2015 (11) TMI 934 - HC - Income Tax

Reopening of assessment - bogus purchases - material received from an external source viz., the DGIT (Inv.) - Held that - On a plain reading of the reasons recorded, what emerges is that the Assessing Officer, on verification of the details available on record, has noticed that there were bogus purchases. However, there is no assertion as regards on the basis of which material on record he has come to such conclusion. A perusal of the order rejecting the objections raised by the petitioner, shows that the reopening is based, not upon the material on record, but on the basis of material received from an external source viz., the DGIT (Inv.), Mumbai, pursuant to inquiries made by him (the DGIT). Therefore, the material on the basis of which the Assessing Officer seeks to assume jurisdiction under section 147 of the Act, is the information received from an external source viz., from the DGIT and not the material on record as reflected in the reasons recorded. Under the circumstances, on the basis of the material on record, the Assessing Officer could not have formed the belief that income chargeable to tax has escaped assessment, inasmuch as, the formation of belief of the Assessing Officer is not based upon the details available on record, but on the material made available by the DGIT (Inv.), Mumbai which is an external source. Under the circumstances, it cannot be said that the requirements of section 147 of the Act are satisfied, inasmuch as, the belief of the Assessing Officer is not based upon the material on record, but on some other material from an external source which does not find reference in the reasons. As is clear on a plain reading of the reasons recorded, except for the assertion that there were bogus purchases, the Assessing Officer has not referred to any material on the basis of which he proceeded to invoke the provisions of section 147 of the Act. The assertion made by the Assessing Officer is a bare one, without any reference to the material on the basis of which he made such assertion. - Decided in favour of assessee.

Summary

Issues Involved:
1. Validity of reopening assessments under Section 147 of the Income Tax Act.
2. Adequacy of reasons recorded by the Assessing Officer for reopening assessments.
3. Jurisdiction of the Assessing Officer based on information from external sources.

Detailed Analysis:

1. Validity of Reopening Assessments under Section 147 of the Income Tax Act:
The petitioner challenged the reopening of assessments for the years 2009-2010, 2010-2011, and 2011-2012 under Section 147 of the Income Tax Act. The returns for these years were processed under Section 143(1) and later reopened by notices dated 26.03.2014. The petitioner contended that the reopening was without basis, as the Assessing Officer did not independently apply his mind but acted on information from the Director General of Income Tax (Inv.), Mumbai.

2. Adequacy of Reasons Recorded by the Assessing Officer for Reopening Assessments:
The court scrutinized the reasons recorded by the Assessing Officer, which stated that on verification of details, it was noticed that the assessee made bogus purchases. However, the reasons did not specify the record from which this conclusion was drawn. The court noted that the reasons were identically worded for all assessment years and lacked specific details or material evidence to support the claim of bogus purchases. The court emphasized that the reasons should clearly demonstrate the basis for the belief that income had escaped assessment.

3. Jurisdiction of the Assessing Officer Based on Information from External Sources:
The Assessing Officer's rejection of the petitioner's objections mentioned receiving information from the DGIT (Inv.), Mumbai, about bogus purchases. However, this information was not reflected in the reasons recorded for reopening the assessments. The court observed that the formation of belief must be based on material available on record, not on external information. The court cited precedents, including the Supreme Court's rulings, stating that the reasons recorded cannot be supplemented by affidavits or orders rejecting objections. The substratum for the belief that income had escaped assessment must be part of the recorded reasons.

Conclusion:
The court concluded that the Assessing Officer's belief that income had escaped assessment was not based on the material on record but on external information, which was not mentioned in the reasons recorded. Therefore, the basic requirement for assuming jurisdiction under Section 147 was not satisfied. Consequently, the court quashed the impugned notices dated 26.03.2014 issued under Section 148 of the Income Tax Act, allowing the petitions with no order as to costs.