2016 (3) TMI 1130 - AT - Income Tax

Validity of reopening of assessment - reasons to believe - information received from ACIT, Central Circle-19, New Delhi - Held that - The very perusal of the reasons, it is apparent that these were based on the information received from ACIT, Central Circle-19, New Delhi after narration of which, the Assessing Officer has simply recorded that she has reason to believe that amount/income of ₹ 25 lacs has escaped assessment for the assessment year 2004-05 for failure on the part of the assessee to disclose fully and truly all material facts necessary for its assessment within the meaning of sec. 147 of the Income-tax Act, 1961. Notice under sec. 148 of the Act has accordingly been issued by the Assessing Officer The basic requirement is that the Assessing Officer must apply his mind to the material in order to form reasons to believe that the income of the assessee has escaped assessment. Such basic requirement while recording the reasons for initiation of proceedings under sec. 147 of the Act is missing in the present case before us. As it is evident in the reasons recorded, reproduced hereinabove, the Assessing Officer has simply recorded the information received from her colleague and without making any exercise of her mind on those information to form her own reasons to believe for the escaped assessment has issued notice under sec. 148 of the Act. Hence, the initiation of the proceedings was not valid and nor the assessment made in furtherance to the said initiation of the proceedings - Decided in favour of assessee

Summary

Issues involved:
Validity of assessment under sec. 147 of the Income-tax Act, 1961 - Application of mind by Assessing Officer - Addition of Rs. 25 lacs u/s 68 - Contention against assessment order - Jurisdiction of Assessing Officer.

Detailed Analysis:

Validity of Assessment under sec. 147:
The appeal challenged the assessment order for Assessment Year 2004-05, questioning the initiation of proceedings under sec. 147. The Assessing Officer initiated proceedings based on information received regarding entries of Rs. 25 lacs from a bank account, adding this amount to the assessee's income. The appellant contended that the initiation was based on "borrowed satisfaction" of a colleague, lacking the Assessing Officer's independent application of mind. The appellant cited judicial pronouncements and objections raised against the initiation. The Senior DR defended the orders, stating the Assessing Officer applied her mind before recording reasons. The ITAT referred to relevant case law, emphasizing the need for the Assessing Officer to apply her mind to the material to form a belief of escaped income. The ITAT found the reasons lacked independent application of mind, rendering the initiation of proceedings invalid and the subsequent assessment void ab-initio.

Addition of Rs. 25 lacs u/s 68:
The Assessing Officer added Rs. 25 lacs under sec. 68 of the Income Tax Act, treating it as income from the sale of investments, despite the appellant's contentions and judicial pronouncements against such treatment. However, as the ITAT declared the assessment void ab-initio due to the invalid initiation of proceedings under sec. 147, the issue of the addition of Rs. 25 lacs became irrelevant and was disposed of accordingly.

Conclusion:
The ITAT allowed the appeal, holding the assessment void ab-initio due to the Assessing Officer's failure to apply her own mind in initiating proceedings under sec. 147. Consequently, the issue of the addition of Rs. 25 lacs u/s 68 was deemed infructuous. The appeal was allowed in favor of the assessee.