2021 (12) TMI 1505 - AT - Income Tax

Validity of reopening of assessment u/s 147/148 - reasons to believe v/s suspect - bogus purchases of goods - HELD THAT - Reasons were recorded based on the information received from DDIT Investigation wing Mumbai that search was carried out by the investigation wing, Mumbai in the case of Gautam Jain others (Surat Diamond concerns) group of Mumbai. The group is indulged in providing bogus purchase bills / unsecured loans through various benami concerns. We note that unsecured loans is not a subject matter or an issue in the case of assessee under consideration; therefore, it seems that assessing officer did not apply his mind while recording reasons. Thus, reasons were recorded based of suspicion and in a mechanical way without application of mind. The provisions of section 147 require that the AO should have 'reason to believe' that any income chargeable to tax has escaped assessment. The word 'reason' in the phrase 'reason to believe' would mean cause or justification. If the AO has a cause or justification to think or suppose that income had escaped assessment, he can be said to have a reason to believe that such income had escaped assessment. We note that in assessee s case, the reasons recorded by the assessing officer are not reason to believe rather these are reason to suspect . Reasons must have a live link with the formation of the belief. This is supported by Circular No. 549 dated 31.10.1989 which clarified that the words reason to believe did not mean a change of opinion. The Hon ble Supreme Court in ITO vs. Lakhmani Mewal Das 1976 (3) TMI 1 - SUPREME COURT has lucidly explained the power of assessing officer to bring to tax income escaping assessment u/s. 147. In the present case, the assessing officer assumed the jurisdiction u/s 147 of the Act solely on the basis of the information received from the Investigation Wing, Mumbai with reference to the search carried out by the Investigation Wing, Mumbai in the case of Shri Gautam Jain and Others. The own satisfaction of the AO for the alleged escapement of income is the prerequisite condition for initiating the reassessment proceedings, which is absent in the present case. We note that unsecured loans is not the subject matter or issue in the case of assessee under consideration, hence reasons recorded are not as per the scheme of the provisions of section 147 of the Act. It is the condition precedent that before initiating the reassessment proceedings, the assessing officer has to carry out deep verification of the information and to apply his independent and judicious mind before issuing notice u/s 148 of the Act but, in the present case, without any effort to examine and to discuss the material received from the Investigation Wing, solely on such borrowed satisfaction, carried out the reassessment proceedings, which is bad in law. We are of the considered view that the reasons recorded by the AO as set out earlier, are bad in law. Appeal of the assessee is allowed.

Summary

Issues:
Challenge to the validity of reassessment proceedings under section 147/148 of the Income Tax Act based on reasons recorded by the assessing officer.

Analysis:
The appeal pertains to the Assessment Year 2007-08 and challenges the order passed by the Commissioner of Income Tax (Appeals) confirming the addition of Rs. 69,53,846 for alleged bogus purchases of goods. The assessing officer found that the assessee had taken accommodation entries of bogus purchase bills from certain entities based on information received from the Investigation Wing Mumbai. The assessing officer made the addition based on this finding. The first appellate authority upheld the reopening of assessment and the addition made by the assessing officer. The appeal before the Tribunal questions the validity of the reassessment proceedings.

The counsel for the assessee argued that the assessing officer did not apply his independent mind before initiating the reassessment proceedings and relied solely on information from the Investigation Wing. The counsel contended that the reasons recorded by the assessing officer were not based on a genuine belief but on suspicion. The counsel cited judicial precedents to support the argument that the reasons must have a live link with the formation of belief.

On the other hand, the Senior DR for the Revenue defended the assessing officer's actions, stating that the information received was valid and formed the basis for the reassessment proceedings.

The Tribunal analyzed the reasons recorded by the assessing officer and found that they were based on suspicion rather than a genuine belief that income had escaped assessment. The Tribunal highlighted that the reasons must be in accordance with the provisions of section 147 of the Act, requiring a valid reason to believe that income has escaped assessment. The Tribunal referred to legal precedents emphasizing the difference between a reason to believe and a reason to suspect.

Ultimately, the Tribunal held that the reasons recorded by the assessing officer were not in line with the statutory requirements, as they were based on suspicion and lacked a genuine belief of income escapement. Consequently, the reassessment proceedings were quashed, rendering other issues on the merits of the additions irrelevant.

In conclusion, the Tribunal allowed the appeal of the assessee, quashed the reassessment proceedings, and declared all other issues on the merits of the additions as academic and infructuous. The order was pronounced on 23/12/2021.