Rajbir Kaur Athwal Vs ITO (ITAT Chandigarh)
Reopening Based on Incorrect Ownership and Sale Consideration Is Invalid When the Correct Sale Deed Was Already With the AO
Background
The Chandigarh Tribunal quashed a reassessment as void ab initio because the Assessing Officer recorded reasons attributing the entire consideration from a jointly owned property to the assessee, even though the registered sale deed showing the correct ownership position was already in his possession.
The Tribunal held that this was a defect in the factual foundation of jurisdiction, rather than a minor computational error capable of correction during reassessment.
The appeal was pursued by the legal heir of the deceased assessee. A delay of 118 days was condoned after considering the explanation that the assessee had depended on counsel for tax matters and that communication with the family had been disrupted following his death.
Reasons Recorded for Reopening
The assessee had not filed a regular return for Assessment Year 2010–11. The AO issued a notice under Section 148 on 30 March 2017, alleging that substantial capital gains had escaped assessment.
The recorded reasons stated that the assessee had sold 16.187 acres of land in Village Mauja Khera for ₹12,46,43,750, through a registered sale deed dated 15 December 2009.
Since the fair market value as on 1 April 1981 was not readily available, the AO adopted an illustrative value of ₹2 lakh per acre. On that basis, he calculated indexed cost at approximately ₹2.08 crore and alleged escaped capital gains of ₹10,38,59,642.
However, the property was jointly owned. The assessee’s interest extended to 11.204 acres, and his share of consideration was ₹8,49,99,979, rather than the entire amount stated in the reasons.
Assessment of Capital Gains
During reassessment, the assessee challenged the reopening and explained his limited ownership share. He also contended that the land was agricultural, that transfer had occurred in an earlier year, and that exemptions were available under Sections 54B and 54F.
The AO accepted the proportionate ownership position and computed capital gains using the assessee’s consideration of approximately ₹8.50 crore.
After adopting indexed acquisition cost of approximately ₹56.41 lakh, he calculated capital gains of approximately ₹7.94 crore. A deduction of approximately ₹2.08 crore under Section 54B was allowed, while the Section 54F claim was rejected for want of documentary evidence.
The resulting taxable long-term capital gains were approximately ₹5.86 crore. The CIT(A) confirmed the assessment.
Additional Jurisdictional Ground Admitted
Before the Tribunal, the assessee raised additional legal grounds challenging the validity of reopening.
The Tribunal admitted these grounds by applying NTPC v. CIT, 229 ITR 383 (SC), since they involved legal questions capable of determination from the existing record without requiring appreciation of new facts.
The principal contention was that the AO had formed his belief on incorrect facts despite possessing the document from which the correct facts were readily ascertainable.
Sale Deed Was Available Before Reopening
The Tribunal examined the AO’s letter dated 15 March 2017, issued before the Section 148 notice. That letter referred to the registered sale deed as an enclosure.
Consequently, the AO already possessed the material showing joint ownership and the assessee’s proportionate entitlement when he recorded the reasons.
The Tribunal emphasised that the correct ownership position was not merely a subsequent explanation introduced by the assessee. It appeared in the very document available to the AO and was ultimately accepted by him in the reassessment.
The reasons nevertheless proceeded as though the assessee alone had received the entire ₹12.46 crore.
Prima Facie Belief Must Rest on Correct Facts
The Revenue argued that only a prima facie belief was necessary at the reopening stage and that precise computation could follow during assessment.
The Tribunal accepted that final determination of taxable income belongs to assessment proceedings. However, it held that a prima facie belief must still rest on real, relevant and correct foundational facts.
Here, the incorrect consideration directly formed the basis of the alleged escapement. The error therefore could not be dismissed as an inconsequential calculation mistake.
The Tribunal further held that jurisdiction must exist at the point of initiation. An AO cannot subsequently replace the factual basis of the recorded reasons or cure a foundational defect through the eventual assessment.
Judicial Precedents Applied
The Tribunal relied on CIT v. Atlas Cycle Industries, 180 ITR 319 (P&H), concerning reassessment founded on grounds that did not exist, and CIT v. Smt. Paramjit Kaur, 311 ITR 38 (P&H), distinguishing reasons to believe from reasons to suspect.
It also followed Tribunal decisions in Ganga Parshad, Skycity Builders & Promoters and Taj Land Developers & Promoters, addressing incorrect factual premises and the inability to improve recorded reasons subsequently.
Decision
The Tribunal quashed the Section 148 notice and consequential reassessment proceedings. The remaining legal and substantive grounds became academic and were not adjudicated.
Accordingly, the order does not decide the agricultural-land contention or the disputed exemptions under Sections 54B and 54F.
Author’s Comments
The important distinction is between an estimate awaiting refinement and an ownership assumption contradicted by the AO’s own records. The Tribunal treated the latter as going to the root of jurisdiction.
For practitioners, the decision highlights the value of comparing recorded reasons with documents demonstrably available before reopening. Here, the AO’s earlier correspondence established possession of the sale deed, while the eventual assessment confirmed the correct share.
The ruling concerns the erstwhile Sections 147 and 148 framework. Its central lesson is that reassessment jurisdiction cannot be built on a factual premise the available record itself disproves.
Cases Discussed
- NTPC v. CIT, 229 ITR 383 (SC)
- CIT v. Atlas Cycle Industries, 180 ITR 319 (P&H)
- CIT v. Smt. Paramjit Kaur, 311 ITR 38 (P&H)
- Ganga Parshad v. ITO, ITA No. 201/Asr/2024, order dated 13.08.2024
- Skycity Builders & Promoters Ltd. v. DCIT, ITA No. 1066/Chd/2025, dated 16.03.2026
- ITO v. Taj Land Developers & Promoters P. Ltd., ITA Nos. 606/Chd/2024, dated 22.09.2025
FULL TEXT OF THE ORDER OF ITAT CHANDIGARH
1. Aforesaid appeal by assessee for Assessment Year (AY) 2010-11 arises out of an order of learned Commissioner of Income Tax (Appeals), NFAC [CIT(A)] dated 24.06.2025 in the matter of an assessment framed by Ld. Assessing Officer [AO] u/s 143 r.w.s. 147 of the Act on 21.12.2017. The registry has noted delay of 118 days, the condonation of which has been sought by Ld. AR on the strength of
2 condonation petition which is accompanied by an affidavit of the assessee. It has been stated that the assessee was NRI and fully dependent upon its counsel for Income Tax matters. The assessee left for heavenly abode on 06.11.2023 and thereafter, no communication happened with family member of the deceased assessee. Considering these facts, we condone the delay and proceed for adjudication of the appeal on merits.
2. In its regular grounds of appeal, the assessee has challenged assessment of capital gains on merits. However, the assessee has filed additional legal grounds of appeal on 17.09.2026 which read as under:-
1 a) That the reassessment proceedings is INVALID and uncalled for since wrong reason to believe have been formed by the Assessing Officer for reopening of assessment u/s 148 and the reopening deserves to be quashed in view of the Judgment of Hon’ble ITAT, Chandigarh Bench in the case of M/s Taj Land Developers and Promoters Pvt. Bearing ITA No. 606/Chd2024, which have been followed in the case of M/s Skycity Builders and Promoters (P) Ltd. Vs. DCIT, reported in [2026] 1 CTOTTJ 852 (Chd).
b) The Assessing Officer has wrongly recorded in the reason that the assessee has sold land in Village Mauja Khera for Rs.12,46,43,750/- during financial year 2009-10 and whereas, the assessee’s share of consideration was Rs.8,48,99,979/, which have been adopted by the Assessing Officer at Page 7 of the assessment order while framing the assessment on the basis of same registration deed and, thus, there is inherent wrong reason to believe that the income of the assessee has escaped assessment.
c) That even while forming the reason to believe, the fair market value of the land as on 01.04.1981 has been considered at Rs.2 lac per acre and capital gain of Rs.10,38,59,642/- was calculated and which formed a reason to believe for reopening of the case, but while framing the assessment, the cost of acquisition has been adopted at Rs. 40,000/- per acre and, thus, there is wrong reason to believe, both in respect of sale consideration and cost as on 01.04.1981 and, thus, in the reason to believe, the total escapement of income had been calculated at Rs.10,38,59,642/-, against the capital gain calculated at Rs.7,93,58,581/ on the basis of same facts as were available with the Assessing Officer.
d) That the reopening of the assessment by the Assessing Officer is on the basis of borrowed satisfaction, which is not proper in view of the following judgments of Jurisdictional Bench of the ITAT, Chandigarh Bench, Chandigarh and Amritsar Bench:-
i). Akbar Ali, Vs ITO in ITA No. 868/CHd/2025, dt. 27.11.2025
ii). Vimal Alloys (P) Ltd. Vs. DCIT, reported in [2026] 1 NYOCTOTTJ 230 (chd).
iii). J.K. Bullions (P) Ltd. Vs. DCIT, reported in [2024] 169 taxmann.com 590 Gujarat High Court.
iv). M/s Holy Faith International Pvt. Ltd. Vs. DCIT in ITA No. 181/Asr/2017, dated 15.01.2019
2. Notwithstanding the above said grounds of appeal, the order as passed by the Ld. Assessing Officer deserves to be quashed having been passed against the dead person the assessee has died on 06.11.2023 as per copy of death certificate being submitted separately.
Since these grounds are purely legal grounds which do not require appreciation of new facts, the same are admitted for adjudication in terms of decision of Hon’ble Apex Court in the case of NTPC vs. CIT (229 ITR 383).
3. The Ld. AR advanced vehement arguments on legal grounds and referred to various documents as placed on record. Reference has been made to various judicial decisions to assail the reassessment jurisdiction of Ld. AO. The copies of the same have been placed on record. The arguments have been made on merits also. The Ld. CIT- DR also advanced arguments supporting the assessment as framed by Ld. AO. Having heard rival submissions and upon perusal of case records including judicial decisions as cited before us, our adjudication would be as under.
Assessment Proceedings
4.1 The deceased assessee is stated to be resident individual and earning agricultural income. The assessee did not file its regular return of income. However, proceedings u/s 147 were initiated and a notice u/s 148 was issued on 30.03.2017 with due approval of appropriate authority u/s 151(1). In the recorded reasons, it was alleged that the assessee sold its land measuring 16.187 Acres situated in Village Mauja Khera for Rs.12,46,43,750/- vide registered sale deed dated 15.12.2009 to M/s Ansal Housing and Construction Ltd., New Delhi. To compute capital gains, FMV of the land as on 01.04.1981 was not readily available. However, as per information, FMV as on 01.04.1981 in respect of a land in Village Jaroda (situated almost at the same distance from Urban Area and District head quarter of Yamuna Nagar as the Village Khera) is not more than Rs.50,000/-. Even if FMV is taken to be Rs.2 Lacs per Acre, the indexed cost of acquisition would work out to be Rs.2,07,84,108/-. Thus, the assessee earned huge Long-term capital gain (LTCG) on transfer / sale of such land. However, the assessee did not file its return of income and therefore, the amount of Rs.10,38,59,642/- escaped from assessment. Accordingly, the reasons for escapement of income to that extent were formed and the assessee was served with notice u/s 148 dated 30.03.2017 requiring the assessee to file return of income within 30 days. In the meantime, detailed questionnaire dated 13.04.2017 was issued along with notice u/s 142(1) on 13.04.2017 requiring the assessee to furnish requisite information and documents.
4.2 The assessee filed return of income on 23.10.2017 declaring agricultural income and demanded copy of reasons recorded for initiation of impugned proceedings which were provided to the assessee. The assessee, vide its reply dated 24.11.2017, assailed the reopening on various grounds. It was pointed out that the share of the assessee was only to the extent of 11.204 Acres out of total 16.187 Acres. Further, the land was agricultural land which was excluded from capital asset u/s 2(45). Thirdly, the assessee was eligible for exemption u/s 54B in lieu of fresh investment in agricultural land. All these objections stood rejected by Ld. AO.
4.3 On merits, the contention that the assessee was only a part owner to the extent of 11.204 Acres only stood accepted by Ld. AO and sale consideration was accordingly, taken proportionately for Rs.849.99 Lacs. The assessee contended that the possession of the land was given during AY 2006-07 and therefore, the land was transferred during AY 2006-07 only. The sale consideration was received in parts. The assessee also stated to have purchased agricultural land for Rs.487.98 Lacs jointly with his wife and laid claim on exemption u/s 54B. The claim was also made for deduction u/s Sec.54F on the ground that construction was made in new residential house for Rs.300 Lacs.
4.4 The Ld. AO rejected AY 2006-07 accrual claim of the assessee by referring to the terms of sale deed and considering the fact that the physical possession was given on the date of sale only. The Ld. AO also referred to Girdawari for FYs 2007-08 & 2008-09 to support the fact that the said land was in possession of the assessee till FY 2008-09. Finally, the cost of acquisition was taken on the basis of registered sale deed dated 12.06.1982 as received from Sub-registrar, Jagadhari and indexed cost of acquisition as worked out to be Rs.56.41 Lacs leaving balance capital gains of Rs.793.58 Lacs (Rs.849.99 Lacs less Rs.56.41 Lacs). The claim made u/s 54B was rejected partly on the ground that the land was purchased jointly with assessee’s wife. The extent of assessee’s share in new agricultural land for Rs.207.56 Lacs was allowed as deduction u/s 54B. The deduction u/s 54F was denied for want of documentary evidences from the assessee. The assessable LTCG were finally worked out to be Rs.586.02 Lacs which were added to assessee’s returned income and agricultural income. The Ld. CIT(A) confirmed the assessment against which the assessee is in further appeal before us. Our findings and Adjudication
5. Since additional legal ground No.1 as urged in the appeal assail the very jurisdiction of Ld. AO, we take up the same first. It could be seen that the assessee did not file return of income. However, the case was reopened on the reason that capital gains amounting to Rs.10,38,59,642/- escaped assessment. The copy of the reasons has been placed on record. Notice u/s 148 has been issued on 30.03.2017. The first and foremost contention of Ld. AR is that the case has been reopened on the basis of incorrect reasons and without any independent application of mind by Ld. AO while recording reasons for reopening the case of the assessee. It has specifically been pointed out that at the time of recording of reasons for reopening the case of the assessee, Ld. AO had in his possession, the sale deed of the said property and on the basis of such sale deed. the case has been reopened upon formation of belief that income to the extent of Rs.10,38,59,642/- had escapement assessment. The Ld. AO has noted that the assessee has sold 16.187 Acres of land situated in Village Mauja Khera for Rs.12,46,43,750/-. In this regard a letter was issued by Ld. AO to the assessee on 15.03.2017. In the said letter, while referring to AIR information passed on by the sub-registrar for the sale of immovable property, Ld. AO has made reference to sale deed dated 15.12.2009 as enclosures which makes it amply clear that as on 15.03.2017 i.e., while recording the reasons, Ld. AO had in his possession the copy of registered sale deed and all the facts that could have been verified with regard to sale consideration for the share of the assessee. The Ld. AR has pointed out that the reasons recorded by Ld. AO is incorrect since the immovable property as sold is a jointly owned property and the share of the assessee in the sale consideration is merely Rs.8,49,99,979/- and not Rs.12,46,43,750/-. as alleged by Ld. AO in the recoded reasons. This is further evidenced by the fact that while computing capital gains, Ld. AO has accepted assessee’ share of sale consideration to the extent of Rs.8,49,99,979/- only. It has, thus, been contended that the case has been reopened on incorrect facts and without application of mind by Ld. AO specifically when the registered deed was in the possession of Ld. AO at the time of recording of reasons. Under such circumstances, the reopening would be bad-in-law in terms of various judicial decisions, the copies of which have been placed on record. The Ld. CIT-DR, though referred to the findings of Ld. AO, could not controvert the said factual position. It has been stated that only prima-facie belief is sufficient enough at the time of recording of reasons and actual computations are to be made during assessment proceedings only based on assessee’s submissions and documentary evidences.
6. We have carefully perused the reasons recorded by the AO as well as the material available on record. It is evident from the letter issued by the AO to the assessee on 15.03.2017 that, prior to recording the reasons for reopening, the AO was already in possession of the registered sale deed dated 15.12.2009 relating to sale of immovable property situated at Village Mauja Khera. The said document was specifically referred to by the AO as an enclosure to this communication dated 15.03.2017. In other words, the material pertaining to the actual ownership and sale consideration of the property was very much available with Ld. AO before formation of the alleged belief of escapement of income. In the reasons recorded, however, Ld. AO has proceeded on the basis that the assessee had sold 16.187 Acres of land for a consideration of Rs.12,46,43,750/- and consequently, concluded that capital gains to the extent of Rs.10,38,59,642/- had escaped assessment. The same is not based on correct fact and apparently, the reopening has been done without due application of mind. The undisputed factual position emerging from the registered sale deed is that the property was jointly owned property and the assessee was not the sole owner thereof. Consequently, the entire sale consideration of Rs.12,46,43,750/- could not have been attributed to the assessee. The assessee’s actual share in the sale consideration was Rs.8,49,99,979/- which stood accepted by Ld. AO while making assessment of capital gains in the hands of the assessee. Significantly, this is not merely a subsequent explanation furnished by the assessee. The AO himself, while ultimately computing the capital gains in the reassessment proceedings, accepted the assessee’s share of sale consideration at Rs.8,49,99,979/-. Therefore, the factual premise on which the reasons for reopening were recorded is demonstrably different from the factual position which was available in the very document already in possession of the AO and which was ultimately accepted by the AO during the reassessment proceedings. In our considered view, the issue is not whether the AO was required to finally compute the capital gains at the stage of recording reasons. Undoubtedly, the determination of taxable income is to be undertaken during the assessment proceedings. However, the jurisdiction to reopen an assessment u/s 147 is conditioned upon the existence of a valid “reason to believe” that income chargeable to tax has escaped assessment. Such belief must be founded upon correct and relevant facts and cannot be founded upon a factual premise which is demonstrably contrary to the material already available with the AO.
7. The Hon’ble Punjab & Haryana High Court in CIT v. Atlas Cycle Industries, 180 ITR 319 (P&H) has held that where the grounds on which the reassessment notice was issued were not found to exist, the AO would not acquire jurisdiction to make the reassessment. The Hon’ble High Court upheld cancellation of the reassessment on that basis. We find that the aforesaid principle as laid down is directly relevant to the facts before us. On the facts of present case also, the very factual foundation of the reasons recorded by the AO, namely, that the entire sale consideration of Rs.12,46,43,750/- represented the assessee’s consideration, is not borne out from the registered sale deed. On the contrary, the registered document, which was admittedly available with Ld. AO even before recording of reasons, disclosed the joint ownership and the assessee’s corresponding share. Our view is further supported by another decision of Hon’ble Punjab & Haryana High Court in CIT v. Smt. Paramjit Kaur, 311 ITR 38 (P&H) wherein Hon’ble Court has further emphasized that the AO must act on the basis of “reasons to believe” and not “reasons to suspect”. The Hon’ble High Court held the reopening invalid where Ld. AO failed to examine and corroborate the information available with him before recording his satisfaction regarding escapement of income. This decision assumes particular significance in the present case because Ld. AO was not merely in possession of some general or unverified information rather he had before him the very registered sale deed from which the correct factual position concerning ownership and sale consideration could readily be ascertained. Nevertheless, the reasons recorded proceeded on an incorrect factual assumption.
8. We also find support from the consistent view taken by various Benches of the Tribunal applying the aforesaid judgments of the Hon’ble Punjab & Haryana High Court. In Ganga Parshad v. ITO, ITA No. 201/Asr/2024, order dated 13.08.2024, the Amritsar Bench, after considering the binding decision in Atlas Cycle Industries (supra) and other judicial precedents, held that the validity of assumption of jurisdiction u/s 147 is to be tested with reference to the reasons actually recorded and that Ld. AO cannot supplement or improve those reasons subsequently. Where the reasons were based on incorrect facts and did not emerge from the material available before the AO, the notice issued u/s 148 was held to be void-ab-initio and the reassessment was quashed. We find that similar facts exist before us. Similar is the ratio of decision of Chandigarh Tribunal in the case of Skycity Builders & Promoters Ltd. vs DCIT (ITA No.1066/Chd/2025 dated 16.03.2026). The bench followed the decision in ITO vs. Taj Land Developers & Promoters P. Ltd. (ITA Nos.606/Chd/2024 dated 22.09.2025) to quash the reassessment proceedings, inter-alia, on the ground that there were factual errors in recorded reasons. Likewise, in cases where the AO proceeded on an incorrect factual premise despite the relevant material being available on record, the Tribunal has consistently treated such incorrect reasons as going to the root of jurisdiction. In our considered opinion, all these decisions as well as guiding principles laid down therein duly support the first and foremost legal ground as urged by Ld. AO. The principle emerging from Atlas Cycle Industries (supra) is that once the very grounds forming the foundation of the reassessment are found to be non-existent or factually incorrect, Ld. AO cannot derive jurisdiction to proceed with the assessment.
9. In our considered opinion, in the present case, the error of quantification of escapement of income could not be characterized as a mere computational mistake which could be ignored at the stage of initiation. The incorrect figure of Rs.12,46,43,750/- was used as the basis for forming the belief that capital gains of Rs.10,38,59,642/- had escaped assessment. The AO had, however, already possessed the registered sale deed and the correct share attributable to the assessee was ascertainable there from. The subsequent assessment itself confirms that the AO ultimately accepted the assessee’s share at Rs.8,49,99,979/-. We are therefore unable to accept the contention of Ld. CIT-DT that the defect was merely one of computation and that Ld. AO was entitled to proceed on the basis of a prima-facie belief. The requirement of a prima-facie belief does not dispense with the requirement that the factual foundation of such belief must be real, relevant and borne out from the material available before Ld. AO. A belief founded on an incorrect factual premise, particularly when the correct facts were available in the AO’s own record, could not constitute a valid jurisdictional foundation u/s 147. It is settled position of law that the validity of assumption of jurisdiction has to be examined with reference to the reasons recorded by the AO. The AO cannot subsequently substitute a different factual basis or seek to cure the defect in the reasons by referring to facts discovered during the reassessment proceedings. The jurisdiction must exist at the point of initiation itself.
10. On the given facts and circumstances, the reasons recorded by Ld. AO could not be regarded as reflecting a valid and independent formation of belief that income chargeable to tax had escaped assessment. Rather, the reopening proceeded on a factual assumption which was contrary to the material already available with the AO. Respectfully following the binding judicial precedents / principles as enumerated in preceding paras, we would hold that the assumption of jurisdiction u/s 147 / 148 in the present case was invalid. The defect goes to the root of the proceedings and renders the notice issued u/s 148 and the consequential reassessment proceedings unsustainable in law. In other words, the assessee’s ground challenging the validity of reopening is allowed. The notice issued u/s 148 dated 30.03.2017 and the reassessment proceedings initiated pursuant thereto are hereby
13 quashed as void-ab-initio. Since we have quashed the reassessment proceedings on the preliminary jurisdictional / legal ground, the other grounds raised by the assessee, legal as well as on merits, do not require adjudication and the same are rendered academic in nature.
11. The appeal of the assessee is allowed in terms of our above order.
Order pronounced on 07th October, 2026
