Reassessment Quashed When Reasons Recorded Rest on Factually Incorrect Grounds: ITAT Chandigarh Ruling
Case Overview: Smt. Monika Rani Vs ITO (ITAT Chandigarh)
The Income Tax Appellate Tribunal, Chandigarh ("the Tribunal") rendered a significant decision in the matter of Smt. Monika Rani Vs ITO, setting aside reassessment proceedings that had been initiated under Section 147 and Section 148 of the Income Tax Act, 1961. The appeal arose from the order dated 06/02/2019 passed by the Ld. CIT(A), Karnal. The Tribunal held that when the foundational assumptions underpinning the recorded reasons are factually wrong, the entire reassessment exercise collapses and is liable to be quashed.
Background Facts and Procedural History
The assessee had electronically filed her return of income on 30.03.2011, declaring a total income of Rs. 2,06,465/. The return was processed under Section 143(1) of the Income Tax Act, 1961, and the assessment attained finality.
Approximately six years later, the Assessing Officer issued a notice under Section 148 of the Act on 27.03.2017, seeking to reopen the assessment for Assessment Year 2010-11. A subsequent notice under Section 142(1) was also issued on 25.07.2017. The assessee, in response, requested that the return already filed on 30.03.2011 be treated as the return filed in response to the Section 148 notice.
Reasons Recorded for Reopening
Upon the assessee's request, the Assessing Officer furnished a copy of the reasons recorded, which read as follows:
"As per information on record of this office, the above noted person has purchase of property amounting to Rs. 1,49,02,500/- during the F.Y. 2009-10, which amount is much more than the maximum exempt limit of Rs. 1,90,000/- prescribed for the corresponding A.Y. 2010-11. However, as per the record of this office, the assessee has not filed his return of income. I, therefore, have reason to believe that the assessee's income corresponding to the afore-said purchase of property amounting to Rs. 1,49,02,500/- has escaped assessment within the meaning of section 147 of the Income-tax Act, 1961. It is therefore, proposed to issue a notice under section 148 of the Income-tax Act, 1961 for the assessment year 2010-11."
S/d (B.B. SHARMA), Income Tax Officer, Ward-2, Kurukshetra
The recorded reasons thus rested on two core assumptions:
- The assessee had not filed any return of income for AY 2010-11.
- The assessee had purchased property worth Rs. 1,49,02,500/- during FY 2009-10.
Grounds of Appeal Raised Before the Tribunal
The assessee raised the following grounds before the Tribunal:
- Orders passed by the Ld. ITO and CIT (Appeal) are illegal, arbitrary and bad in law.
- On Facts and in circumstances of the case Ld. ITO was not justified in issuing notice u/s 147/148 of the I T Act on the basis of irrelevant ground and the reasons which are nonexistent and the notice u/s 147/148 were illegal, arbitrary and bad in law.
- On facts and in the circumstances of the case Ld. ITO was not justified in issuing notice u/s 147/148 of the I T Act when all material facts have already been disclosed in the return of income and the assessment has already been completed and it has become final.
- On facts and in circumstances of the case Ld. ITO was not justified in making addition of Rs. 15,00,000/- on account of gift made by her son Sumit Chhabra.
- On facts and in circumstances of the case Ld ITO was not justified in making addition of 15,00,000/- on account of gift made by Sh Ashok Kumar husband of the assessee.
- On facts and in circumstances of the case Ld ITO was not justified in making addition of 10,00,000/- on account of gift made by Sh Ashok Kumar HUF and husband of the assessee.
- On facts and in circumstances of the case Ld ITO was not justified in making addition of 6,00,000/- on account of gift made by Sh Babu Ram father in law of the assessee.
The Assessee's Objections Against Reopening
The assessee mounted a detailed challenge against the validity of the reassessment proceedings, making the following key submissions: