs and further investment of Rs.50 lakhs in national highway authority of India Bonds.
- According to him, the assessee is eligible for deduction only with respect to an investment of Rs.50 lakhs made in the financial year 2008 – 09 and thereby there is an escapement of income to the extent of Rs.50 lakhs.
- Further the assessee has claimed deduction u/s 54 of the income tax act of a flat purchased at Mumbai for Rs.37,765,215/– and incurred a cost of construction of another house property at New Delhi of Rs 1.70 Crores. The assessee should have been allowed deduction only with respect to one property, therefore the assessee has claimed excess deduction u/s 54 of the act, and therefore there is an escapement of income to that extent.
Arguments of appellant:
- The appellant, Valmik Thapar submitted that deduction u/s 54EC of the act is squarely covered in favour of the assessee by the decision of Honourable Madras High Court in CIT versus C Jaichander 370 ITR 579, wherein it has been held that Where assessee invested a sum of Rs. 50 lakhs each in two different financial years, within a period of six months from date of transfer of capital asset, he was eligible for deduction under section 54EC.
- He submitted that the learned assessing officer has stated that it is allowable only for one
property whereas such restriction has come with effect from 1/4/2015 wherein “a residential house” has now been amended as “one residential house”. He, therefore, stated that prior to 1/4/2015, the assessee is eligible for deduction u/s 54 of the income tax act.
- He further submitted that unless there is a tangible material even in that case where there is no assessment made by the learned assessing officer u/s 143 (3) of the income tax act, reopening is invalid. He submitted that in this present case there is no tangible material.
Arguments of the Deptt:
- The departmental representative submitted that the original return filed by the assessee was not at all assessed but was merely processed and therefore there is no assessment. He further stated that date of recording of the reason is 01 March 2012 and therefore the proviso, which has been referred by the learned authorised representative u/s 54EC of the act, did not exist as on that date for the year.
- He further submitted that does not apply in the impugned assessment year, which is applicable from 1 April 2015. He further submitted that when there is no assessment made u/s 143 (3) of the act and when the return is merely processed, there is no requirement of any tangible material in that particular case.
- He further stated that even in the decision of the honourable Supreme Court of India in case of Kelvinator of India the assessment was passed u/s 143 (3) of the act where the honourable Supreme Court has held for requirement of tangible material. It is not at all relevant when the returns are merely processed u/s 143 (1) of the act.
- He further referred to the additional ground raised by the assessee and stated that in the grounds of appeal the assessee has only stated that statutory precondition of having any tangible material has not been referred to in the reasons of reopening. He submitted that therefore the claim of the assessee that reopening of the assessment is invalid should fail on this count only.
Order of ITAT: Deliberation and Ruling
- As per the provisions of Section 147 of the income tax act, if the assessing officer has reason to believe that any income chargeable to tax has escaped assessment for any assessment year he may assess or reassess such income and also any other income chargeable to tax which is escaped assessment which comes to his notice subsequently. The provision of explanation – 2 provides certain circumstances, which are deemed cases, wherein, chargeable to tax has escaped assessment. Clause (b) of that explanation clearly provides that where the return of income has been furnished by the assessee but no assessment has been made and it is noticed by the assessing officer that assessee has understated the income or has claimed excessive loss, deduction, allowance on relief in the return, it shall be considered as deemed escapement.
- When the learned assessing officer has recorded his reason to believe that assessee has claimed excess deduction of ₹ 50 lakhs on 1 March 2012, naturally, there are no decisions available of High Court which provides that assessee can claim deduction of sum deposited in excess of ₹ 50 lakhs u/s 54EC of the act. At the time of recording of the reasons, to reopen an assessment, the learned assessing officer is required to form only prima Facie opinions about escapement of income. It is required to be understood that he is not making an assessment but taking a first baby step for making the assessment by forming a reasonable belief that whether the claim of the assessee should be tested in reassessment proceedings is not.
In view of the above deliberations, the Coram headed by President Justice P.P.Bhatt and Accountant Member Prashant Maharishi uphold the order of AO and held that even in the case where there is no assessment made by the AO or the return is processed merely u/s 143 (1) of the income tax act, there is a requirement of having any tangible material with the assessing officer to reopen the case of the assessee. It was adjudged that in such cases, there is no requirement of tangible material for reopening of assessment.
READ / DOWNLOAD ORDER:
***
Follow us for free tax updates : facebook Twitter
Subscribe our portal and get FREE Tax e-books , quality articles and updates on your e-mail.
Resolve your GST queries from national level experts on GST free of cost.
TW Editorial Team comprises of team of experienced Chartered Accountants and Advocates devoted to spread the knowledge of GST amongst the various stakeholders.
