2015 (2) TMI 104 - AT - Income Tax

Validity of reopening u/s. 148 - certain investigation were carried out by the Directorate of Investigation, Jhandewalan, New Delhi in respect of the bogus / accommodation entries provided by certain individual / companies - Held that - AO has not applied his mind so as to come to an independent conclusion that he has reason to believe that income has escaped during the year. A mere reference is made to certain information received from the Investigation Wing which was supplied to the assessee vide AO s letter dated 15.9.2010. In our view the reasons are vague and are not based on any tangible material as well as are not acceptable in the eyes of law. The AO had mechanically issued notices u/s. 148 of the Act, on the basis of information allegedly received by him from the Directorate of Investigation, Jhandewalan, New Delhi. Thus the reopening in the case of the assessee for the asstt. year in dispute is bad in law and deserves to be quashed. - Decided in favour of assessee.

Summary

Issues:
Challenge to validity of reopening u/s. 148 of the I.T. Act.

Analysis:
The assessee filed an appeal against the order passed by the Ld. CIT(A)-XV, New Delhi for the assessment year 2003-04. The primary contention raised was the legality of the reopening u/s. 148 of the I.T. Act. The assessee argued that the Assessing Officer's action lacked tangible material and justification, alleging a lack of nexus between the information received and the inference drawn. It was claimed that the AO did not apply independent inquiry and failed to obtain necessary sanction under section 151. The assessee cited various decisions to support the argument, emphasizing the need for a valid reason to believe that income had escaped assessment.

The Ld. CIT(A) dismissed the assessee's appeal, leading to the matter being brought before the ITAT, Delhi. The Departmental Representative (DR) supported the AO's reopening, alleging that the assessee had received bogus accommodation entries totaling Rs. 20 lakhs, introducing unaccounted money. The DR submitted documentary evidence to support the reopening, including statements and details of the accommodation entries.

Upon hearing both parties and examining the records, the ITAT scrutinized the reasons recorded for reopening the assessment. The reasons cited were found to be vague and lacking tangible material, indicating a lack of independent application of mind by the AO. The ITAT referred to relevant High Court judgments emphasizing the necessity of a genuine reason to believe income escapement. Citing precedents, the ITAT concluded that the reopening was legally flawed and quashed the reassessment proceedings in favor of the assessee, as other issues had become academic.

In conclusion, the ITAT allowed the assessee's appeal, holding that the reopening of the assessment was invalid and should be quashed. The decision was based on the legal principles established in previous High Court judgments, emphasizing the importance of a valid reason to believe income escapement for initiating reassessment proceedings under section 147 of the Income Tax Act, 1961.