2020 (4) TMI 283 - AT - Income Tax

Validity of initiation of proceedings under section 147/148 - Addition u/s 69 - anonymous complaint - sanction for issuing the notice under section 148 - addition made by the AO on account of understatement of sale consideration based on the report of the DDIT Investigation and Tax Evasion Petition - HELD THAT - Except translating English version into Hindi vernacular by the AO there is nothing in the reasons recorded to suggest that the AO has applied his own mind on the information or material as forwarded by the DDIT Investigation vide letter dated 25th March 2014. It is further pertinent to note that the said communication is not forwarding the facts or information to the AO but it is a sort of opinion and finding given by the DDIT Investigation. DDIT and the AO have given much emphasis on the details of the subsequent sale of the plots by the assessees. However there is no allegation that those details are not disclosed by the assessee as the same were duly recorded in the books of account and also declared in the return of income filed for the relevant assessment year. Once the sellers as well as the purchasers have denied the allegation of any unaccounted purchase consideration/sale consideration paid or received in their statements recorded under section 131 of the Act then in the absence of any such fact detected during the investigation carried out by the DDIT the opinion formed by the DDIT and consequently by the AO is merely based on the allegation made in the complaint which is anonymous complaint as admitted and stated by the DDIT Investigation Reopening is based on a borrowed satisfaction which is also not based on any tangible material but merely on suspicion and allegations made in the anonymous complaint. The DDIT Investigation has stated this fact that the loose papers annexed to the complaint were neither prepared by the assessee nor belonging to the assessee. Therefore such loose papers prepared by some anonymous person would not constitute a tangible material or incriminating material to form the belief that income assessable to tax has escaped assessment. Sanction accorded by the ld. CIT for issuing the notice under section 148 in the case of the assessee is hyper mechanical. In a series of decisions as relied upon the assessee the Coordinate Benches of the Tribunal have taken a consistent view that mere signing against a particular column of the format is nothing but a mechanical approval without application of mind. Hence in view of the above facts and circumstances of the case we hold that the reopening of the assessment is not valid and the same is liable to be quashed. - Decided in favour of assessee.

Summary

Issues Involved:
1. Validity of initiation of reassessment proceedings under section 147/148 of the Income-tax Act, 1961.
2. Addition of Rs. 41,50,348/- under section 69 of the Income-tax Act.
3. Adoption of purchase consideration of the land.
4. Allegations of ignoring objections and principles of natural justice.
5. Mechanical approval for issuing notice under section 148.

Detailed Analysis:

1. Validity of Initiation of Reassessment Proceedings under Section 147/148:
The primary issue is whether the reassessment proceedings initiated under sections 147/148 were valid. The Tribunal noted that the reassessment was based on an anonymous Tax Evasion Petition (TEP) alleging suppression of purchase consideration. The DDIT Investigation conducted an enquiry, recording statements from both sellers and purchasers, who denied any extra consideration beyond the sale deed amount. The Tribunal emphasized that the reassessment was based on suspicion and unsubstantiated allegations from an anonymous complaint, which did not constitute tangible material. The Tribunal also highlighted that the approval for reopening was given mechanically without application of mind, merely signing a pre-typed "Yes" on the approval form, which was deemed hyper mechanical and invalid.

2. Addition of Rs. 41,50,348/- under Section 69:
The Tribunal addressed the addition of Rs. 41,50,348/- made under section 69, representing 1/3rd share in the alleged total undisclosed income of Rs. 1,24,51,045/-. The addition was based on the TEP and subsequent investigation, which alleged that the actual purchase consideration was Rs. 1,32,91,045/- instead of Rs. 8,40,000/-. However, the Tribunal found that the investigation did not reveal any unaccounted money changing hands, and the statements from sellers and purchasers denying extra consideration were not contradicted by any concrete evidence. The Tribunal concluded that the addition was based on mere suspicion and not on any tangible material.

3. Adoption of Purchase Consideration of the Land:
The Tribunal examined the issue of adopting the purchase consideration of Rs. 12,451,045/- instead of Rs. 8,40,000/- declared by the assessee. The lower authorities compared the average selling price with the average purchase price, ignoring the fact that a significant portion of the land was not saleable and had to be left for common amenities. The Tribunal noted that the authorities ignored the cost incurred on development and solely relied on the purchase price, which was unjustified and against the principles of natural justice.

4. Allegations of Ignoring Objections and Principles of Natural Justice:
The Tribunal observed that the lower authorities grossly erred in ignoring several reasonable objections raised by the assessee. These objections had a material bearing on the case, and the failure to consider them was deemed unjustified and in violation of the principles of natural justice. The Tribunal also noted that the assessee was not allowed the right to cross-examination, further highlighting the procedural lapses in the reassessment proceedings.

5. Mechanical Approval for Issuing Notice under Section 148:
The Tribunal scrutinized the approval process for issuing the notice under section 148 and found that the approval by the CIT was mechanical. The CIT merely signed a pre-typed "Yes" without any indication of applying his mind to the reasons recorded by the AO. Citing precedents, the Tribunal held that such mechanical approval without application of mind rendered the reassessment proceedings invalid.

Conclusion:
The Tribunal quashed the reassessment proceedings as invalid, holding that they were based on suspicion and unsubstantiated allegations from an anonymous complaint. The mechanical approval for reopening further invalidated the proceedings. Consequently, the Tribunal did not address the merits of the addition, as the reassessment itself was deemed invalid. The appeals of the assessees were allowed.