2022 (2) TMI 1138 - AT - Income Tax

Validity of reopening of assessment u/s 147 - Whether Reopening notice issued by the AO based on information received by him from the DDIT(Inv.) and not on his own satisfaction? - HELD THAT - The first four lines consists of a factual information received from the DDIT (Inv.), Mumbai, the second part indicates that it has been established from the report that the assessee has taken accommodation entries and the third part consists of failure on the part of the assessee to disclose fully and truly all material facts necessary for the assessment. AO mentions so as to reopen the case, it was established that BL Jain Group was providing accommodation entries of unsecured loan and bogus purchases. Then, he goes on to mention that it is established from the report that the assessee has taken accommodation entries and hence he has reasons to belief that the income has escaped assessment. Primarily, we find that the reasons recorded by the assessee are too sketchy and does not instill any confidence with regard to the reasons recorded for reopening. It is not even clear whether the assessee has received entries pertaining to loans or purchases. The details of the report wherein it was alleged that the assessee has received bogus entries could not be made as a basis for reopening. The existence of belief has to be bonafide and has to be based on material which is relevant hence specific in nature. The basis of the belief should be discernable from the facts on record and ascertainable with regard to the escapement of income. In this case, a regular assessment u/s. 153B(1) has also been completed on 31.03.2014. The reasons, in the instant case recorded by the AO do not satisfy the requirements of Section 148 - reasons and the information referred is extremely scanty and sudden jump to the conclusions. There is no reference to any specific document except the Annexure which cannot be regarded as material or prima facie evidence to establish the link to point out escapement of income. Annexure is not a pointer and does not indicate escapement of income per se. Hence, going through the reasons recorded of the AO on 10.10.2014 and the judicial pronouncements mentioned above in the absence of any tangible material to establish the escapement of income for assessment, we hold that the action of the AO issuing the notice u/s. 148 cannot be held to be legally valid. - Decided in favour of assessee.

Summary

Issues:

1. Reopening of assessment based on information received from DDIT(Inv.)
2. Validity of reasons recorded for reopening assessment
3. Compliance with requirements of Section 148 of the Income Tax Act

Analysis:

1. The appeal and cross-objection were filed against the order of the ld. CIT(A), Rohtak, regarding the reopening of assessment by the Revenue based on information from the DDIT(Inv.). The assessee declared income and later received a notice under section 153A post a search operation. Subsequently, information was received about alleged bogus purchases made by the assessee from certain groups. The case was reopened based on these grounds.

2. The Tribunal found the reasons recorded for reopening the assessment to be inadequate and lacking specificity. It was noted that the belief for income escapement must be genuine and supported by relevant material. The Tribunal referred to legal precedents emphasizing the importance of clear and unambiguous reasons for reopening an assessment. The AO's reasons were deemed insufficient and did not establish a direct link to income escapement.

3. Despite a regular assessment being completed earlier, the Tribunal held that the reasons provided by the AO for reopening the assessment did not meet the standards set by Section 148 of the Act. The information relied upon was considered vague and did not conclusively demonstrate income escapement. As a result, the Tribunal concluded that the notice issued under section 148 was not legally valid due to the lack of tangible material supporting the income escapement claim.

4. Consequently, the Tribunal allowed the cross-objection of the assessee and dismissed the appeal of the Revenue, refraining from delving into the merits of the case due to the invalidity of the reopening. The judgment highlighted the necessity of meeting legal standards when reopening assessments to ensure the validity and legality of such actions.