2020 (1) TMI 547 - AT - Income Tax

Validity of reopening of assessment u/s 147 - 'reason to believe' or 'reason to suspect' - reasons recorded which warrant holding a belief that income chargeable to tax has escaped assessment - HELD THAT - From the reasons already set out above and from the gist of the reasons recorded by the AO, we understand that the AO received information from ITO, Wd. 6(3), Kolkata. We note that reasons recorded by AO are only on the basis of appraisal report. These reasons are merely to conduct further inquiry, which is evident from the second para of the reasons recorded by AO. Reasons recorded by the AO that there was actually no reason for him to have formed a belief about the escapement of any income of the assessee from the assessment, but the assessment was reopened by him to verify or to conduct further enquiry or to examine certain particulars furnished by the assessee in the return of income.Therefore, it is abundantly clear from the reasons recorded that these are based on appraisal report to conduct further inquiry only.Therefore, it is clear that there is no independent application of mind by AO. If the AO decides to reopen the assessment, he has to satisfy the condition precedent to assume jurisdiction. In the assessee s case the information was received by ITO ward 6(3), and even if the information given by theITO ward 6(3), is adverse against the assessee, at the most it may trigger reason to suspect ; then AO has to make reasonable enquiry and collect material which would make him believe that there is in fact an escapement of income. Without doing so, the jurisdictional fact necessary to usurp jurisdiction to reopen the regular assessment cannot be made by the AO. Reasons recorded by the Assessing Officer are only reason to suspect and the AO has acted based on the information received by him from another Income Tax Officer which is for the purpose to conduct further inquiry only. The reasons recorded by AO to reopen has to be evaluated on a stand-alone basis and no addition/extrapolation can be made or assumed while adjudicating the legal issue of AO s usurpation of jurisdiction u/s. 147. The information given by another Income Tax Officer, based on appraisal report of Badalia Group cases, can only be a basis to ignite/trigger reason to suspect for which reopening cannot be made for further examination to be carried out by him in order to strengthen the suspicion to an extent which can form the belief in his mind that income chargeable to tax has escaped assessment. No quantification of income escaping assessment has been spelt out by the AO in the reasons recorded for justifying reopening u/s. 147 - Decided in favour of assessee.

Issues Involved:
1. Denial of additional time by the CIT(A).
2. Validity of the reopening of assessment under Section 147 of the Income Tax Act, 1961.
3. Confirmation of addition of ?20,00,000 under Section 68 of the Income Tax Act, 1961.

Detailed Analysis:

1. Denial of Additional Time by CIT(A):
The assessee argued that the Commissioner of Income Tax (Appeal) [CIT(A)] erred by not granting further time considering the specific facts and circumstances of the case. However, this issue was not elaborated upon in the judgment, and the primary focus was on the validity of the reopening of the assessment and the addition made under Section 68.

2. Validity of Reopening of Assessment under Section 147:
The main contention of the assessee was that the reopening of the assessment under Section 147 of the Income Tax Act, 1961, was based on suspicion and not on a valid "reason to believe" that income had escaped assessment. The assessee argued that the Assessing Officer (AO) did not apply an independent mind and merely acted on information received from another Income Tax Officer, which was based on an appraisal report of the Badalia Group cases.

The Tribunal noted that for the AO to assume jurisdiction under Section 147, there must be a "reason to believe" that income has escaped assessment. This belief must be based on tangible material and not merely on suspicion. The Tribunal referred to several judicial precedents, including the Delhi High Court's decision in PCIT Vs. Meenakshi Overseas Ltd. and the Bombay High Court's decision in Pr.CIT Vs. Shodiman Investments (P) Ltd., which emphasized that the reasons recorded for reopening must indicate a rational connection between the material and the belief of income escapement.

The Tribunal observed that the reasons recorded by the AO were based solely on the information received from another officer, which was intended for further inquiry. This did not constitute a valid reason to believe that income had escaped assessment. The Tribunal concluded that the reopening of the assessment was not valid as it was based on borrowed satisfaction rather than an independent application of mind by the AO.

3. Confirmation of Addition under Section 68:
The AO had made an addition of ?20,00,000 under Section 68 of the Income Tax Act, 1961, treating it as unexplained cash credit. The CIT(A) confirmed this addition. However, since the Tribunal found that the reopening of the assessment itself was invalid, the consequent reassessment order, including the addition under Section 68, was also quashed.

Conclusion:
The Tribunal allowed the appeal of the assessee, quashing the reopening of the assessment under Section 147 and the consequent reassessment order, including the addition of ?20,00,000 under Section 68. The Tribunal emphasized the necessity of the AO having a valid "reason to believe" based on tangible material before reopening an assessment. The judgment highlighted the importance of independent application of mind by the AO and rejected the reopening based on borrowed satisfaction.

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