Introduction:
The Income Tax Appellate Tribunal, Delhi Bench “C,” recently adjudicated the appeal in the case of Kunwar Ayub Ali against the order of the Commissioner of Income Tax (Appeals)-II, Noida. The appeal, filed against the assessment order dated 27.03.2015 under Section 147/148 for the Assessment Year 2009-10, raised substantial issues concerning jurisdiction and the legitimacy of additions/disallowances.
Background:
Kunwar Ayub Ali, a civil/criminal lawyer, filed his income tax return for the Assessment Year 2009-10 on 31.03.2009, declaring a total income of Rs.2,39,651/-. The Assessing Officer (AO) reopened the assessment under Section 147, alleging the escapement of income from the sale of residential/agricultural land in Village Dasana for Rs.98,76,000/-. The AO’s contention was that the sale consideration exceeded the circle rate, leading to a capital gain of Rs.72,11,880/-. The appellant challenged this assessment, primarily on grounds related to jurisdiction and the merits of the addition.
Key Grounds of Appeal:
- Lack of Jurisdiction under Section 147.
- Legitimacy of Addition/Disallowance on Merits.
Procedural Aspects:
The appellant contended that the AO lacked jurisdiction under Section 147, as the reasons recorded for reopening the assessment were factually incorrect. The AO cited non-filing of the return and alleged escapement of income based on a sale consideration of Rs.98,76,000/-. However, the appellant had filed the return on 31.03.2009, and the actual share of sale consideration attributable to him was Rs.24,69,000/-.
Legal Arguments:
- Jurisdictional Challenge: The appellant asserted that the AO’s belief in escapement was based on incorrect facts. The return was duly filed, and the alleged sale consideration was misrepresented, leading to a flawed assumption of jurisdiction. Citing precedent from Mumtaz Hazi Mohmad Menon (2018) 408 ITR 268 (Guj), the appellant argued that jurisdiction cannot be assumed on wholly incorrect facts.
- Merits of the Addition: While challenging the jurisdiction, the appellant also questioned the legitimacy of the addition on merits. However, due to the inherent lack of jurisdiction, the Tribunal did not delve into the merits of the addition.
Judicial Precedents:
The appellant relied on legal precedents, such as Mumtaz Hazi Mohmad Menon (2018) 408 ITR 268 (Guj), Sagar Enterprises vs. ACIT (2001) 257 ITR 335 (Guj), and Dr. Ajit Gupta vs. ACIT (383 ITR 361 Delhi), emphasizing that reopening based on mistaken factual premises is unsustainable in law.
Tribunal’s Decision:
The Tribunal, after careful consideration of submissions, quashed the reassessment proceedings. Emphasizing the incorrect factual basis for assuming jurisdiction, the Tribunal held that the AO failed to consider the filed return and erroneously computed the sale consideration. As a result, the Tribunal allowed the appeal, setting aside the actions of the CIT(A) and quashing the reassessment proceedings.
Conclusion:
The case of Kunwar Ayub Ali vs ITO serves as a notable precedent reaffirming that jurisdiction cannot be assumed based on incorrect facts. The Tribunal’s decision underscores the importance of accurate information in initiating reassessment proceedings. Taxpayers are provided with a shield against reopening assessments when jurisdiction is premised on inherently flawed reasons, ensuring a fair and just application of tax laws.
