2018 (11) TMI 1315 - AT - Income Tax

Reopening of assessment - validity of reasons to believe - tangible material in his possession subsequent to the intimation u/s 143(1) - Held that - The reopening of the assessment solely on the basis of the statement of Sri Ramalinga Raju, without bringing on record any tangible material to come to the conclusion that there is escapement of income is not sustainable. No reason to interfere with the order of the CIT(A), who has followed the ITAT orders in similar cases for setting aside the assessment order. Accordingly, the Revenues appeal is dismissed.

Issues Involved:
1. Validity of the reopening of assessment under Section 147 of the IT Act.
2. Requirement of tangible material for reopening an assessment.
3. Nexus between the assessee and M/s Satyam Computer Services Ltd. (SCSL).
4. Relevance of the statement by Shri B. Ramalinga Raju in reopening the assessment.
5. Applicability of previous ITAT orders and High Court decisions in similar cases.

Detailed Analysis:

1. Validity of the Reopening of Assessment under Section 147 of the IT Act:
The primary issue was whether the reopening of the assessment for the A.Y 2005-06 was valid under Section 147 of the IT Act. The Revenue argued that the reopening was justified based on the "reason to believe" that income had escaped assessment. The CIT(A) held that the reopening was invalid due to the lack of a nexus between the assessee and the reasons recorded for the reopening. The ITAT upheld the CIT(A)'s decision, emphasizing that the Assessing Officer (AO) must have tangible material to justify the reopening.

2. Requirement of Tangible Material for Reopening an Assessment:
The ITAT highlighted that even for reopening an assessment completed under Section 143(1), the AO must possess tangible material to justify the belief that income had escaped assessment. This principle was supported by various High Court decisions, including CIT Vs. Orient Craft Ltd., Ratna Trayi Reality Services Vs. ITO, and CIT Vs. Athul Kumar Swamy. The ITAT found that the AO did not have any tangible material other than the statement of Shri B. Ramalinga Raju, which was insufficient to justify the reopening.

3. Nexus Between the Assessee and M/s Satyam Computer Services Ltd. (SCSL):
The CIT(A) and ITAT both noted that the AO failed to establish a nexus between the assessee and SCSL. The reopening was based on the general allegations against SCSL and its group companies without specific evidence linking the assessee to the alleged fudging of accounts. The ITAT reiterated that the AO must demonstrate a clear link between the reasons recorded for reopening and the assessee's income.

4. Relevance of the Statement by Shri B. Ramalinga Raju in Reopening the Assessment:
The ITAT found that the AO relied heavily on the statement of Shri B. Ramalinga Raju, which mentioned the fudging of accounts in SCSL. However, the statement alone was deemed insufficient to constitute tangible material for reopening the assessment. The ITAT emphasized that the AO must have additional evidence or material to substantiate the claim of income escapement.

5. Applicability of Previous ITAT Orders and High Court Decisions in Similar Cases:
The CIT(A) and ITAT referred to previous ITAT orders in the cases of the assessee's group companies, which had held similar reassessments to be invalid due to the lack of tangible material. The ITAT also relied on High Court decisions that underscored the necessity of tangible material for reopening assessments. These precedents reinforced the decision to quash the reopening of the assessment in the present case.

Conclusion:
The ITAT upheld the CIT(A)'s decision to quash the reopening of the assessment for the A.Y 2005-06, citing the lack of tangible material and the absence of a clear nexus between the assessee and the reasons recorded for reopening. The appeal by the Revenue was dismissed, and the Cross Objection by the assessee was also dismissed as it became academic following the invalidation of the assessment order.

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