2008 (8) TMI 401 - AT - Income Tax

Validity of reopening of assessment u/s 147 - on mere suspicion - AO not recorded his independent satisfaction - HELD THAT - As could be noticed from the reasons recorded by the learned Asstt. CIT, the reopening of assessment was based on mere suspicion and the use of the expression presumably, the sum might have been taken back in cash......... clearly shows that the AO has not made any effort to satisfy himself as to whether the information received from the office of the Director General of IT (Inv.) has some basis or not and thus it is to be held that the reassessment proceedings are initiated in a mechanical manner on vague grounds. In the light of the decision in the case of Atul Jain 2007 (5) TMI 184 - DELHI HIGH COURT , as well as the decision of CIT vs. Smt. Paramjit Kaur 2007 (8) TMI 323 - PUNJAB AND HARYANA HIGH COURT , we are of the view that the reopening of assessment, based on mere suspicion, is invalid in law and therefore liable to be quashed. In view of our conclusion that the reopening is bad in law, it is not necessary for us to go into the other issues on merits, urged by the Revenue. In the result the appeals filed by the Revenue are treated as dismissed and the cross-objections filed by the assessee are allowed.

Summary

Issues:
Reopening of assessment based on vague reasons.

Analysis:
The appeals and cross-objections were against the orders passed by the CIT(A) for the assessment years 1998-99 to 2000-01. The main issue common in all appeals was the reopening of assessments by the AO under section 148 of the Act based on information received regarding land deals involving certain employees of Sahara Group. The assessee challenged the reopening, asserting that the reasons were vague and not permissible under the law. The CIT(A) granted relief to the assessee on merits, leading to separate appeals by the Revenue and cross-objections by the assessee on the jurisdiction of the AO in reopening the assessments.

The reasons recorded for reopening the assessment reflected suspicion rather than independent satisfaction by the AO. The counsel argued that the AO did not establish a valid basis for reopening, citing relevant case laws emphasizing the need for concrete information, not mere suspicion, to warrant reassessment. The jurisdictional High Court's decision highlighted that reopening based on vague information renders the reassessment invalid in law. The counsel contended that the reopening lacked a legal foundation, making it unnecessary to delve into other aspects of the case.

Upon careful consideration, the Tribunal found that the AO's actions were mechanical and lacked proper assessment of the information received. The use of phrases like "presumably" indicated a lack of effort to verify the basis of the received information. Relying on the precedents set by the jurisdictional High Court and the Punjab & Haryana High Court, the Tribunal concluded that reopening the assessment solely on suspicion was legally invalid and ordered the quashing of the reassessment proceedings. Consequently, the appeals by the Revenue were dismissed, and the cross-objections by the assessee were allowed based on the invalidity of the reopening of assessments. The Tribunal's decision focused on the legal requirement of concrete information for reassessment, emphasizing the importance of a valid basis for such actions under the law.