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2021 (6) TMI 750 - AT - Income TaxReopening of assessment u/s 147 - reason to believe V/S reason to suspect - suspicious transaction of LTCG in shares - HELD THAT - AO has simply reproduced the information from DIT(Inv) that since the assessee has transacted in this financial year in the scrip of M/s Essar India, the LTCG claim is bogus; and the AO while recording the reason concluded that by doing the said transaction there was an escapement of income of ₹ 5,55,624/- whereas when the assessment order was framed the AO has found that assessee has made LTCG of ₹ 9,70,583/-. - when the AO got adverse information from the DIT(Inv) as a prudent and responsible officer, the AO should have made preliminary enquiry and collected materials which could have made him form the belief that there is escapement of income. As noted that AO based on the information from DIT(Inv) neither furnished a copy of the same to assessee nor even recorded the gist of the information from DIT in the reasons recorded by him to conclude that LTCG on M/s Essar India is bogus. In the facts and circumstances discussed it is noted that the legal requirement to reopen i.e. reason to believe escapement of income has not been satisfied. Since the requirement of law prescribed u/s 147 of the Act has not been met in the reasons recorded in the case of assessee, the AO did not have jurisdiction to reopen the assessment and therefore the very action of issuing notice u/s 148 is bad in law and consequently all action taken by the AO is null in the eyes of law and therefore quashed. Appeal of the assessee is allowed.
Issues Involved:
1. Jurisdiction of the Assessing Officer (AO) to reopen the assessment under Section 147 of the Income Tax Act, 1961. 2. Validity of the reasons recorded by the AO for reopening the assessment. 3. Discrepancy in the figures mentioned in the reasons recorded and the assessment order. 4. Application of mind by the AO in forming the "reason to believe" for escapement of income. Issue-wise Detailed Analysis: 1. Jurisdiction of the AO to Reopen the Assessment: The appellant challenged the jurisdiction of the AO to reopen the assessment under Section 147 of the Income Tax Act, 1961, arguing that the AO did not satisfy the condition precedent of having a "reason to believe" that there was an escapement of income. The Tribunal noted that if the legal issue of jurisdiction is found to be correct, it would go to the root of the reassessment order and must be adjudicated first. The Tribunal emphasized that the concept of assessment is governed by the time-barring rule, and completed assessments can only be disturbed when there is information or evidence regarding undisclosed income or tangible material showing escapement of income. 2. Validity of the Reasons Recorded by the AO: The appellant argued that the AO merely reproduced the information received from the investigation wing without applying his mind or providing details of the information. The Tribunal observed that the reasons recorded by the AO should demonstrate a link between the alleged tangible material and the formation of the "reason to believe" that income has escaped assessment. The Tribunal noted that the AO borrowed the satisfaction of the Director of Income Tax (Investigation) and concluded that the transactions were bogus without making a preliminary enquiry. The Tribunal cited several case laws to support the principle that the reasons recorded should speak for themselves and that the AO must independently apply his mind to form a belief of escapement of income. 3. Discrepancy in Figures: The appellant pointed out a discrepancy between the figures mentioned in the reasons recorded for reopening (?5,55,624) and the assessment order (?9,70,583). The Tribunal found that this discrepancy indicated non-application of mind by the AO while recording the reasons for reopening. The Tribunal emphasized that adverse information might trigger a "reason to suspect," but the AO must make reasonable enquiries and collect material to form a belief of escapement of income. 4. Application of Mind by the AO: The Tribunal concluded that the AO did not independently apply his mind and merely reproduced the information from the DIT (Investigation). The Tribunal noted that the AO should have made preliminary enquiries and collected materials before forming a belief of escapement of income. The Tribunal relied on several judgments, including those of the Delhi High Court and the Supreme Court, which held that the AO must independently apply his mind and that borrowed satisfaction is not permissible in law. Conclusion: The Tribunal held that the legal requirement to reopen the assessment under Section 147 of the Act was not satisfied, as the AO did not have a valid "reason to believe" that income had escaped assessment. Consequently, the action of issuing the notice under Section 148 was deemed bad in law, and all subsequent actions taken by the AO were nullified. The appeal of the assessee was allowed, and the reopening of the assessment was quashed. Order Pronouncement: The order was pronounced in the open court on 18th June 2021.
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