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2021 (5) TMI 960 - AT - Income TaxReopening of assessment u/s 147 - borrowed satisfaction v/s independent application of mind - additions on different ground - HELD THAT - Heart of the Section 147 is the formation of belief by the A.O. that income has escaped assessment. The reasons so recorded have to be based on some tangible material and that should be evident from reading the reasons. This is the bare minimum mandatory requirement of the first part of Section 147(1) of the Act. Merely saying that loan has been advanced or ITR has not been filed , without disclosing the reasons, which led the A.O. to hold such a belief, does not confer valid jurisdiction on the A.O. to take action u/s 147 and 148 as has already been held by the Hon ble Gujarat High Court in the case of Birla VXL Ltd. 1995 (9) TMI 45 - GUJARAT HIGH COURT In the case of ITO v. Lakhmani Mewal Das 1976 (3) TMI 1 - SUPREME COURT the Hon ble Supreme Court affirmed the decision of the High Court and held that there was nothing to show in the confession made by a third party related to the loan taken by the assessee much less a loan which was shown to have advanced by that person to the assessee and, therefore, live link or close nexus, which should be there between the material and the belief formed by the Assessing Officer was missing or was too tenuous to provide a legally sound foundation for initiation of assessment proceedings under section 147. If the primary burden u/s 147, lying on AO, remains un-discharged, then the entire proceedings would crumble. No addition being loan given forming the main reason for escapement of income u/s 147 of the Act has been made by the AO and instead, the additions have been made on new different grounds, it can be very fairly said that reasons recorded did not exist and hence the assessment framed u/s 147 read with section 143(3) of the Act deserves to be quashed. A.O. had no jurisdiction to travel beyond the reasons for reopening the assessment. We are of the view that reopening proceedings initiated by the A.O were uncalled for and without jurisdiction, therefore, we quash the same.- Decided in favour of assessee.
Issues Involved:
1. Validity of notice issued under Section 148 of the Income Tax Act, 1961. 2. Confirmation of addition on account of unexplained expenditure. 3. Disallowance of claim under Section 80C. 4. Jurisdiction of the Assessing Officer (AO) to make additions on grounds not forming part of the reasons recorded for reopening. 5. Validity of approval under Section 151 for reopening the assessment. Issue-Wise Detailed Analysis: 1. Validity of Notice Issued Under Section 148: The primary issue was whether the notice issued under Section 148 for reopening the assessment was valid. The assessee argued that the reopening was based on "borrowed satisfaction" from another AO's information without independent verification. The Tribunal noted that the information received by the AO was not independently verified and was merely copied into the reasons recorded for reopening. The AO was not sure about the nature of escapement and relied on assumptions. The Tribunal held that the reopening was solely based on hearsay and lacked a direct nexus between the material and the formation of belief for escapement of income. Thus, the reopening was invalid. 2. Confirmation of Addition on Account of Unexplained Expenditure: The assessee contested the addition of ?51,28,143 made on account of unexplained expenditure. The Tribunal noted that the addition was made for unexplained expenditure in executing contract works, which was different from the reason recorded for reopening (i.e., loan given to Pooja Agarwal). The Tribunal held that the AO had no jurisdiction to make additions on grounds not forming part of the reasons recorded for reopening. 3. Disallowance of Claim Under Section 80C: The assessee's claim of ?10,000 under Section 80C was disallowed by the CIT(A) despite evidence being available. However, since the Tribunal quashed the reopening proceedings, this issue was not specifically adjudicated. 4. Jurisdiction of AO to Make Additions on Grounds Not Forming Part of the Reasons Recorded: The Tribunal emphasized that the AO did not make any addition on the primary issue for which the assessment was reopened (i.e., the loan given to Pooja Agarwal). Instead, the additions were made on different grounds. Citing various judicial precedents, including the Hon'ble Bombay High Court in CIT vs. Jet Airways (I) Ltd and the Hon'ble Rajasthan High Court in Commissioner of Income-tax v. Shri Ram Singh, the Tribunal held that the AO had no jurisdiction to travel beyond the reasons recorded for reopening. Therefore, the assessment framed under Section 147 read with Section 143(3) was quashed. 5. Validity of Approval Under Section 151: The assessee argued that the approval for reopening under Section 151 was granted mechanically without application of mind, as the Joint CIT merely mentioned "Yes" in the printed form. The Tribunal agreed, citing the Hon'ble Supreme Court in Chhugamal Rajpal Vs S.P. Chaliha and other judicial precedents, holding that mechanical satisfaction without due diligence rendered the approval invalid. Consequently, the notice under Section 148 was without valid approval, making the entire proceedings invalid and void. Conclusion: The Tribunal quashed the reopening proceedings initiated by the AO as they were based on borrowed satisfaction, lacked independent verification, and the reasons recorded did not justify the belief of income escapement. The Tribunal also held that the AO had no jurisdiction to make additions on grounds not forming part of the reasons recorded for reopening. As a result, the appeal of the assessee was allowed.
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