2019 (9) TMI 140 - AT - Income Tax

Reopening of assessment u/s 147 - reasons recorded which pertains to fact of purchase of property, sources of which allegedly remained unexplained at the stage of enquiry proceedings - HELD THAT - Proceedings under section 148 cannot be initiated for verification of the sources of investment. Such an action of the AO in respect of the case on hand cannot be approved in law and is therefore, quashed. The text of the reasons recorded do proves that virtually there has been no application of mind by Assessing officer so as to form requisite satisfaction that investment in property is income of current year and which has escaped assessment; that the reasons recorded in the case in hand are no reasons in the eye of law, being completely barren and bald in nature as it is not mentioned that in what material terms the reply is lacking in nature; that the reasons do not show any mental exercise having been done by him before arriving at the satisfaction for escapement of income and thus, the AO made his conclusions, leaving the reader to guess for the material on basis of which of belief of escapement is founded. The so called reasons instead of being reasons to believe are reasons to suspect and sought to extend the scope of enquiry from the stage where it was left vide enquiry letter. The investment need not necessarily come from the income. It may be out of income exempted from tax, past savings, loans, gifts, liquidation of investment or sale of another property etc., notice under section 148 cannot be issued for verification of information, but here the jurisdictional satisfaction is the essential requirement has to be shown that there has been reason to believe that there was income chargeable to tax. The reasons recorded by the Assessing officer should speak his mind and the basis for coming to conclusion that investment had been sourced from income, which should have been disclosed and had not been shown therefore, there was escapement of income. There must be direct nexus between the material and belief of escapement. This mental exercise must be self-evident from the reasons recorded. Reasons recorded by the Assessing officer, are no reasons in the eye of law for assuming jurisdiction in this case for issuing notice under section 148 - Decided in favour of assessee.

Issues Involved:
1. Validity of reopening the assessment under section 148 of the Income Tax Act, 1961.
2. Legality of the reasons recorded by the Assessing Officer (AO) for reopening the assessment.
3. Jurisdictional authority of the AO in issuing the notice under section 148.
4. Admissibility of objections raised by the assessee at the appellate stage.
5. Legitimacy of the addition of ?53,00,000 and ?21,82,700 to the assessee’s income.
6. Compliance with principles of natural justice and procedural fairness.

Issue-wise Detailed Analysis:

1. Validity of Reopening the Assessment under Section 148:
The reopening of the assessment was challenged by the assessee on the grounds that the reasons recorded by the AO lacked application of mind and did not demonstrate a valid foundation for the belief that income had escaped assessment. The Tribunal noted that the AO’s reasons were vague and did not specify how the assessee's reply was unsatisfactory. The Tribunal held that reopening for verification purposes is not permissible under the law, citing various judicial precedents including the ITAT Amritsar Bench in the case of Amrik Singh and the ITAT Delhi Bench in the case of Anil Singhal.

2. Legality of the Reasons Recorded by the AO:
The reasons recorded by the AO were found to be insufficient and not self-evident. The Tribunal emphasized that reasons must show a direct nexus between the material and the belief of escapement of income. The recorded reasons were deemed to be barren and bald, lacking any substantial basis for forming a belief that income had escaped assessment. The Tribunal referenced judicial precedents such as CIT Vs Smt Maniben Valji Shah and Bakulbhai Ramanlal Patel Vs ITO to support its conclusion that the reasons were inadequate.

3. Jurisdictional Authority of the AO in Issuing the Notice:
The Tribunal examined whether the AO had the jurisdiction to issue the notice under section 148. It was argued that the letter dated 21.11.2014, which formed the basis of the AO’s reasons, was unauthorized and not issued under any statutory provision. The Tribunal found that the AO’s action was unauthorized and that the letter could not serve as a valid basis for reopening the assessment. The Tribunal rejected the argument that the assessee’s failure to challenge the letter earlier precluded them from raising the issue at the appellate stage.

4. Admissibility of Objections Raised by the Assessee at the Appellate Stage:
The Tribunal held that the assessee could raise jurisdictional objections at any stage, including at the appellate level. The Tribunal cited the Hon’ble Supreme Court’s judgment in NTPC Vs CIT, which allows legal questions to be raised for the first time at the appellate stage. The Tribunal also referenced the Hon’ble Allahabad High Court’s decisions in Shri Abdul Majid Vs CIT and Km. Teena Gupta Vs. CIT, which support the position that jurisdictional challenges can be raised later in the proceedings.

5. Legitimacy of the Addition of ?53,00,000 and ?21,82,700:
The Tribunal did not delve into the merits of the additions made by the AO, as the primary issue of the validity of the assessment itself was found to be void. Since the assessment was quashed, all related additions were rendered academic and infructuous.

6. Compliance with Principles of Natural Justice and Procedural Fairness:
The Tribunal noted that the assessment order was passed ex-parte under section 144, and the assessee had not been given adequate opportunity to present their case. The Tribunal highlighted the importance of procedural fairness and adherence to the principles of natural justice, which were found lacking in this case.

Conclusion:
The Tribunal quashed the assessment order dated 30.03.2016 under section 144 read with section 147 of the Income Tax Act, 1961, for the Assessment Year 2008-09, finding the reasons recorded for reopening the assessment to be legally insufficient and the process to be unauthorized. Consequently, all other issues on legal and merit grounds were deemed academic and infructuous. The appeal was allowed in favor of the assessee.

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