2019 (5) TMI 430 - AT - Income Tax

Reopening of assessment u/s 147 - reasons to believe as not synonymous to reason to suspect - borrowed satisfaction - original assessment u/s 143(1) - assessee had suppressed its income by using LTCG treating it as exempted which is/are reported as bogus by the directorate - HELD THAT - When the AO was in receipt of the information from the DIT(Inv.) he ought to have made reasonable enquiry and collect materials which would make him believe, that there is escapement of income. As stated earlier, it has to be remembered that information is not synonymous to truth. At the cost of repetitions, we note that AO simply on the basis of the investigation report of DIT (Inv.) has jumped into conclusion that there is an escapement of income which is erroneous since it does not satisfy the jurisdictional fact and law for reopening as envisaged u/s. 147 AO simply taking note of the DIT(Inv.) letter has borrowed the satisfaction without independent application of mind to form reason warrant holding a belief that income chargeable to tax has escaped assessment. Just because a letter has been received from the DIT(Inv.) the AO cannot reopen the assessment even if original assessment was u/s. 143(1). AO based on the reasons recorded as set out above could not have initiated a fishing enquiry to find out the veracity of the information given by the DIT(Inv.). The reasons recorded by AO does not stand the test as laid by plethora of judicial precedence as discussed above which is sine qua non to assume jurisdiction u/s 147 we find that the reasons recorded by the AO to justify reopening the assessment u/s. 147 fails and, therefore, the very assumption of jurisdiction to reassess the assessee falls. Since the AO failed to validly assume jurisdiction u/s. 147 the assumption of jurisdiction by him to re-open the assessment itself is qorum non judice and, therefore, all subsequent action is null in the eyes of law and therefore, we quash the reopening and consequent reassessment order framed by him. AO had made some enquiry (Pre-reopening) at least then he would have definitely stumbled across the order of the Tribunal passed in ACIT Vs. Swastik S. Ghuwalewala 2013 (5) TMI 1005 - ITAT KOLKATA wherein the Tribunal has held that the purchase and sale of shares of M/s. Bakra Pratisthan Ltd. (M/s. BPL) is not bogus vide order dated 23.05.2013 and we note that the instant reopening notice was issued by AO on 28.03.2017. So in the light of Tribunal order in respect to the scrip in lis, question of reopening would arise or not at the first instance should have been taken independent by the AO - Decided in favour of assessee.

Summary

Issues Involved:
1. Validity of Reopening of Assessment under Section 147/148 of the Income-tax Act, 1961.

Issue-wise Detailed Analysis:

1. Validity of Reopening of Assessment under Section 147/148 of the Income-tax Act, 1961:

At the outset, the assessee challenged the reopening of the assessment under Section 147/148 of the Income-tax Act, 1961. The brief facts necessary for adjudication were that the assessee had filed the return of income on 17.12.2012 for AY 2012-13, which was accepted by the Department as no scrutiny assessment was framed initially. The Assessing Officer (AO) issued a notice under Section 148 on 28.03.2017, which was objected to by the assessee but subsequently brushed aside, leading to the reassessment order on 27.12.2017.

The assessee's counsel argued that the AO reopened the assessment based on a letter from the Directorate of Income Tax (Investigation), Kolkata, without applying his mind. The counsel emphasized that the AO must satisfy the condition precedent to assume jurisdiction, which requires a "reason to believe" that income has escaped assessment. The counsel cited several judicial precedents to support the contention that the AO must independently apply his mind and not act on borrowed satisfaction.

The Tribunal noted that the AO's reasons for reopening the assessment were based solely on the information from the Directorate of Investigation, which suggested that the assessee was involved in transactions of bogus Long-Term Capital Gains (LTCG). The Tribunal emphasized that the reasons recorded by the AO must demonstrate a link between the tangible material and the formation of the belief that income has escaped assessment. The Tribunal found that the AO did not independently verify the information received from the Directorate of Investigation and merely acted on the report, which amounted to borrowed satisfaction.

The Tribunal referred to various judicial precedents, including the Delhi High Court's decision in ACIT Vs. Meenakshi Overseas (P) Ltd., which held that the reasons to believe must be based on some tangible material and should not be a mere reproduction of the investigation report. The Tribunal also referred to the Bombay High Court's decision in Pr.CIT Vs. Shodiman Investments (P) Ltd., which emphasized that the AO must independently apply his mind to the information received and form a belief that income has escaped assessment.

The Tribunal concluded that the AO's reasons for reopening the assessment were vague and did not satisfy the requirement of law. The Tribunal held that the reopening of the assessment was invalid as the AO did not independently apply his mind and merely acted on the information provided by the Directorate of Investigation. Consequently, the Tribunal quashed the reopening of the assessment and the subsequent reassessment order.

Conclusion:
The Tribunal allowed the appeal of the assessee, holding that the reopening of the assessment under Section 147/148 was invalid as the AO did not independently apply his mind and merely acted on borrowed satisfaction from the Directorate of Investigation's report. The Tribunal quashed the reopening proceedings and the consequential reassessment order.