Facts of the Case

The assessee, Naveen Singh, filed his return of income for Assessment Year 2017-18 declaring total income of ₹43,99,340, which was processed under Section 143(1). Subsequently, the Assessing Officer initiated reassessment proceedings under Section 147 on the basis of information received from the Directorate of Income Tax (Investigation), Patna, alleging that the assessee had purchased an immovable property for ₹6,35,00,000 whereas the stamp duty valuation was ₹7,64,10,000, resulting in a difference of ₹1,29,10,000. The Assessing Officer treated the alleged difference as deemed income under Section 56(2)(x) and completed the assessment under Section 147 read with Section 144 by adding ₹1,29,10,000. The CIT(A) sustained the addition but directed the Assessing Officer to restrict the addition to one-third share, holding that the property was purchased jointly by three co-purchasers.

Issues Involved

Whether the reopening under Section 147 was valid when based solely on third-party information without independent application of mind, whether the reassessment was vitiated by borrowed satisfaction, and whether the addition under Section 56(2)(x) was sustainable in respect of a leasehold property acquired jointly.

Petitioner’s Arguments

The assessee contended that the reopening was invalid as it was initiated purely on third-party information from the Investigation Wing without any independent enquiry or verification by the Assessing Officer. It was argued that the Assessing Officer failed to examine the leasehold nature of the property and ignored the fact that the property was jointly purchased by three persons. On merits, it was submitted that no land ownership was transferred and only leasehold rights along with the superstructure were acquired. The stamp duty valuation of ₹7,64,10,000 was arbitrary and unsupported by any guideline. Even in the remand proceedings, the Assessing Officer failed to justify the valuation adopted.

Respondent’s Arguments

The Revenue supported the orders of the lower authorities but could not controvert the factual and legal submissions made by the assessee regarding the leasehold nature of the property, joint ownership, and absence of independent application of mind by the Assessing Officer.

Court Order / Findings

The ITAT Ranchi held that the reassessment was initiated without independent application of mind and was based entirely on borrowed satisfaction from third-party information. The Tribunal observed that the Assessing Officer failed to verify critical aspects such as the leasehold nature of the property, the number of purchasers, and the correctness of stamp duty valuation. Relying on settled judicial precedents including Chhugamal Rajpal v. S.P. Chaliha and Sheo Nath Singh v. AAC, the Tribunal held that mere suspicion cannot substitute “reason to believe” under Section 147. The Tribunal further held that even on merits, Section 56(2)(x) was wrongly invoked as no land ownership was transferred and the assessee was only a one-third purchaser of the superstructure. Accordingly, the reassessment proceedings were held to be invalid and the addition was deleted.

Important Clarification

The Tribunal clarified that reopening of assessment must be founded on credible material and independent application of mind establishing a live nexus between information and belief of escapement of income. Borrowed satisfaction based on investigation reports without verification renders reassessment proceedings void. Further, stamp duty valuation must correspond to the nature of rights transferred, and joint ownership cannot be ignored while making additions.

Final Outcome

The appeal filed by the assessee was allowed. The reassessment initiated under Section 147 was quashed as invalid, and the addition of ₹1,29,10,000 made under Section 56(2)(x) of the Income-tax Act was deleted in full.

Link to Download Order- https://www.mytaxexpert.co.in/uploads/1769079778_NAVEENSINGHJAMSHEDPURVS.DEPUTYCOMMISSIONEROFINCOMETAXCIRCLE1JAMSHEDPURJAMSHEDPUR.pdf

 

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