S. 147: Reopening invalid if reasons silent on quantum of escaped tax
In AY 2000-2001 the assessee sold a plot of land after converting leasehold land into freehold. The capital gains arrived at was offered as LTCG and the same was accepted by the AO. After the expiry of 4 years, the AO issued a notice u/s 148 for reopening the assessment on the ground that as the property was sold within three years of conversion into freehold, the gains were assessable as STCG. The approval of the Joint/ Addl. CIT was obtained. However, in the recorded reasons, it was not stated whether the amount of income escaping assessment exceeded Rs. 1 lakh. The assessee challenged the reopening on the ground that as the recorded reasons did not state that the income escaping assessment is Rs. 1 lakh or more, the reopening was invalid. HELD by the High Court upholding the plea:
S. 149 (1) (b) provides that no notice u/s 148 shall be issued after the expiry of 4 years from the end of the relevant AY unless the income chargeable to tax which has escaped assessment amounts to Rs. 1 lakh or more. Under the proviso to s. 151 (1), no notice u/s 148 can be issued after the expiry of four years from the end of the relevant AY unless the CCIT/ CIT is satisfied on the reasons recorded by the AO that it is a fit case for issue of such notice. Accordingly, it is imperative that the AO should state in the recorded reasons that the escaped income is likely to be Rs.1 Lakh or more so that the sanctioning authority is aware that it has exercised power of extended period of limitation u/s 149 (1) (b) and applies its mind accordingly. A sanction given without being aware of this fact is not valid. On facts, as there is nothing in the recorded reasons to suggest that the income chargeable to tax which has escaped the assessment is Rs. one lakh or more, the reopening is not valid.