2022 (4) TMI 229 - AT - Income Tax

Reopening of assessment u/s 147 - Validity of reason to believe - proof of independent application of mind - HELD THAT - It is established principle of law that if a particular authority has been designated to record his/her satisfaction on a particular issue, then it is that authority alone who should apply his/her independent mind to record his/her satisfaction and further mandatory condition is that the satisfaction recorded should be independent and not borrowed or dictated satisfaction. Admittedly in this case, the AO while recording reasons for selection of the case on the basis of AIR information observed that the Assessee has deposited cash in his S.B. Account during the F.Y. 2008-09 and therefore issued a verification letter dated 30.10.2015 to the Assessee who failed to respond the same, therefore inference was drawn by the AO that the source of deposit in saving bank account remained unexplained as the Assessee has not filed return of income for the A.Y. 2009-10. As the AO except issuing verification letter to the Assessee, has not made proper efforts to find out the veracity and authenticity of information and any corroborative evidence/material thereto and without connecting tangible material and the formation of the reasons to believe for escapement of income but only acted on the information while forming belief qua escapement of the income and initiation of proceedings u/s 147/148 we are of the considered opinion that the reasons recorded in the instant case are insufficient, vague and based on un-substantive reasoning, uncorroborated material and lack of evidence and hence tantamount to be based on borrowed satisfaction and accordingly does not sound valid reasons in the eyes of law, for reopening of the case. Re-opening of the assessment proceedings u/s 147 of the Act by the AO and affirmation by the Ld. Commissioner was totally unjustified and therefore deserve quashing, hence ordered accordingly. Appeal of assessee allowed.

Summary

Issues:
Reopening of case under section 147/148 of the Income-tax Act based on AIR information without independent verification by the Assessing Officer.

Analysis:

Issue 1: Reopening of the case under section 147/148 of the Act based on AIR information alone without independent verification by the AO.

The Assessee's case was reopened by the Assessing Officer (AO) based on AIR information that the Assessee had deposited cash in a Saving Bank Account during the financial year. The AO formed an opinion that the source of the deposit remained unexplained as the Assessee did not respond to the verification letter and had not filed a return of income for the relevant assessment year. The Assessee challenged the reopening before the Commissioner, arguing that the AO did not apply his mind independently and relied solely on the AIR information. The Tribunal examined the reasons recorded by the AO and found them insufficient, vague, and based on uncorroborated material, lacking evidence. The Tribunal cited judgments stating that the reasons to believe must be based on relevant material and demonstrate a link between the material and the belief of income escapement. The Tribunal concluded that the reasons recorded were insufficient and amounted to a borrowed satisfaction, thus invalid for reopening the case.

Judicial Precedents:

The Tribunal referred to various judgments, including PCIT Vs. RMG, CIT Vs. SPL's Siddhartha Ltd, and Pr. CIT vs. Meenakshi Overseas Pvt. Ltd, emphasizing the requirement of an independent application of mind by the AO and the necessity to demonstrate a link between tangible material and the belief of income escapement. The Tribunal highlighted that the AO's conclusions should not be a reproduction of investigation reports or AIR information but should show independent reasoning.

Decision:

The Tribunal allowed the Assessee's appeal, quashing the reopening of the assessment proceedings under section 147 of the Act. The Tribunal held that the reasons recorded were insufficient and based on borrowed satisfaction, rendering the reopening unjustified. As the reopening was quashed, the Tribunal did not proceed to decide on the merits of the case, deeming it a futile exercise. The decision was pronounced in the open court on 29/03/2022.

This detailed analysis highlights the Tribunal's scrutiny of the AO's reasoning for reopening the case based on AIR information alone, emphasizing the importance of independent verification and the necessity to establish a clear link between material and the belief of income escapement for a valid reopening under section 147/148 of the Income-tax Act.