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Smt Taruna Verma Versus ITO, Ward-19 (3) , New Delhi

2017 (9) TMI 1229 - ITAT DELHI

Reopening of assessment - reasons to believe - non providing reason within reasonable time - Held that:- In the present case the assessee has filed the return of income on 18/04/2013 in response to the notice under section 148 of the income tax act dated 22/03/2013. On the date of filing of the return of income, the assessee requested for the reasons recorded. However, the correct reasons recorded were provided to the assessee only on 20/03/2014 i.e. Just before 10 days of the completion of the .....

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respect to the reopening of the assessment, the assessing officer shall proceed for reassessment. In the present case, the assessment proceedings were already completed before providing the correct reasons to the assessee. In view of this, we do not have any hesitation in holding that reassessment proceedings are invalid. - Decided in favour of assessee. - ITA No. 2833/Del/2016 - Dated:- 19-9-2017 - SHRI I.C.SUDHIR, JUDICIAL MEMBER AND SHRI PRASHANT MAHARISHI, ACCOUNTANT MEMBER For The Assessee .....

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sment under section 148 of the Act. 3. The Ld. Assessing officer has erred in law in making the assessment without recording any failure on part of the appellant to disclose fully and truly all material facts necessary for assessment as per the first proviso to section 147 of the Act. 4. The Ld. Assessing officer has erred in law on reopening the assessment based on information received from Investigation Wing of Delhi which constitutes an opinion and not material which is necessary for reopenin .....

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s totally unjustified and unwarranted. 7. The Ld. Assessing officer has no reasons to believe within the section of 147/148 of the I. T. Act, 1961 that the amount of ₹ 78,58,980/- was paid as booking amount by the appellant to M/s. AEZ Group (part of Aerens Group) for booking space at SF - 117 and G.F commercial. 8. The Ld. Commissioner of Income Tax (Appeals), has erred in law in sustaining the addition of ₹ 67,21,980/- under section 69A of the Income Tax Act, 1961. 3. The brief fac .....

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exure A-27 seized from that particular company. Therefore, the ld Assessing Officer noted that booking amount of the assessee is ₹ 7858980/- and the cash payment is ₹ 6721980/- and the payment through banking channel is only ₹ 1137000/-. Therefore, the ld Assessing Officer formed a belief that assessee has made a cash payment of ₹ 6721980/- from undisclosed sources. Therefore, a notice u/s 148 was issued on 22.03.2013 recording following reasons which were communicated to .....

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epted by you during the course of post search enquiries conducted by the Investigation Wing. Thereafter, in response to query letter dated 05.02.2013 of the undersigned vide you letter dated 27.02.2013 you have accepted investment of ₹ 11.37 lacks only for the above property. In view of the above fact and circumstances I have reasons to that the income to the extent of ₹ 6721980/- paid by you in cash for booking/ purchase of the above property with AEZ Group in FY 2006-07 is chargeab .....

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1.04.2006 ₹ 1137000/- and on 21.06.2011 ₹ 20.63 lacs. Therefore, the assessee has paid total sum of ₹ 32 lacs. The assessee further explained by submitting the copy of agreement between the assessee and the builder. On 19.03.2014 assessee was issued a summon and on 20.03.2014 the assessee was further provided an altogether different reasons stating that there was typographical error in the original returns recorded. Such reasons are as under:- Information has been received from .....

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king/ purchase of property in the above said project. The amount accepted by them to have been paid exactly matched with the amounts mentioned in the extracted sheets of the hard Disk seized from the Corporate Office of the AEZ Group. Ms. Taruna Verma is one of the investors of the AEZ Group, who has booked purchase Unit No. FF117, Ground Floor Commercial, Indirapuram habitat Centre Project, Ghaziabad project of AEZ Group. As per information received M/s. Taruna Verma has made a total payment of .....

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asons to believe that income to the extent of ₹ 6721980/- paid by M/s. Taruna Verma in cash for booking / purchase of property with AEZ Group in the FY 2006-07 is chargeable to tax for the assessment year 2007-08 and has escaped assessment. 5. On 24.03.2014, the assessee raised objection to the revised reasons recorded by the Assessing Officer stating that assessee has not made any cash payment. The assessee also objected to the reopening. On the same day, the objections of the assessee we .....

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ten synopsis which are as under:- Brief facts of the case: 1) Ld. A0 on the basis of information from Investigation wing vide letter dated 03.05.2012 issued notice u/s 148 on 22.03.2013 to the assessee. (Refer pg no-1 of PB) 2) In response thereto, assessee filed the return of income of ₹ 1,08,256/- as income from other sources. (Refer pg. no-2 to 6 of PB) 3) Thereafter, assessee made a request to the ld. AO vide letter dated 18.04.2013 to supply Reasons to Believe . (Refer page no-2 of PB .....

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80/- was paid in cash. It was also specified in the letter that assessee had accepted the same. 5) Then, just before 8 days of passing of the assessment order, the Id. AO issued another Reasons to Believe vide letter dated 20.03.2014 citing the reason that while sending Reasons to Believe vide letter dated 22.04.2013, some typographically mistakes had been crept in. Therefore letter dated 22.04.2013 was withdrawn. (Refer pg. no-55 of PB) 6) In second letter of Reasons to Believe , reasons of reo .....

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. Reasons to believe cannot be altered, changed and supplemented. Ground No. 5 of Assessee s appeal 1.1 Ld. AO firstly issued reasons to believe vide letter dated 22.04.2013 at page no. 9 of PB. In said reasons to believe, Id. AO relied upon the information received from Investigation Wing that the assessee booked the Indirapuram property for alleged consideration of ₹ 78,58,980/-. Out of this ₹ 11,37,000/- was paid in cheque and balance ₹ 67,21,980/- paid in cash. 1.2 The ld. .....

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to believe dated 22.04.2013. (Refer page no- 55 of PB). 1.4 The typographical mistakes relates to misprinting/ typing error whereas in another reasons to believe issued vide letter dated 20.03.2014, Ld. AO made the addition as well as deletion of some facts mentioned in the reasons provided on 22.04.2013 which were the original reasons on the basis of which he had issued notice u/s 148 of Income Tax Act, 1961. 1.5 It is a trite law that for making the assessment u/s 147 of I.T Act, the reasons .....

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nsidered when the formation of the belief is impugned. The recording of reasons distinguishes an objective from a subjective exercise of power. The requirement of recording reasons is a check against arbitrary exercise of power. For it is on the basis of the reasons recorded and on those reasons alone that the validity of the order reopening the assessment is to be decided. The reasons recorded while reopening the assessment cannot be allowed to grow with age and ingenuity, by devising new groun .....

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exercise of powers under section 148. (EMPHASIS SUPPLIED) b. The above case has been followed by the Delhi High Court in the case of Signature Hotels (P.) Ltd. v. ITO [2011] 338 ITR 51. c. Reliance has been placed on the decision of the Hon'ble Bombay High Court in the case of Hindustan Lever Ltd. v. R.B. Wadkar [2004] 190 CTR 166 (Bombay) whereby following has been held: 20. The reasons recorded by the Assessing Officer nowhere state that there was failure on the part of the assessee to dis .....

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case of Godrej Industries Ltd. v. B.B. Singh DCIT & others (2015) 377 ITR 1 (Bom.) which held as under: 10. Therefore, the reasons recorded at the time of issuing notice is the only evidence of the Assessing Officer s reason to believe that income chargeable to tax has escaped assessment. These reasons cannot be added to, deleted from or supplemented.... e. CIT v. S.R. Construction (2002) 257 ITR 502(M.P) 14. Thus, the attempt of the counsel for the revenue, in the instant case, to justify .....

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06 15 In Mohender Singh Gill v. Chief Election Comm., AIR 1978 SC 51, 858, it is held that when a statutory functionary makes an order based on certain ground, its validity must be judged by the reasons so mentioned and cannot be supplemented by fresh reasons in the shape of affidavit or otherwise. Otherwise, an order bad in the beginning may, by the time it comes to the court on account of a challenge, get validated by additional grounds later brought out' ' 2. No Reasons to believe wit .....

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d as under: The same was also accepted by you during the course of post search enquiries conducted by the Investigation Wing. Thereafter, in responses to query letter dated 05/02/2013 of the undersigned, vide your letter dated 27/02/2013 you have accepted investment of ₹ 11.37 lakh only for the above property. 2.3 In the first line, ld. AO stated that the assessee accepted the total payment of ₹ 78,58,980/- made to the Aerens Group for Indirapuram property during post search enquirie .....

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shed to the assessee vide letter dated 20.03.2014 at page no-55 to 56 of PB. 2.5 On perusal of the new reasons to believe, it comes clear that reasons were nothing but AO s presumption that since some investors admitted payment in cash which tallied with the seized material found during the course of search conducted on third party, therefore assesee, Taruna Verma would have made the payment in cash ofRs. 67,21,980/-for booking the Indirapuram property. 2.6 Your Honour, the investigation carried .....

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ls Ltd. Vs. CIT (1955) AIR 65 (1955 SCR 011941). 2.8 There is catena of judicial pronouncements on this issue which clearly supports the assessee's case on the lack of jurisdiction with the Ld. Assessing Officer who had merely adopted reasons to believe on the basis of the report from the ACIT Investigation and that there is total non application of mind in recording to reasons for assumption of jurisdiction. Reliance is placed on the following judgements: a) Pr. Commissioner Of Income Tax v .....

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orming a prima facie opinion, on the basis of such material, it was not possible for the AO to have simply concluded: it is evident that the assessee company has introduced its own unaccounted money in its bank by way of accommodation entries . In the considered view of the Court, in light of the law explained with sufficient clarity by the Supreme Court in the decisions discussed here- in-before, the basic requirement that the AO must apply his mind to the materials in order to have reasons to .....

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ssessment if he has reason to believe the assessee's income has escaped assessment. However, his reasons to believe must not be based on surmises, conjectures or occasioned by change in opinion but must be based on some tangible and credible material on the basis of which a reasonable belief could be formed that income of an assessee has escaped assessment c) CIT vs. SFIL Stock Broking Ltd. [2010] 325 ITR 285 (DHC) Held that, in the present case, the first sentence of the so-called reasons r .....

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mation and the two directions as 'reasons' on the basis of which he was proceeding to issue notice under section 148. These could not be the reasons for proceeding under section 147/148. From the so-called reasons, it was not at all discernible as to whether the Assessing Officer had applied his mind to the information and independently arrived at a belief that, on the basis of the material which he had before him, income had escaped assessment. Therefore, the reassessment was not valid. .....

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ot a pointer and does not indicate escapement of income. Further, it is apparent that the Assessing Officer did not apply his own mind to the information and examine the basis and material of the information. The Assessing Officer accepted the plea on the basis of vague information in a mechanical manner. The Commissioner also acted on the same basis by mechanically giving his approval. The reasons recorded reflect that the Assessing Officer did not independently apply his mind to the informatio .....

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mpanies. Neither the reasons in the initial notice nor the communication providing reasons remotely indicate independent application of mind. True it is, at that stage, it is not necessary to have the established fact of escapement of income, but what is necessary is that there is relevant material on which a reasonable person could have formed the requisite belief. To elaborate, the conclusive proof is not germane at this stage but the formation of believe must be on the base or foundation or p .....

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the order of rejection. The assessee in his objections had clearly stated that the companies had bank accounts and payments were made to the assessee-company through banking channel. The identity of the companies was not disputed. Under these circumstances, it would not be appropriate to require the assessee to go through the entire gamut of proceedings. It is totally unwarranted. 3. Material/Evidence that assessee made cash payments had never been confronted. 3.1 The Ld. Assessing officer had i .....

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1,980/- besides cheque for ₹ 11,37,000/-. This shows that the Ld. Assessing officer relied upon Annexure A-27 while making the impugned addition of ₹ 67,21,980/-. However the same had never been confronted to the assessee. By merely stating anything in the notice, the Ld. Assessing officer had not discharged his duty without furnishing any documentary proof on which he relied and alleged that the cash payment was made by the assessee. The onus is upon Ld. Assessing Officer to substan .....

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s mentioned in the extracted sheets of the Hard Disk seized from the Corporate office of the AEZ Group.'' The Ld. Assessing officer recorded the reasons for reopening the case of assessee u/s 147 relying upon the extract of sheets of the hard disk seized from the corporate office of the AEZ Group. The said extract sheets of hard disk was never confronted before the assessee. 3.3 Ld. AO also did not consider the need of recording the statement of the person with whom the asseessee had ent .....

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DCIT reported in 131 Taxman 86 in 2013 has held that 7 We have considered the rival submissions and have perused the relevant material on which our attentions were drawn. After perusing all these material, we find that assessee deserves to succeed in both of these years, on the ground alone that the material found during the course of search from a third party was not confronted to the assessee. The relevant records could not be produced even before the Tribunal in spite of affording so many opp .....

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same day vide letter dated 24.03.2014 without considering the objections filed by the assessee. This shows that ld. AO had already made up his mind to make the impugned addition of ₹ 67,21,980/-. 5. If action under sec. 153C is permitted on the basis of material found in the course of search of third party, then the provisions of sec. 147 would be redundant. The Ld. Assessing officer issued notice under section 148 to assess such undisclosed income is void ab initio. The ld. AO initiated t .....

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of ITO vs. Arun Kumar Kapoor 140 TTJ 249 (Amritsar) reassessment was initiated on the basis of incriminating material found in search of third party and the validity of the same was challenged by the assessee before the Learned CIT vitiated the proceedings. The same was questioned by the Revenue before the ITAT and the ITAT after discussing the cases of the parties and the relevant provisions in details has come to the conclusion that in the above situation, provisions of sec. 153C were applica .....

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he Directorate of Income-tax on the basis of search & seizure operation conducted at the premises of Rock Land Group of Cases and the documents related to the assessee found during the course of search were made available to the Assessing Officer of the present assessee. We thus respectfully following the decision of Coordinate Bench of the ITAT in the case of ACIT vs. Arun Kapur - 140 TTJ 249 the present case for framing the assessment, if any, which excludes the application of sec. 147 of .....

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ands. The assessee admitted before the DDIT (Inv) that he had source for investments to the extent ofRs. 206 lakhs and the balance amount of ₹ 24 lakhs was declared as unexplained investment. The Assessing Officer, based on the assessee's statement, issued notice under section 148 to reopen the assessment and completed the assessment under section 143(3), read with section 147, making certain addition. Tribunal relying on the decision of Mumbai Tribunal in the case of State Bank of Ind .....

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exclusive domain of section 153A. In the instant case, since the assessment is made consequent to search in another case, the Assessing Officer is bound to issue notice u/s 153C and thereafter proceed to assess or reassess total income under section 153A of the Act. The Assessing Officer, instead of complying with the provisions of section 153C, proceeded with the reassessment under section 147/148 which is not applicable to search cases. Therefore, the impugned assessment order passed u/s 143(3 .....

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annot be presumed to have taken place in the case of the assessee. The Ld. Assessing Officer made addition on the basis of admission by seven investors out of 23 investors. Admission or statement by third party cannot be the basis for making an assessment/reassessment. 7. When assessee disclosed and explained the total investment with necessary evidences, then addition of ₹ 67.21.980/- u/s 69A of the Income Tax Act. 1961 is not valid. Ground no. 8 of assessee's appeal 7.1 Ld. AO made t .....

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Habitat Centre Private Limited and assessee, Smt. Taruna Verma was also provided vide letter dated 10/02/2016 to substantiate the total investment made by the assessee. (Refer pg. no 75 to 100 of PB) 7.4 Assessee also vide letter dated 24/03/2014 explained before ld. AO that she had paid an amount of ₹ 11,37,000/- by cheque on 19.04.2006. However she was never allotted her share in the property at the time of booking of the space and, therefore, the question of making full payment at the t .....

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ry evidence before ld. AO that she did not utilize her unaccounted income for investment in booking FF117, GF, Commercial Indirapuram Habitet Centre Project, Ghaziabad of AEZ Group. There was nothing which was unexplained before ld. AO. Therefore addition made u/s 69A as unexplained money is not valid. 8. Addition of ₹ 67,21,980/- u/s 69A cannot be valid when AEZ Group refunded the entire amount invested i.e. ₹ 32,00,000/- to the assessee. 8.1 The alleged property in question was tak .....

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8.2 M/s. AEZ Group refunded the entire amount i.e. ₹ 32.00.000/- to the assessee and also refunded ₹ 6.40.314 on which an amount of ₹ 64.031/- has been deducted as TPS by M/s Indirapuram Habitate Centre (Pvt.) Limited proving thereby the fact that the assessee had made no payment in cash and assessee had also come out of the terms of the agreement bv a legal arbitration and the result was that the agreement was terminated. 8.3 In view of the above fact, it is proven that the as .....

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ement cannot be made basis of making addition as unexplained investment. 11. Considering all the above facts and explanations, the impugned addition made by the ld. AO and affirmed by the ld. CIT(A) was totally invalid and deserves to be deleted. 7. The ld Departmental Representative relied upon the order of the lower authorities. 8. We have carefully considered the rival contentions. The issue before us is twin fold: one with respect to the reopening of the assessment challenged by the assessee .....

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ring the course of post search enquiries conducted by the Investigation Wing. The reasons also stated that AO had issued a query letter on 5.02.2013, which was replied by the assessee on 27.02.2013, wherein the assessee has accepted investment of ₹ 11.37 lacs only. Therefore, the ld AO had reason to believe that sum of ₹ 6721980/- is paid by the assessee in cash. 9. In response to above reasons assessee submitted that it has paid on 21.04.2006 ₹ 1137000/- vide cheque No. 874025 .....

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. Apparently, assessee was not examined. The Revenue also could not produce any such communication which are also referred to in letter dated 22.04.2013. 10. Further suddenly on 20/03/2014 the Ld. assessing officer wrote a letter to the assessee stating that by sending the letter dated 22/04/2013 wherein the original reasons recorded were communicated, some typographical mistake have crept in. Therefore, the said letter dated 22/04/2013 is withdrawn. It was further stated that 22/03/2013 under s .....

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ew reasons on 24/03/2014, which was disposed of on the same date without adverting to the any of the objection of the assessee. In the present case the figure stated by the Ld. assessing officer in reasons recorded as well as the actual fact of details of payment made by the assessee to the builder did not match. Assessee has already paid a sum of ₹ 32 Lacs whereas the reasons mentioned by the assessing officer states that assessee has only paid ₹ 11.37 Lacs. Therefore, it is apparen .....

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: Having examined the record, we find that in this case, the Depart ment sought reopening of the assessment based on the opinion given by the District Valuation Officer, the opinion of the District Valuation Officer per se is not an information for the purposes of reopening assessment under section 147 of the Income-tax Act, 1961. The Assessing Officer has to apply his mind to the information, if any, col lected and must form a belief thereon. In the circumstances, there is no merit in the civi .....

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Page No : 0152 Court in Phool Chand Bajrang Lal v. ITO (supra) as well as the decision of this court in Haryana Acrylic Manufacturing Co. (P.) Ltd. v. CIT [2009] 308 ITR 38 (Delhi) The court noted that a material change had been brought about to section 147 of the Act with effect from April 1, 1989 and observed (page 368 of 378 ITR) : It is at once seen that the amendment in section 147 of the Act brought about a material change in law with effect from April 1, 1989. Section 147(a) as it stood .....

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that income of an assessee has escaped assessment. However, the proviso to section 147 of the Act provides a complete bar for reopening an assessment, which has been made under section 143(3) of the Act, after the expiry of four years. However, this proscription is not applicable where the income of an assessee has escaped assessment on account of failure on the part of the assessee to make a return or to disclose fully and truly all material facts necessary for his assessment. Thus, in order to .....

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ame was in respect of section 147(a) as it existed prior to the amendment. 12. In the present case, after setting out four entries, stated to have been received by the assessee on a single date, i.e., February 10, 2003, from four entities which were termed as accommodation entries, which information was given to him by the Directorate of Investigation, the Assessing Officer stated : I have also perused various materials and report from Investigation Wing and on that basis it is evident that the .....

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taken the exercise, to make a reference to the manner in which those very entries were provided in the accounts of the assessee, which must have been tendered along with the return, which was filed on November 14, 2004, and was processed under section 143(3) of the Act. Without forming a prima facie opinion, on the basis of such material, it was not possible for the Assessing Officer to have simply concluded : it is evident that the assessee company has introduced its own unaccounted money in it .....

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how the Commissioner of Income-tax (Appeals) discussed the materials produced during the hearing of the appeal. The court would like to observe that this is in the nature of a post mortem exercise after the event of reopening of the assessment has taken place. While the Commissioner of Income-tax may have proceeded on the basis that the reopening of the assessment was valid, this does not satisfy the requirement of law that prior to the reopening of the assessment, the Assessing Officer has to, .....

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. In the present case, it is apparent that Ld. assessing officer has not applied his mind to the information provided by the investigation wing to the extent that even the amount of payment made by the assessee to the builder was not even verified. Furthermore it was also not verified that were the investors purchasing the property were examined. The Ld. assessing officer even did not care to provide the correct reasons recorded by the revenue instead of that he provided the reasons incorporatin .....

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Act is issued, the proper course of action for the noticee is to file a return and if he so desires, to seek reasons for issuing notices. The Assessing Officer is bound to furnish reasons within a reasonable time. On receipt of reasons, the noticee is entitled to file objections to issuance of notice and the Assessing Officer is bound to dispose of the same by passing a speaking order. In the instant case, as the reasons have been disclosed in these proceedings, the Assessing Officer has to disp .....

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