2015 (1) TMI 1440 - AT - Income Tax

Reopening of assessment u/s 147 - unexplained share purchases - HELD THAT - Earlier also for the same assessment year AO framed the assessment u/s 143(3)/147 of the Act vide assessment order dated 16.12.2005. The said assessment was framed after proper verification and scrutiny and no new material was brought on record to justify the action for issuing the notice u/s 148 again on 27.03.2009. AO issued the notice only on the basis of information received from the DIT(Investigation) however he did not consider this vital fact that the amount mentioned by him in the reasons recorded for reopening in fact was the closing debit balance in the account of M/s R. K. Investments and was pertaining to the preceding assessment year 2001-02 and not the year under consideration - It is not clear as to how and in what manner the debit balance in the name of M/s R. K. Investments was treated as the escaped income of the assessee particularly when the amount was paid for purchasing the shares so it was not an entry provided by M/s R. K. Investments if it had been so then the amount was to be shown as credit in the name of M/s R. K. Investments and not the debit. Reasons recorded by the AO for reopening the assessment u/s 148 of the Act was not valid. We therefore considering the totality of the facts of the present case and by keeping in view the ratio laid down by the Hon ble Jurisdictional High Court in the case of M/s Signature Hotels Pvt. Ltd. Vs ITO 2011 (7) TMI 361 - DELHI HIGH COURT set aside the impugned order by holding that the reopening u/s 147 of the Act by issuing the notice u/s 148 was not valid - Decided in favour of assessee.

Summary

Issues:
1. Validity of the reopening of assessment under section 147/148 of the Income Tax Act.
2. Treatment of opening debit balance in the account of M/s R. K. Investments as escaped income.
3. Adequacy of reasons recorded by the Assessing Officer for reopening the case.
4. Application of legal principles regarding reopening of assessment.

Issue 1: Validity of Reopening of Assessment:
The appeal raised concerns about the reopening of the assessment under section 147/148 of the Income Tax Act. The appellant argued that the Assessing Officer (AO) did not have valid reasons for the reopening, citing the first proviso to section 147. The appellant contended that the reopening was not justified due to the absence of statutorily required "reasons to believe." Additionally, the appellant claimed that the reopening was impermissible for being a change of opinion, citing the Supreme Court ruling in Kelvinator. Furthermore, the appellant argued that the non-communication of reasons as per a Jurisdictional High Court order rendered the reopening invalid.

Issue 2: Treatment of Opening Debit Balance:
The case revolved around the treatment of the opening debit balance in the account of M/s R. K. Investments as escaped income. The AO had reopened the assessment based on information from the Directorate of Investigation, considering the debit balance as income that had escaped assessment. However, the Tribunal noted that the AO had not adequately explained how the debit balance was treated as escaped income, especially when it was accepted as genuine in a previous assessment. The Tribunal highlighted that the AO did not conduct proper inquiries or apply his mind, merely relying on external information.

Issue 3: Adequacy of Reasons Recorded:
The Tribunal analyzed the adequacy of the reasons recorded by the AO for reopening the case. It was observed that the AO's reasons lacked clarity on how the opening debit balance was linked to escaped income. The Tribunal emphasized the importance of proper inquiries and scrutiny before reopening an assessment. The Tribunal referenced a High Court case to support the argument that vague reasons without substantial evidence do not fulfill the requirements of section 147 of the Act.

Issue 4: Application of Legal Principles:
In deciding the appeal, the Tribunal applied legal principles regarding the reopening of assessments. It noted that the AO's actions lacked justification and failed to consider crucial details, such as the nature of the debit balance and its relevance to the assessment year. Relying on legal precedents, the Tribunal concluded that the reopening of the assessment was not valid. Consequently, the Tribunal set aside the assessment, deeming it void ab initio due to the lack of valid reasons for reopening.

This detailed analysis of the judgment covers the issues raised in the appeal comprehensively, focusing on the validity of the reopening of the assessment, treatment of specific balances, adequacy of reasons recorded, and the application of legal principles in reaching the final decision.