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2022 (9) TMI 814 - AT - Income TaxValidity of reopening of assessment u/s.147 - Eligibility of reasons to believe - Manadation of application of mind in pursuant to reasons recorded for reopening of assessment - Whether reasons recorded by AO does not show any light on quantification of escapement of income and also failure on the part of the assessee to disclose fully and truly all material facts necessary for assessment? - HELD THAT - In this case on perusal of form of initiation of proceedings u/s.147 of the Act and for granting approval of the Commissioner of Income Tax for issuance of notice u/s.148 of the Act it is abundantly clear that the Assessing Officer has recorded reasons for reopening of assessment without there being any allegation on the part of the assessee to disclose fully and truly all material facts necessary for that assessment year and said reasons had been mechanically approved by the Commissioner of Income Tax Salem by stating that Yes I am satisfied . Therefore we are of the considered view that notice issued u/s.148 in pursuant to reasons recorded for reopening of assessment dated 18.03.2013 and consequent approval granted by the CIT Salem is without any application of mind and thus reopening of assessment on the basis of said approval is bad in law and liable to be quashed. Hence we quash notice issued u/s.148 of the Income Tax Act 1961 and consequent reassessment proceedings completed u/s.143(3) r.w.s 147 of the Act. - Decided in favour of assessee.
ISSUES PRESENTED and CONSIDERED
The core legal issues considered in the judgment were:
ISSUE-WISE DETAILED ANALYSIS 1. Validity of Reopening of Assessment under Section 147 Relevant Legal Framework and Precedents: The reopening of an assessment under Section 147 requires the Assessing Officer to have a reasonable belief that income has escaped assessment. The proviso to Section 147 specifies that if an assessment under Section 143(3) has been made, no action can be taken after four years from the end of the relevant assessment year unless there is a failure on the part of the assessee to disclose fully and truly all material facts necessary for assessment. Court's Interpretation and Reasoning: The Tribunal noted that the reasons recorded for reopening the assessment did not allege any failure on the part of the assessee to disclose fully and truly all material facts necessary for assessment. The absence of such an allegation rendered the reopening invalid, especially since the reopening was initiated after four years from the end of the relevant assessment year. Key Evidence and Findings: The reasons recorded by the Assessing Officer did not quantify the escapement of income or allege any non-disclosure by the assessee. The Tribunal found that the reasons lacked the necessary elements to justify reopening under the proviso to Section 147. Application of Law to Facts: The Tribunal applied the proviso to Section 147 and concluded that the absence of an allegation of non-disclosure by the assessee invalidated the reopening of the assessment. Treatment of Competing Arguments: The assessee argued that the reasons for reopening were insufficient and lacked allegations of non-disclosure. The Department contended that the reasons were self-explanatory and based on fresh tangible materials. The Tribunal sided with the assessee, emphasizing the need for specific allegations in the reasons recorded. Conclusions: The Tribunal concluded that the reopening of the assessment was invalid due to the absence of allegations of non-disclosure, as required by the proviso to Section 147. 2. Legality of Sanction under Section 151 Relevant Legal Framework and Precedents: Section 151 requires the competent authority to be satisfied that it is a fit case for issuing a notice under Section 148. This satisfaction must be recorded in writing and cannot be mechanical. Court's Interpretation and Reasoning: The Tribunal observed that the approval granted by the Commissioner of Income Tax was mechanical, as it merely stated "Yes, I am satisfied" without any detailed reasoning or reference to the reasons recorded by the Assessing Officer. Key Evidence and Findings: The form for recording reasons and obtaining approval showed a lack of detailed satisfaction by the approving authority. The Tribunal found that the approval was granted without proper application of mind. Application of Law to Facts: The Tribunal applied the principles established in precedents, which require a detailed and reasoned satisfaction by the approving authority. The mechanical approval in this case was found to be insufficient. Treatment of Competing Arguments: The assessee argued that the approval was mechanical and lacked application of mind. The Department contended that the approval was valid as it followed the prescribed format. The Tribunal favored the assessee's argument, emphasizing the need for a reasoned satisfaction. Conclusions: The Tribunal concluded that the sanction accorded under Section 151 was invalid due to its mechanical nature and lack of application of mind. 3. Validity of Additions for Bogus Purchases Relevant Legal Framework and Precedents: Additions for bogus purchases require tangible evidence to support the claim of inflated expenses or bogus transactions. Court's Interpretation and Reasoning: Although the assessee challenged the additions, the Tribunal did not adjudicate this issue on merits, as the assessment order was quashed on legal grounds. Key Evidence and Findings: The Tribunal noted that the additions were primarily based on the statement of the Executive Director and lacked substantial evidence. Application of Law to Facts: The Tribunal did not proceed with a detailed analysis of the merits due to the quashing of the assessment order. Treatment of Competing Arguments: The Tribunal did not address the competing arguments on this issue, as the legal grounds for quashing the assessment were sufficient to dispose of the appeal. Conclusions: The Tribunal dismissed the grounds related to additions for bogus purchases as infructuous, given the quashing of the assessment order on legal grounds. SIGNIFICANT HOLDINGS Core Principles Established: The Tribunal reinforced the principle that reopening of assessments under Section 147 requires specific allegations of non-disclosure when initiated after four years from the end of the relevant assessment year. Additionally, the satisfaction required under Section 151 must be reasoned and not mechanical. Final Determinations on Each Issue: The Tribunal quashed the notice issued under Section 148 and the consequent reassessment proceedings, rendering the additions for bogus purchases moot.
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