ITAT Upholds Reopening of Assessment but Sends ₹45.5 Lakh Property Addition Back to AO

Reopening of Assessment Upheld

The Income Tax Appellate Tribunal (ITAT), Mumbai Bench, partly allowed the appeal of Rekhaben Sharadkumar Mehta for Assessment Year 2012–13, upholding the reopening of assessment under Section 147 while remanding the issue of unexplained property investment to the Assessing Officer (AO) for fresh consideration. The case arose after the Assessing Officer received information through the department’s transaction records indicating that the assessee had purchased an immovable property worth ₹45.50 lakh and was also involved in a capital asset transaction where the stamp duty value exceeded the declared value. Since the assessee had not filed an income tax return for the relevant year, the AO initiated reassessment proceedings under Section 148 of the Income Tax Act. During reassessment, the AO treated the property investment of ₹45.50 lakh as unexplained and added it to the assessee’s income under Section 69A. The Commissioner of Income Tax (Appeals) upheld both the reopening and the addition, after which the assessee approached the Tribunal.

Tribunal’s Observations

Before the Tribunal, the assessee argued that the reopening was invalid because the reasons recorded by the AO were incorrect and based merely on verification of information. However, the Tribunal observed that the assessee had not filed a return of income for the relevant assessment year, leaving the AO with limited information regarding the financial transactions. The Tribunal noted that the AO had relied on available information from the department’s transaction database and that the fact of property purchase was undisputed. Therefore, following the principle laid down by the Bombay High Court in Raymond Woollen Mills Ltd., the Tribunal held that the AO had sufficient “reason to believe” that income had escaped assessment. Consequently, the challenge to the reopening of assessment was rejected. However, on the issue of the addition of ₹45.50 lakh as unexplained investment, the Tribunal found that the assessee had not been provided adequate opportunity to substantiate the source of funds during earlier proceedings. In the interest of justice, the Tribunal restored this issue to the file of the Assessing Officer for fresh examination after giving the assessee a reasonable opportunity to present evidence.

Accordingly, the appeal was partly allowed for statistical purposes.