2020 (2) TMI 1387 - AT - Income Tax

Validity of reopening of assessment - main grievance of the assessing officer is that assessee is engaged in Hawala Transactions - HELD THAT - To initiate reopening of the assessment, the Ld. AO must have 'reason to believe that income chargeable to tax has escaped assessment. Such reason to believe must be based on some material coming to the possession of AO which may trigger reason to suspect . It must be kept in mind that the reason to believe must have a rational connection with or relevant bearing on the formation of the belief, i.e, there must be the direct nexus or link between the material and the formation of such belief. Since in the instant case, the reopening was initiated to verify certain information or to conduct enquiry. The reopening of assessment in the assessee s case was initiated on the basis of FEMA information but the FEMA dropped the proceedings before date of reassessment on 17/03/2015 and AO did not make any addition based on FEMA transaction. Amount escaped from assessment is not known at the time of issue of notice u/s 147/148 . On receipt of reasons, the assessee is entitled to file objections to issuance of notice and the A.O. is bound to dispose of the same by passing a speaking order. We note that AO has not disposed of the objections of the assessee by passing a speaking order. AO having not carried out the scrutiny assessment within the prescribed statutory limit, cannot be given another innings for no fault of the assessee and therefore in the facts and circumstances of the case, we are of the considered opinion that reason to believe which is the jurisdictional precondition to reopen the assessment as required by the law has not met in the reasons recorded in the instant case - Decided in favour of assessee.

Summary

Issues Involved:
1. Validity of notice under Section 148 and proceedings under Section 147 of the Income Tax Act.
2. Validity of reassessment proceedings and the reasons recorded by the Assessing Officer.
3. Procedural lapses in disposing of objections raised by the assessee.

Issue-wise Detailed Analysis:

1. Validity of Notice Under Section 148 and Proceedings Under Section 147 of the Income Tax Act:
The assessee challenged the validity of the notice issued under Section 148 and the reassessment proceedings under Section 147, claiming they were void ab initio, wrong, illegal, and time-barred. The assessee argued that the proceedings were initiated without the Assessing Officer having a reasonable belief of income escapement, and that the notice was issued for verification purposes, which is not permissible under the law. The Tribunal found that the reasons recorded by the Assessing Officer were vague and intended for verification, which is not a valid ground for reopening an assessment. The Tribunal also noted that the Assessing Officer failed to follow the set principles of law and did not dispose of the preliminary objections raised by the assessee.

2. Validity of Reassessment Proceedings and the Reasons Recorded by the Assessing Officer:
The Tribunal analyzed the reasons recorded by the Assessing Officer, which were based on information from the Enforcement Directorate regarding high-value transactions and foreign investments. The Tribunal observed that the reasons recorded were for verification purposes and lacked tangible material to support the belief that income had escaped assessment. The Tribunal cited the Supreme Court's decision in Kelvinator of India Ltd. v. CIT, which held that reassessment must be based on tangible material and not on mere change of opinion. The Tribunal concluded that the reasons recorded by the Assessing Officer were not valid, as they were based on suspicion and intended for verification, which is not permissible under Section 147.

3. Procedural Lapses in Disposing of Objections Raised by the Assessee:
The Tribunal noted that the Assessing Officer did not dispose of the objections raised by the assessee by passing a speaking order, as required by the Supreme Court's decision in GKN Driveshafts (India) Ltd. v. ITO. The Tribunal emphasized that the Assessing Officer must dispose of the objections by passing a speaking order before proceeding with the reassessment. The failure to do so rendered the reassessment proceedings null and void.

Conclusion:
The Tribunal concluded that the reassessment proceedings initiated by the Assessing Officer were invalid due to the lack of tangible material and the procedural lapses in disposing of the assessee's objections. The Tribunal quashed the initiation of reassessment proceedings and allowed the appeals filed by the assessee.

Order Pronouncement:
The appeals filed by the assessee in ITA Nos. 1728, 1729, 1730, 1731, and 1732/Kol/2018 were allowed, and the order was pronounced in the open court on 19/02/2020.