2015 (11) TMI 1621 - HC - Income Tax

Validity of reopening of assessment - Held that - Reopening of assessment by an AO based on the information received from the Director of Investigation without making any effort to discuss the materials on the basis on which he formed a prima facie opinion that income had escaped assessment. The basic requirement of Section 147 of the Act that AO should apply an mind in order to form reasons to believe that income had escaped assessment had not been fulfilled.The ITAT was, in the circumstances, justified in holding the initiation of the reassessment proceedings was invalid. - Decided in favour of assessee

Summary

Issues:
1. Validity of reassessment proceedings initiated under Sections 147/148 of the Income Tax Act.

Analysis:
The appeal before the Delhi High Court was concerning the validity of reassessment proceedings initiated by the Assessing Officer (AO) under Sections 147/148 of the Income Tax Act for the Assessment Year 2004-05. The main question raised by the Revenue was whether the ITAT was correct in holding that the AO was not justified in initiating the reassessment proceedings. The Assessee had filed its return of income, which was processed under Section 143(1) of the Act. Subsequently, a notice was issued under Section 148 of the Act, alleging that income had escaped assessment due to involvement in accommodation entries and unexplained funds. The AO passed a reassessment order adding a substantial amount as income from undisclosed sources and commission earned on accommodation entries.

The ITAT, in its order, highlighted a previous case where it had deemed identical reassessment proceedings by the same AO as invalid. The Court had previously held that the reasons recorded by the AO for initiating proceedings were vague, scanty, and ambiguous, lacking sufficient and relevant material to form a belief that income had escaped assessment. It was noted that the AO had issued similar reassessment orders in other cases within the same jurisdiction, all based on the same letter from the Director of Income Tax (Investigation). The Court emphasized the requirement for the AO to apply his mind and discuss the materials forming the prima facie opinion that income had escaped assessment.

In a recent case, the Court reiterated the importance of the AO fulfilling the basic requirement of applying his mind before concluding that income had escaped assessment. In the present case, the High Court found that the initiation of reassessment proceedings was unjustified, similar to the previous instances. Consequently, the Court dismissed the appeal, stating that no substantial question of law arose from the matter.