AO can Reopen Assessment if he has ‘reason to believe’ any Income chargeable to Tax has escaped: ITAT

The Income Tax Appellate Tribunal (ITAT), Delhi Bench ruled that the Assessing Officer can reopen assessment if he reason to believe any income chargeable to tax has escaped.

The assessing officer has recorded the reasons on 1 March 2012 stating that assessee, Valmik Thapar has made investment in REC capital gain bonds on 24th of February 2009 of Rs.50 lakhs and further investment of Rs.50 lakhs in national highway authority of India Bonds. According to him, the assessee is eligible for deduction only with respect to an investment of Rs.50 lakhs made in the financial year 2008 – 09 and thereby there is an escapement of income to the extent of  Rs.50 lakhs. The assessee has claimed deduction u/s 54 of the income tax act of a flat purchased at Mumbai for Rs.37,765,215/– and incurred a cost of construction of another house property at New Delhi of Rs 1.70 Crores. The assessee should have been allowed deduction only with respect to one property, therefore the assessee has claimed excess deduction u/s 54 of the act, and therefore there is an escapement of income to that extent.

The assessee, Valmik Thapar submitted that reopening has been made for the reason that assessee has claimed deduction u/s 54EC for Rs 1 crore as assessee has invested in amount exceeding Rs.50 lakhs whereas according to the proviso the claim is allowable to the extent of Rs.50 lakhs only.

The second reason given by the assessee was that the assessee has claimed deduction u/s 54 of the income tax act by making investment in two residential houses assets (new property) whereas deduction u/s 54 is allowable only for ‘one’ property.

The departmental representative submitted that the original return filed by the assessee was not at all assessed but was merely processed and therefore there is no assessment. He further stated that date of recording of the reason is 01 March 2012 and therefore the proviso, which has been referred by the learned authorised representative u/s 54EC of the act, did not exist as on that date for the year. He further submitted that does not apply in the impugned assessment year, which is applicable from 1 April 2015. He further submitted that when there is no assessment made u/s 143 (3) of the act and when the return is merely processed, there is no requirement of any tangible material in that particular case. He further stated that even in the decision of the honourable Supreme Court of India in case of Kelvinator of India the assessment was passed u/s 143 (3) of the act where the honourable Supreme Court has held for requirement of tangible material. It is not at all relevant when the returns are merely processed u/s 143 (1) of the act. He further referred to the additional ground raised by the assessee and stated that in the grounds of appeal the assessee has only stated that statutory precondition of having any tangible material has not been referred to in the reasons of reopening. He submitted that therefore the claim of the assessee that reopening of the assessment is invalid should fail on this count only.

The coram headed by the President Justice P.P.Bhatt and Accountant Member Prashant Maharishi clarified that as per the provisions of Section 147 of the income tax act, if the assessing officer has reason to believe that any income chargeable to tax has escaped assessment for any assessment year he may assess or reassess such income and also any other income chargeable to tax which is escaped assessment which comes to his notice subsequently. The provision of explanation – 2 provides certain circumstances, which are deemed cases, wherein, chargeable to tax has escaped assessment. Clause (b) of that explanation clearly provides that where the return of income has been furnished by the assessee but no assessment has been made and it is noticed by the assessing officer that assessee has understated the income or has claimed excessive loss, deduction, allowance on relief in the return, it shall be considered as deemed escapement.

“When the learned assessing officer has recorded his reason to believe that assessee has claimed excess deduction of ₹ 50 lakhs on 1 March 2012, naturally, there are no decisions available of High Court which provides that assessee can claim deduction of sum deposited in excess of ₹ 50 lakhs u/s 54EC of the act. At the time of recording of the reasons, to reopen an assessment, the learned assessing officer is required to form only prima Facie opinions about escapement of income. It is required to be understood that he is not making an assessment but taking a first baby step for making the assessment by forming a reasonable belief that whether the claim of the assessee should be tested in reassessment proceedings is not,” the ITAT observed.

The tribunal said that there is no infirmity in the action of the learned assessing officer that reasoned escapement of income by claiming deduction of Rs. 1 crore u/s 54EC of the act.

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