2017 (7) TMI 575 - HC - Income Tax

Reopening of assessment - reasons to believe - Held that - In the present case that the reasons recorded by the AO for reopening the assessment under Section 147 of the Act do not meet the requirement of the law. The ITAT was, therefore, perfectly justified in confirming the order of the CIT (A) and holding the reopening of the assessment to be bad in law. - Decided in favour of assessee.

Summary

Issues:
Reopening of assessment under Section 147 of the Income Tax Act, 1961 based on alleged accommodation entries.

Detailed Analysis:

Issue 1: Reopening of Assessment
The case involved an appeal by the Revenue under Section 260A of the Income Tax Act, 1961 against the order passed by the Income Tax Appellate Tribunal (ITAT) in relation to the Assessment Year 2003-04. The Assessing Officer (AO) served a notice under Section 148 on the Assessee, alleging that income amounting to ?95,65,510 had escaped assessment based on information from the Directorate of Income-Tax (Investigation) regarding accommodation entries. The AO proceeded to pass an assessment order making an addition to the Assessee's income. However, the CIT (A) allowed the Assessee's appeal, stating that the reassessment was unjustified as the AO did not have a valid reason to believe income had escaped assessment.

Issue 2: Judicial Review of Reopening
The ITAT upheld the CIT (A)'s decision, emphasizing that the AO failed to satisfy the jurisdictional requirements for reopening the assessment under Section 147 read with Section 148 of the Act. The ITAT noted that the AO did not provide details regarding the statements of entry operators related to the Assessee and identified repetitions in the accommodation entries. The Court analyzed previous decisions cited by the Revenue's counsel, highlighting the importance of tangible material forming the basis for belief in income escapement.

Issue 3: Non-Application of Mind
The Court determined that the AO's reasons for reopening the assessment lacked the necessary tangible material and critical link to support the belief of income escapement. Referring to a recent decision, the Court emphasized that the reasons recorded by the AO did not meet the legal requirements for reopening under Section 147 of the Act. Consequently, the ITAT's decision to confirm the CIT (A)'s order and deem the reassessment as legally flawed was upheld, ruling in favor of the Assessee against the Revenue.

In conclusion, the Court dismissed the appeal with no costs, highlighting the importance of a valid basis and tangible material for reopening assessments under the Income Tax Act to prevent arbitrary exercises of power by tax authorities.