2017 (4) TMI 390 - AT - Income Tax

Validity of reopening of assessment - Held that - As reasons are undated, which itself prove that the Assessing Officer has not applied his mind. Secondly, nothing appears in the reasons recorded suggesting that the Assessing Officer had made any positive enquiry before coming to the conclusion that the income chargeable to tax has escaped assessment. The Assessing Officer has reopened the case on the basis of borrowed satisfaction, which is not permissible under the law. - Decided in favour of assessee.

Summary

Issues Involved:
1. Reopening of the case under Section 147/148 of the Income-tax Act, 1961.
2. Application of mind by the Assessing Officer (AO) in recording reasons for reopening the case.

Issue-wise Detailed Analysis:

1. Reopening of the case under Section 147/148 of the Income-tax Act, 1961:
The primary issue raised by the assessee was the reopening of the case for the assessment year 2004-05 under Section 147/148. The assessee argued that the AO had not applied his mind and had reopened the case based on information from a third party, without any positive enquiry. The assessee contended that the reasons recorded for reopening were undated, indicating a lack of application of mind by the AO. Reliance was placed on several case laws, including CIT v. SFIL Stock Broking Ltd. and decisions by the ITAT, Amritsar Bench, which highlighted the necessity for the AO to independently verify and form a belief that income had escaped assessment.

2. Application of Mind by the Assessing Officer:
The assessee's counsel argued that the AO had reopened the case on "borrowed satisfaction" and had not conducted any positive enquiry before concluding that income had escaped assessment. The reasons recorded by the AO did not bear any date, further suggesting non-application of mind. The Departmental representative, however, contended that the AO had verified the information from the assessee's income tax return and thus had applied his mind.

Upon reviewing the reasons recorded by the AO, the Tribunal found them to be undated, which itself indicated non-application of mind. Additionally, the reasons did not suggest any positive enquiry by the AO before concluding that income had escaped assessment. The Tribunal referred to its previous decision in the case of Mohd. Yousuf Wani v. ITO, where it had quashed the assessment order under similar circumstances. The Tribunal emphasized that the AO must independently verify the information and form a belief based on material available before him.

The Tribunal also considered the judgment of the Delhi High Court in CIT v. SFIL Stock Broking Ltd., which held that mere information from a third party without independent verification by the AO does not constitute valid reasons for reopening an assessment. The Tribunal concluded that the AO had not applied his mind and had reopened the case based on borrowed satisfaction, making the assessment order void ab initio.

Conclusion:
In light of the above discussions and legal precedents, the Tribunal quashed the assessment order as void ab initio and allowed the appeal filed by the assessee. The Tribunal held that since the legal issue was adjudicated in favor of the assessee, there was no need to address other grounds of appeal. The order was pronounced in the open court on September 15, 2016.