2016 (5) TMI 1130 - AT - Income Tax

Reopening of assessment - addition u/s 68 - Held that - prior to reopening of the assessment, the Assessing Officer has to apply his mind to the materials available to conclude that he has reasoned to believe that income of the assessee has escaped assessment. It has been further held that unless that basic jurisdictional requirement is satisfied, a postmortem exercise of analyzing material produced subsequent to the reopening will not rescue an inherently defective reopening order from invalidity. In the present case, the A.O. has not verified the information before banking upon it. We thus respectfully hold that the initiation of reopening proceedings was not valid in the present case in absence of application of mind on the part of the Assessing Officer. As discussed above, the Assessing Officer has initiated the reopening proceedings solely based upon the information received from the Investigation Wing of the Department that the assessee was one of the beneficiaries and two entries from the entry operator. The issue raised in the ground under consideration is thus decided in favour of the assessee with this finding that the Assessing Officer was not justified to acquire jurisdiction to initiate reopening proceedings and the action of the Assessing Officer in this regard was not valid. The assessment framed in furtherance to the said initiation of reopening proceedings is thus also held as void ab initio and is quashed as such. - Decided in favor of assessee

Summary

Issues Involved:
1. Validity of reopening of assessment under Section 148 of the Income-tax Act, 1961.
2. Deletion of addition of ?40,02,780 made by the Assessing Officer under Section 68 of the Income-tax Act, 1961.

Issue-wise Detailed Analysis:

1. Validity of Reopening of Assessment under Section 148 of the Income-tax Act, 1961:

The assessee challenged the reopening of the assessment, arguing that it was initiated merely based on information received from the Investigation Wing of the Department without independent application of mind by the Assessing Officer (AO). The assessee contended that the reasons to believe recorded by the AO were flawed and demonstrated non-application of mind, as the same figure was repeated thrice against the same cheque number.

The Tribunal found merit in the assessee's argument, citing the jurisdictional requirement for reopening an assessment under Section 147/148 as summarized by the Hon'ble Delhi High Court in the case of Pr. CIT vs. G&G Pharma India Ltd. The Tribunal emphasized that the AO must apply his mind to the information and form a belief that income chargeable to tax has escaped assessment. The Tribunal noted that in the present case, the AO did not independently verify the information received from the Investigation Wing and relied solely on it to form his reasons to believe.

The Tribunal concluded that the AO's initiation of reopening proceedings was invalid due to the lack of independent application of mind. Consequently, the assessment framed in furtherance of the reopening proceedings was held void ab initio and quashed.

2. Deletion of Addition of ?40,02,780 under Section 68 of the Income-tax Act, 1961:

Since the Tribunal held the reopening of the assessment invalid, the ground raised by the Revenue questioning the deletion of the addition of ?40,02,780 under Section 68 became infructuous. The Tribunal did not delve into the merits of the deletion of the addition, as the assessment itself was quashed.

Conclusion:

The Tribunal allowed the assessee's application under Rule 27 of the ITAT Rules, 1962, to raise the ground regarding the validity of the reopening of the assessment under Section 148. The Tribunal found that the AO had not applied his mind independently to the information received from the Investigation Wing before initiating the reopening proceedings. Consequently, the reopening of the assessment was held invalid, and the assessment framed in furtherance of the reopening proceedings was quashed. As a result, the Revenue's appeal regarding the deletion of the addition under Section 68 was dismissed as infructuous.