2022 (5) TMI 950 - AT - Income Tax

Reopening of assessment u/s 147 - recording of satisfaction in mechanical manner - unexplained money u/s 69 A - reopening based on AIR/CIB Information that the assessee had deposited cash in his Bank account - Independent application of mind by AO or not? - HELD THAT - It is pertinent to mention that the AO has not analyzed the information in right perspective and sought to reopen by conceiving a wrong fact that the assessee did not file return of income and, as such, the bank deposit represents unexplained investment. The mere information from annual information returns which is made as the basis for reopening without describing the contents of information i.e. when was the statement received, the bank account details and most importantly copy of bank account which is made as the basis of reopening was never gone through by the AO while recording the reasons. This is very much clear from the reassessment order that the AO recorded a finding that during the course of assessment proceedings information u/s 133(6) of the Act were called from HDFC Bank Ltd. and ICICI Bank and there was no compliance made by both the banks till date. Therefore, the AO never had with him any copy of bank statement before recording of reasons for reopening of assessment and issue of notice u/s 148. Therefore, without going to the contents of the entries in the bank accounts merely deposits cannot be treated as income escaping assessment. There is no nexus between the prima facie inferences arrived in the reasons recorded and the information . The information was restricted to cash deposit in bank account but there was no material much less tangible, cogent, credible and relevant material to form a reason to believe that cash deposits represented income of the assessee. The reasons recorded in the present case at best can be treated to be reasons to suspect which is not sufficient for reopening the assessment u/s 148 of the Act. The requirement of application of mind is missing in the present case on the face of it in the reasons recorded. PCIT also mechanically issued permission to reopen the assessment without going into the facts available on record. Even in the Form for seeking approval, in Column 8, the AO records that no return has been filed by the assessee even though factually incorrect and the PCIT did not apply his mind while granting approval as he has simply gone by what is recorded by the AO which is factually wrong. The satisfaction recorded by the PCIT is in mechanical manner and without application of mind. Thus reassessment made u/s 144 r.w.s. 147 by the AO is bad in law - Decided in favour of assessee.

Summary

Issues Involved:
1. Legality of the order passed by the Ld. CIT(A).
2. Validity of the initiation and completion of proceedings under Section 147 and 144/147 of the Income Tax Act.
3. Incorrect factual premise regarding the filing of the return of income.
4. Non-application of mind by the AO and the Ld. PCIT.
5. Procedure for framing the assessment under Section 144.
6. Addition on account of cash deposit in bank accounts.

Issue-wise Detailed Analysis:

1. Legality of the order passed by the Ld. CIT(A):
The assessee contended that the order of the Ld. CIT(A) was bad in law and against the facts and circumstances of the case. The Tribunal examined the grounds raised by the assessee and found that the Ld. CIT(A) upheld the reopening of assessment and the addition made under Section 69A of the Income Tax Act.

2. Validity of the initiation and completion of proceedings under Section 147 and 144/147 of the Income Tax Act:
The assessment was reopened based on AIR/CIB Information indicating cash deposits of Rs. 28,83,000/- in the assessee's bank account during FY 2010-11. The reassessment was completed under Sections 144/147, treating the amount as unexplained money under Section 69A. The Tribunal noted that the reasons recorded for reopening were undated, and there was no verification of facts by the AO. The AO acted on AIR Information without independently applying his mind, rendering the reassessment proceedings void ab initio.

3. Incorrect factual premise regarding the filing of the return of income:
The AO initiated proceedings on the incorrect premise that the assessee had not filed any return, while the assessee had filed a return on 30.07.2011. The Tribunal found that the AO's assumption was factually wrong, as the return filing was recorded in the ITS dated 10.03.2018. The AO's belief that income had escaped assessment was based on this incorrect fact, invalidating the reopening.

4. Non-application of mind by the AO and the Ld. PCIT:
The Tribunal observed that both the AO and the Ld. PCIT acted mechanically without due application of mind. The reasons recorded by the AO were based solely on AIR Information without verification. The approval granted by the Ld. PCIT was also undated and mechanical. The Tribunal cited several judicial precedents, including PCIT vs. Meenakshi Overseas Pvt. Ltd., to support the view that reassessment without independent application of mind is invalid.

5. Procedure for framing the assessment under Section 144:
The assessee argued that the AO failed to follow the procedure under Section 144. The Tribunal did not specifically address this issue in detail, as it quashed the reassessment on preliminary grounds of jurisdiction.

6. Addition on account of cash deposit in bank accounts:
The AO treated the cash deposits of Rs. 28,83,000/- as unexplained money. The Tribunal noted discrepancies in the AO's reasons, including the incorrect statement that deposits were made only in ICICI Bank, while they were also made in HDFC Bank. The Tribunal found no live link between the material available and the reasons for belief that income had escaped assessment. The reassessment order was quashed, making the issue of addition academic.

Conclusion:
The Tribunal quashed the reassessment order under Sections 144/147, holding it bad in law due to the incorrect factual premise, non-application of mind by the AO and the Ld. PCIT, and procedural lapses. The appeal of the assessee was partly allowed, and other grounds raised were not decided as they became academic.