Reasons Recorded For Reopening The Reassessment To Be Examined On Standalone Basis To Determine The Validity Of Proceedings U/s 147: ITAT

The Mumbai Bench of the Income Tax Appellate Tribunal (ITAT) has observed that the reasons, as recorded for reopening the reassessment, are to be examined on a standalone basis to determine the validity of proceedings under Section 147 of the Income Tax Act.

The two-member bench of Sandeep Singh Karhail (Judicial Member) and M. Balaganesh (Accountant Member) relied on the Bombay High Court's decision in the case of Hindustan Lever Ltd. vs. R.B. Wadkar, which held that it is for the AO to record his opinion in black and white. The reasons recorded for the assessment should be clear and unambiguous and should not suffer from any vagueness. The reasons recorded must disclose in his mind. Reasons are the manifestation of the mind of the assessing officer. The reasons recorded should be self-explanatory and should not keep the assessee guessing as to the reasons.

The appellant/assessee is an individual who is a non-resident. For the year under consideration, the assessee filed her return of income, declaring a total income. The information was received from DIT (I&CI) that the assessee has sold a property during the year under consideration; proceedings under Section 147 were initiated, and a notice under Section 148 of the Act was issued on March 27, 2021.

In response to the aforesaid notice, the assessee filed her return of income, declaring a total income that was equivalent to the income originally declared by the assessee. The assessee also raised objections against the initiation of proceedings under Section 147.

The Assessing Officer rejected the objections filed by the assessee and directed the assessee to comply with the notice issued under Section 142(1) of the Act and furnish the details as required.

Accordingly, vide a draft assessment order passed under Section 144C, the Assessing Officer computed the additional long-term capital gains and added them to the total income of the assessee.

The assessee contended that reopening the assessment is illegal as no addition has been made on the basis of the reasons recorded by the Assessing Officer that the assessee has sold the property for sale consideration and capital gains on the same have escaped assessment.

The assessee submitted that in the order disposing of objections as well as in the assessment order, the assessing officer instead reworked the capital gains already declared by the assessee and added the additional long-term capital gains. The reasons for reopening are very different from the actual assessment made by the assessing officer.

The department vehemently relied upon the orders passed by the lower authorities and submitted that the reassessment was made on the basis of information received that the property was sold by the assessee, though the amount of sale consideration and the capital gains may be different.

The tribunal noted that the income that was initially alleged to have escaped assessment was not ultimately added by the Assessing Officer while passing the assessment order, but rather the transaction already disclosed by the assessee was re-examined and the capital gains computed by the assessee were recalculated in the assessment order without issuing a fresh notice under Section 148.

The ITAT held that the reopening of the assessment was unsustainable in law.

Case Title: Jowheri Jalaluddin Mullick Versus ITO Versus Income Tax Officer

Citation: ITA no.60/Mum./2023

Date: 21/03/2023

Counsel For Appellant: Hari S. Raheja

Counsel For Respondent: Soumendu Kumar Dash

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