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2011 (11) TMI 110 - AT - Income TaxIncome Escaping Assessment - reason to belive - AO of the opinion that assessee involved in giving and taking bogus entries/transactions during the relevant year which is actually unexplained income of the assessee company. assessee failed to disclose fully and truly all material facts and source of these funds routed through the bank account. Held That - When it is nowhere mentioned as to who had given bogus entries/transactions to the assessee or to whom the assessee had given bogus entries or transactions. It is also nowhere mentioned as to on which dates and through which mode the bogus entries and transactions were made by the assessee the AO was not justified in forming reason to belive for assessment under 147.Reliance was placed on CIT v. Atul Jain (2007 -TMI - 3917 - DELHI HIGH COURT) in which case the information relied upon by the AO for initiating proceedings u/s 147 of the Act did indicate the source of the capital gain and nobody knew which shares were transacted and with whom the transaction has taken place and in that case there were absolutely no details available and the information supplied was extremely scanty and vague and in that light of those facts the Hon ble Jurisdictional Delhi High Court held that initiation of proceedings u/s 147 of the Act by the AO was not valid and justified in the eyes of law
Issues Involved:
1. Validity of reopening the assessment under Section 147/148 of the Income-tax Act, 1961. 2. Sufficiency and relevance of the reasons recorded by the Assessing Officer (AO) for reopening the assessment. 3. Adequacy of the information received from the Director of Income-tax (Investigation) as a basis for reopening the assessment. Detailed Analysis: 1. Validity of Reopening the Assessment under Section 147/148 of the Income-tax Act, 1961: The primary issue raised by the assessee was the validity of the AO's action in reopening the assessment under Section 147/148 of the Act. The assessee contended that the reassessment proceedings were invalid as the reasons recorded by the AO did not indicate any relevant material on the basis of which it could be said that the income had escaped assessment. The reassessment proceedings initiated by the AO were challenged on the grounds that there was no live nexus between the material and the formation of the belief by the AO that income had escaped assessment. 2. Sufficiency and Relevance of the Reasons Recorded by the AO for Reopening the Assessment: The Tribunal examined whether the reasons recorded by the AO met the requirements of Section 147 of the Act. It was noted that Section 147 authorizes the AO to assess or reassess income if he has reason to believe that income has escaped assessment. The belief must be reasonable and based on relevant and material reasons, not arbitrary or irrational. The Tribunal referred to several judicial precedents, including the Supreme Court's decisions in *Ganga Saran & Sons (P.) Ltd. v. ITO* and *Lakhmani Mewal Das v. ITO*, which emphasized that the reasons for reopening must have a rational connection with the formation of the belief and must not be vague or indefinite. 3. Adequacy of the Information Received from the Director of Income-tax (Investigation) as a Basis for Reopening the Assessment: The Tribunal scrutinized the reasons recorded by the AO, which were based on information received from the Director of Income-tax (Investigation), New Delhi. The AO had stated that the assessee was involved in giving and taking bogus entries/transactions, which were unexplained income. However, the reasons recorded were found to be vague and lacking in specific details about the transactions, amounts, and parties involved. The Tribunal concluded that the information was too vague and uncertain to be considered sufficient and relevant material for forming a belief that income had escaped assessment. Conclusion: The Tribunal held that the reassessment proceedings initiated by the AO were invalid and without jurisdiction as the reasons recorded did not satisfy the requirements of Section 147 of the Act. The reassessment order was canceled, and the appeal filed by the assessee was allowed. The other grounds raised by the assessee became redundant as the very basis of the assessment was found to be invalid.
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