2020 (3) TMI 1478 - AT - Income Tax

Validity of reassessment proceedings - cash credits u/s 68 - HELD THAT - A perusal of the reasons demonstrate that the Assessing Officer was of the belief that the assessee is engaged in tyre business and as such large cash deposits and cash withdrawals do not appear to be genuine business transaction. This assumption of the Assessing Officer is factually incorrect. AO in the assessment order for the records that the assessee was engaged in the business of raw jute seeds etc. in remote areas. This proves that there was non-application of mind by the AO while recording reasons for reopening. The basis on which the reopening is made is factually incorrect. When the assessee is not engaged in tyre business and when he is engaged in the business of raw jute seeds taking mango gardens on lease etc. that too in remote areas cash transactions are inevitable. AO also records that the tax auditor has noted the fact of these cash transactions in his audit report in From No. 3CD. Hence he knew that these are not unrecorded transactions. Thus the entire premise on which the reopening is made is bad in law Reopening is bad in law as the belief is based on wrong facts and inferences and against the facts on record. AO in the reasons recorded clearly states that the cash deposits are suspicious . Suspicion cannot be basis of recording reasons that income subject to tax has escaped assessment for the purpose of reopening of assessment. The reasons recorded contradict the information in Form 3CD wherein he noticed that the tax auditor has audited these transactions and draw some conclusions and that these were examined by the AO. When the entire transactions bank accounts etc. are recorded in the books the question of coming to a conclusion that the transactions are not truly disclosed is a factual mistake. Moreover it is clear that the entire reasons are recorded based on borrowed satisfaction from the office of the DDIT-Kolkata rather than prima facie application of mind by the AO to the information received. The books of accounts were impounded by the investigation wing. The books of accounts were audited and the copies of the annual accounts and audit report were on the file of the Assessing Officer. The Assessing Officer has not bothered to examine the information received with these documents. He recorded reasons that he has formed a belief that income subject to tax has escaped assessment based on surmises and conjectures arising out of wrong facts. The reopening for both the Assessment Years is bad in law as there is non application of mind to the information by the AO so as to come to a reasonable belief that income subject to tax has escaped assessment. AO has recorded the same figures of cash deposits for both the Assessment Years which also demonstrates non-application of mind. The turnover cash deposits cash withdrawn etc. varies from year to year - Decided in favour of assessee.

Summary

Issues Involved:

1. Validity of the reopening of assessments under Section 147 of the Income Tax Act, 1961.
2. Non-application of mind by the Assessing Officer in recording reasons for reopening.
3. Alleged factual inaccuracies in the reasons for reopening.
4. Legality of the approval process under Section 151 for reopening.
5. Merits of the assessment for the Assessment Years 2011-12 and 2012-13.

Issue-wise Detailed Analysis:

1. Validity of the Reopening of Assessments:
The primary issue in these appeals was the validity of the reopening of assessments for the Assessment Years 2011-12 and 2012-13 under Section 147 of the Income Tax Act, 1961. The assessee challenged the reopening on the grounds that the reasons recorded were based on incorrect facts and borrowed satisfaction from the Directorate of Investigation. It was argued that the Assessing Officer did not independently verify the information and relied on suspicion rather than concrete evidence. The Tribunal found that the reopening was based on incorrect assumptions, such as the belief that the assessee was engaged in the "tyre business," which was factually incorrect. The Tribunal concluded that the reopening was bad in law due to non-application of mind and reliance on wrong facts and inferences.

2. Non-application of Mind by the Assessing Officer:
The Tribunal observed that the Assessing Officer failed to apply his mind to the information received from the Directorate of Investigation. The reasons recorded for reopening were identical for both assessment years, and even the figures of cash deposits and withdrawals were the same, indicating a lack of independent verification. The Tribunal emphasized that the reasons for reopening must be based on a reasonable belief that income has escaped assessment, which was not the case here. The Tribunal noted that the Assessing Officer's belief was based on suspicion, which is not a valid ground for reopening assessments.

3. Alleged Factual Inaccuracies:
The Tribunal highlighted the factual inaccuracies in the reasons recorded for reopening. The Assessing Officer incorrectly believed that the assessee was engaged in the tyre business, whereas the assessee was actually involved in trading raw jute, pulses, and other commodities. The Tribunal found that the Assessing Officer's conclusions were based on borrowed satisfaction and not on an independent examination of the facts. The Tribunal held that the reopening was based on wrong facts and inferences, making it invalid.

4. Legality of the Approval Process under Section 151:
The Tribunal also examined the approval process under Section 151 of the Act. It was found that the Principal Commissioner of Income Tax (Pr. CIT) had mechanically granted approval for reopening by merely noting "fit case" without recording proper satisfaction. The Tribunal cited precedents from the Hon'ble Supreme Court and High Courts, emphasizing that the approval process requires a detailed examination and satisfaction, which was lacking in this case.

5. Merits of the Assessment for the Assessment Years 2011-12 and 2012-13:
On the merits of the assessments, the Tribunal noted that the Assessing Officer had made additions based on cash deposits and disallowed certain expenditures. However, since the reopening itself was quashed as bad in law, the Tribunal did not adjudicate the merits of these additions and disallowances. The Tribunal stated that addressing the merits would be an academic exercise given the invalidity of the reopening.

Conclusion:
The Tribunal allowed the appeals of the assessee, quashing the reopening of assessments for both the Assessment Years 2011-12 and 2012-13 as bad in law due to non-application of mind and reliance on incorrect facts and borrowed satisfaction. Consequently, the Tribunal did not address the merits of the assessments.