The Delhi bench of the Income Tax Appellate Tribunal ( ITAT ) quashed the reassessment proceedings, noting that the firm used a partner’s property as its address, but the property had been sold before the issuance of the notice under Section 148 of the Income Tax Act, 1961.
The assessee Chaudhary Stone Crusher was a partnership firm and had not filed its return of income for AY 2011-12. The assessee firm was formed on 26.11.2009 with five partners. The firm was formed for the purpose of manufacturing and trading of stone grits, corsand, etc. The firm never got permission/ consent to operate from the UP Pollution Control Board and therefore operations of the firm never commenced. Serious disputes arose between the partners and the partners sold their individual properties which were purchased by them in earlier years. As per the sale deed, 7212 sq.mtr of land owned by the partners in their individual capacity was sold as land with machinery of stone crusher and building situated at Mahmoodpur Nagli, Faizabad, and District Saharanpur.
The reassessment was completed by the AO under Section 144/ 147 of the Income Tax Act on 24.12.2018 bringing the sale consideration of land and building and machinery at ₹91, 74,000/- as income of the assessee and determining the short-term capital gains thereon. In fact, the AO had issued show cause notice dated 04.12.2018 to this effect. In response to the said show cause notice, the assessee filed a reply on 10.12.2018 stating that the concerned land does not belong to the assessee firm, but the same belonged to individuals who are partners of the firm. The AO rejected the said explanation for want of documentary evidence and proceeded to treat the sale consideration of land and building and machinery at ₹91,74,000/- as short-term capital gain in the hands of the assessee firm.
The two member bench of the tribunal comprising Amit Shukla ( Judicial member) and M. Balaganesh ( Accountant member) found that the assessee firm existed in the said address and was merely using the property owned by the partners as the address of the assessee firm and that since the properties were sold by the partners prior to the issuance of notice under Section 148 of the Income Tax Act, the assessee firm was not existent in that address and the notice under Section 148 of the Income Tax Act had to be returned undelivered by the postal authorities.
It was also noted that the said property along with stone crusher machines were sold at ₹91,74,000/-, and the said sums were credited in the bank accounts of the concerned individuals. None of the credits were made in the bank account of the assessee firm. Hence, the entire facts recorded by the AO and the reasons recorded for reopening the assessment and the assessment order are factually incorrect.
Accordingly, it could be safely concluded that the reopening has been made on incorrect assumption of facts. ITAT has no hesitation in quashing the entire reassessment proceedings. Accordingly, grounds raised by the assessee were allowed.
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