2016 (2) TMI 1243 - AT - Income Tax

Reopening of assessment u/s 148 - HELD THAT - We note that in the operative paragraph the AO has held that since the expenditure of 2, 47, 468/- were incurred by the assessee through credit card remained unexplained have reason to believe that income to the tune of 2, 47, 468/- has escaped assessment . This conclusion of the AO is factually baseless as this issue was posed to the assessee by DCIT Banglore replying to his notices and the DR has into disputed that copies of the said notices and reply was filed before the AO on the assessment record. In this situation it was on the AO to peruse the relevant assessment record of AY 2005-06 which forming reason to believe and thus it is safely presumed that the AO initiated reassessment proceedings u/s 147 and issued notice u/s 148 of the Act without application of mind working in a mechanical manner and thus the same are not sustainable in the facts and on law. Respectfully following the dicta laid down by jurisdictional High Court in the case of CIT vs. G G Pharma 2015 (10) TMI 754 - DELHI HIGH COURT we are inclined to hold that the AO issued notice u/s 148 of Act on the wrong and invalid assumption of Jurisdictional and all subsequent proceedings is pursuance thereto can t be held as sustainable and valid hence the same deserve to be quashed and we quash the same. It is ordered accordingly. Accordingly legal ground no. 1 2 of the assessee are allowed.

Summary

Issues Involved:
1. Validity of reopening of assessment under Section 147/148 of the Income-tax Act, 1961.
2. Justification of addition of Rs. 2,47,468.

Issue-wise Detailed Analysis:

Validity of Reopening of Assessment under Section 147/148:

The assessee challenged the reopening of the assessment under Section 147/148 of the Income-tax Act, 1961, arguing that the Assessing Officer (AO) did not conduct any examination or verification from the assessment records to form a prima facie belief to assume valid jurisdiction for action and notice under Section 148. The AO's action was claimed to be mechanical and without application of mind, relying solely on AIR data.

The Revenue supported the AO's action, stating that the assessee incurred significant expenditure through a credit card, which justified the AO's belief that income had escaped assessment.

The Tribunal examined the reasons recorded by the AO, which were based on AIR information indicating unexplained credit card expenditure of Rs. 2,47,468. The AO issued notice under Section 148 without verifying the details from the relevant assessment records, where the assessee had already provided explanations for the expenditure.

The Tribunal referred to the Delhi High Court's decision in CIT vs. G & G Pharma, which emphasized that the AO must apply his mind to the information and form a belief that income had escaped assessment. The Tribunal found that the AO's action lacked application of mind and was mechanical, thus invalid.

The Tribunal also considered the Delhi High Court's ruling in CIT vs. Orient Craft Ltd., which reiterated that the AO must have reasons to believe that income had escaped assessment, regardless of whether the initial assessment was under Section 143(1) or 143(3).

The Tribunal concluded that the AO's initiation of reassessment proceedings and issuance of notice under Section 148 were without application of mind and therefore not sustainable. Consequently, the Tribunal quashed the notice under Section 148 and all subsequent proceedings.

Justification of Addition of Rs. 2,47,468:

Since the Tribunal quashed the notice under Section 148 and the reassessment order, the ground regarding the addition of Rs. 2,47,468 became academic and infructuous. The Tribunal dismissed this ground without deliberation on merits.

Conclusion:

The appeal of the assessee was allowed on legal grounds, with the Tribunal quashing the notice under Section 148 and the reassessment order. The ground regarding the addition of Rs. 2,47,468 was dismissed as infructuous. The order was pronounced in the court on 19/02/2011.