2023 (1) TMI 28 - AT - Income Tax

Reopening of assessment u/s 147 - necessity of recording satisfaction as to the income escaping the assessment - independent application of mind by AO OR borrowed knowledge - reopening was made after receipt of information that the assessee is beneficiary of sum received from Surya Commotrade Pvt. Ltd. through its bank account which is a layered company and the assesse is beneficiary of loan provided by the said company - HELD THAT - We note that the AO has discussed in reason the transaction in the bank account of third party and no where recorded a satisfaction that the amount which is received by the assessee of Rs. 10,00,000/- has escaped assessment. Thus, we find merit in the contentions of the Ld. A.R. that reason recorded are based upon presumption and surmises without recording a clear cut finding as to escapement of income. The case of the assessee finds support from the decision of MLB Commerical Pvt. Ltd 2021 (3) TMI 1396 - ITAT KOLKATA . Also there is no application of mind by the AO to the information received and whatever has been supplied to the AO has been taken as it is without any independent application of mind by AO and thus AO has failed to demonstrate any live link between the material received and formation of reason to believe that income had escaped assessment. The case of the assessee find support from the decision in the case of Meenakshi Overseas Pvt. Ltd. 2017 (5) TMI 1428 - DELHI HIGH COURT wherein it has been held that where there is no independent application of mind by the AO to tangible material and conclusion of AO was reproduction of the investigation report, reasons failing to demonstrate link between tangible material and formation of reason to believe that income has escaped assessment , the reassessment is unjustified. Appeal of assessee allowed.

Summary

Issues:
Challenge to order of Ld. CIT(A) on merit and legal issues; Admission of additional grounds of appeal; Validity of reopening of assessment u/s 147 of the Income Tax Act, 1961.

Analysis:
The appeal was filed by the assessee against the order of the Ld. Commissioner of Income Tax (Appeals)-5, Kolkata for the AY 2011-12. The Registry pointed out that the appeal was time-barred, but it was treated as filed within the limitation period due to the decision of the Hon'ble Supreme Court regarding exclusion of the COVID-19 pandemic period for counting the limitation period. The assessee challenged the order of Ld. CIT(A) on merit and legal issues, specifically questioning the jurisdiction of the Income Tax Officer for assuming jurisdiction under section 147 of the Act. The additional grounds of appeal raised by the assessee were considered by the Bench, with the Ld. A.R. arguing that the issue was of a legal nature and could be raised at any stage in the appellate proceedings. The legal issue regarding the initiation of proceedings under section 147 of the Act was admitted for adjudication by the Tribunal, as all relevant facts were available on record. The Ld. Counsel for the assessee argued that the reopening of the case was invalid as the AO did not record satisfaction that income had escaped assessment, relying on legal precedents to support the contention.

The Ld. D.R., however, supported the order of Ld. CIT(A) and AO, contending that the reopening was based on tangible material regarding transactions in the bank account of a third party. After hearing the submissions and examining the reason recorded under section 148(2) of the Act, the Tribunal found that the AO had not clearly established that income had escaped assessment. The Tribunal agreed with the Ld. A.R. that the reasons recorded were based on presumption and surmises without a clear finding on income escapement. Citing a Co-ordinate Bench decision, the Tribunal emphasized the importance of a live link between the material received and the reason to believe that income had escaped assessment. Due to the lack of proper reasoning and borrowed satisfaction, the Tribunal quashed the reopening of the assessment order.

In conclusion, the Tribunal allowed the appeal of the assessee, pronouncing the order on 21st December 2022. The judgment highlighted the significance of establishing a valid reason to believe that income had escaped assessment for the reopening of assessment under section 147 of the Income Tax Act, 1961.