2016 (5) TMI 259 - AT - Income Tax

Reopening of assessment - assessments based on receipt of certain information from Investigation Wing - Held that - The reopening is bad in law due to non application of mind by the A.O. - Decided in favour of assessee

Summary

Issues Involved:
1. Validity of the reopening of assessment under Section 147/148 of the Income Tax Act.
2. Independent application of mind by the Assessing Officer (AO) on the information received from the Investigation Wing.
3. Sufficiency of material and reasons to believe for reopening the assessment.

Detailed Analysis:

1. Validity of the Reopening of Assessment:
The primary issue in this case is the reopening of the assessment by the Assessing Officer (AO) based on information received from the Investigation Wing. The reopening was challenged on the grounds that it lacked an independent application of mind by the AO.

2. Independent Application of Mind:
The Ld. CIT(A) observed that the AO did not independently verify the information received from the Investigation Wing. The AO initiated proceedings under Section 148 of the Act based solely on the information provided, without forming an independent opinion on the veracity of the information. This was highlighted in the judgment, where it was noted that the AO's action was mechanical and lacked the necessary independent application of mind.

The Ld. CIT(A) referenced several cases to support this view:
- United Electrical Co (P) Ltd. Vs. CIT (2002) 178 CTR (Del) 192: This case emphasized that the AO must have "reason to believe" that income has escaped assessment and that this belief must be based on tangible material.
- CIT Vs. Vardhman Estates Ltd. (2007) 165 Taxman 473 (Del): It was held that reassessment proceedings were not valid if the AO did not independently verify the information received.
- CIT Vs. Atul Jain (2008) 299 ITR 383 (Delhi): The court held that vague and scanty information without independent verification by the AO could not form the basis for reopening an assessment.

3. Sufficiency of Material and Reasons to Believe:
The judgment emphasized that the AO must have sufficient material to form a "reason to believe" that income has escaped assessment. The AO must record reasons for such belief before issuing a notice under Section 148. The Ld. CIT(A) found that the AO had not recorded any satisfaction about the correctness of the information received from the Investigation Wing. The statements relied upon were general and did not directly implicate the assessee.

The judgment cited the case of Principal Commissioner of Income Tax vs. G&G Pharma India Ltd. in ITA no. 545/2015, where it was held that the AO must apply his mind to the materials and form a prima facie opinion that income has escaped assessment. The court observed that the AO's conclusion was based on a mechanical acceptance of the information without describing the materials or verifying the entries.

Conclusion:
The Tribunal upheld the order of the First Appellate Authority, concluding that the reopening of the assessment was invalid due to the lack of independent application of mind by the AO. Consequently, the appeal of the Revenue and the Cross Objection of the assessee were both dismissed. The Tribunal did not adjudicate other issues raised by the assessee, deeming it an academic exercise given the primary finding.

Order pronounced in the Open Court on 26th April, 2016.