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2016 (11) TMI 1125 - ITAT MUMBAI

2016 (11) TMI 1125 - ITAT MUMBAI - TMI - Reopening of assessment - income under the head ‘Capital Gains’ arising from the relinquishment of tenancy rights - Held that:- Undisputedly, no new fact or information had come to the knowledge of the AO to form belief that the income in this case had escaped assessment. As noted above, the AO had formed the belief stating that on examination of records, it was observed by him that the assessee was not the tenant for which he had disclosed long term capi .....

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nant in the property was not an afterthought version or a colourable device rather in the wealth tax return for the assessment year 1990-91 i.e. prior to the signing of the deed of relinquishment of right/development rights in the year 1995, the assessee was very much shown as a tenant in the property in question. - The AO, during the original scrutiny assessment proceedings under section 143(3) of the Act, had thoroughly examined the issue, put the queries to the assessee and thereafter had .....

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the material coming to the notice of the Assessing Officer and the formation of belief regarding escapement of income. The powers of Assessing Officer to reopen an assessment, though wide, are not plenary. The words of the statute are "reason to believe" and not "reason to suspect". There can be no manner of 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 Income-tax Officer may act on dire .....

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r of Income Tax (Appeals) [(hereinafter referred to as the CIT(A)] dated 03.03.10 agitating the confirmation of quantum additions made by the Assessing Officer (hereinafter referred to as the AO) and the other by the Revenue against the order of the Ld. CIT(A) dated 06.09.13 agitating the deletion of the penalty levied by the AO under section 271(1)(c) of the Act. First we take up the assessee s appeal i.e. ITA No.2418/M/2010. ITA No.2418/M/2010 (Assessee s Appeal) 2. The assessee, in this appea .....

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ating the action of the Ld. CIT(A) in not specifically directing the AO to allow deduction under section 80L of ₹ 12,000/-. 3. The brief facts of the case are that the assessment was originally completed under section 143(3) of the Act. In the return of income as originally filed, the assessee had declared income under the head Capital Gains arising from the relinquishment of tenancy rights. The said income declared under the head Capital Gains had been assessed as such in the assessment c .....

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nt queries had been raised by the AO regarding the tenancy rights during the assessment proceedings under section 143(3) of the Act and that no new information had come into the knowledge or possession of the AO and that the reopening was done merely on the basis of change of opinion. The Ld. CIT(A), however, rejected the above contention of the assessee observing that as per the scheme of the amended provisions of section 147, the AO need merely a reason to believe that income has escaped asses .....

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. He, therefore, upheld the validity of the reopening of the assessment. Being aggrieved by the above finding of the Ld. CIT(A), the assessee has come in appeal before us. 5. So far as the ground regarding the validity of reopening of the assessment is concerned, the Ld. Counsel for the assessee has invited our attention to the original assessment order dated 29.09.06 passed by the AO under section 143(3) of the Act. The Ld. Counsel has further invited our attention to the copy of notice issued .....

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e chargeable to tax has escaped assessment for A.Y. 04-05 within the meaning of section 147 of the I.T. Act, 1961. 6. The Ld. A.R. has further invited our attention to the letter/notice dated 07.09.06 issued under section 142(1) of the Income Tax Act in relation to the original assessment proceedings carried out under section 143(3) of the Act. He, in this respect, has invited our attention to clause (4) of the said notice wherein it has been directed to the assessee by the AO to produce copy of .....

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nt order for the assessment year 1990-91. He has invited our attention to page 34 i.e. annexure A-2 which is the computation/valuation of immovable property as on 31.03.90 wherein the immovable property of Gharda Chemicals Ltd. has been valued at ₹ 59,625/-. On the right side the name of tenants who have occupied the said property has also been mentioned wherein the name of assessee Dr. Keki H. Gharda is duly mentioned, the area occupied by him has been mentioned as 2634 sq. ft. and agains .....

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ity, the assessee company had shown one of its directors Dr. Keki H. Gharda as a tenant in some portion of the property, for which a compensation on relinquishment of rights was agreed to be paid to the assessee Dr. Keki H. Gharda vide agreement dated 01.09.1995. The Ld. Counsel, thus, has stressed that from the records above, it is very much evident that the agreement of 1995 was not an afterthought. The assessee was shown as tenant in the wealth tax return of A.Y. 1990-91 itself. The Ld. Couns .....

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(2010) 228 CTR(SC) 488 and of the Hon ble Bombay High Court in the case of Direct Information (P) Ltd. vs. ITO (2011) 15 taxman.com 63 (Bombay). On the other hand, the Ld. D.R. has strongly relied upon the findings of the lower authorities and has stressed that the reopening of the assessment even from the knowledge gathered from the records by the AO was valid in this case. 7. We have heard the rival contentions and have also gone through the records. Undisputedly, no new fact or information h .....

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ancy rights of the assessee in the property and the assessee was asked to explain since when the property was in his possession as tenant and also to produce the copy of deed of relinquishment of tenancy rights. The assessee has also proved on the file that the factum of assessee being tenant in the property was not an afterthought version or a colourable device rather in the wealth tax return for the assessment year 1990-91 i.e. prior to the signing of the deed of relinquishment of right/develo .....

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reafter had allowed the claim of the assessee. Without any new fact or information coming into his knowledge and without stating any specific reason merely saying that from the records it is observed that the assessee was not tenant, in our view, is nothing but the change of opinion on the part of the AO. As per the provisions of section 147 of the Act, the AO is authorized to reopen the assessment proceedings, if he has reason to believe that any income chargeable to tax has escaped assessment. .....

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or information. There is no dispute to the well settled proposition that reason to believe must have a material bearing on the question of escapement of income. It does not mean a purely subjective satisfaction of the assessing authority, such reason should be held in good faith and cannot merely be a pretence. Furthermore, the reasons to believe must have a rational connection with or relevant bearing on the formation of the belief. Rational connection postulates that there must be a direct ne .....

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grounds and that the Income-tax Officer may act on direct or circumstantial evidence but not on mere suspicion, gossip or rumour. The Income-tax Officer would be acting without jurisdiction if the reason for his belief that the conditions are satisfied does not exist or is not material or relevant to the belief required by the section. The court can always examine this aspect though the declaration or sufficiency of the reasons for the belief cannot be investigated by the court. The entire law a .....

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too without any material evidence available to the AO to form such a belief in this respect. The Hon ble Supreme Court in the case of CIT vs. Kelvinator of India Ltd." has held that we must keep in mind the conceptual difference between power to review and power to re-assess. The Assessing Officer has no power to review; he has the power to re-assess. As observed above, the reopening and reassessment in this case was nothing, but, the review u/s 143(3) of the Act in the garb of the provisio .....

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