2023 (9) TMI 858 - ITAT AHMEDABAD

Validity of the order passed u/s 147 - incorrect claim of deduction of capital gain - claimed deduction u/s 54B incorrectly by co-owners - HELD THAT:- We fail to understand how the AO arrives at this conclusion. The information in his possession being that Shri Riddhish B. Trivedi [co-owner] had claimed incorrect deduction u/s 54B of the Act of capital gain in which the assessee was also a co-owner, there is nothing in the reason revealing that there was any identity of facts of the assessee’s claim of deduction against capital gain returned to tax with that of Shri Riddhish B. Trivedi.

AO is not even aware of the Section under which the assessee has claimed deduction of its capital gain. In view of the same, we agree with assessee that, on the basis of information regarding incorrect claim of deduction of capital gain by Shri Riddhish B. Trivedi, AO could not have arrived at a belief that the assessee’s income had also escaped assessment in the absence of complete particulars of deduction claimed by the assessee against the capital gain returned by him.

It is settled law that the fulfilment of one of the basic condition for initiating action u/s 147 of the Act, of the AO having reason to believe that income has escaped assessment, requires live link between material coming to the knowledge of the AO and his formation of belief of escapement. The Hon’ble apex court having held so in the case of ITO vs Lakhmani [1976 (3) TMI 1 - SUPREME COURT]

We find that his belief of escapement of income of the assessee has nothing to do with any incorrect claim of exemption of capital gains, but is apparently on account of claim of deduction against consideration received from sale of land for computing capital gains earned.There is no basis mentioned in the reasons for the belief of the Assessing Officer that the assessee’s entire claim of deduction under Section 48 of the Act was incorrect. And this escapement of income has absolutely no link or correlation with the information in the possession of the AO that the other co-owner of land had incorrectly claimed deduction under Section 54B of the Act.

We are in complete agreement with the assessee that the reasons recorded by the AO showing his formation of belief of escapement of income of the assessee were insufficient for assuming a valid jurisdiction to frame assessment u/s 147 as reasons exhibited no live link between the information in the possession of the AO and the formation of belief of escapement of income, no basis for formation of belief of escapement of income and there was complete in application of mind by the AO while recording reasons for escapement of income. Decided in favour of assessee.