2024 (6) TMI 416 - AT - Income Tax

Validity of Reopening of assessment u/s 147 - Legality of Notice u/s 148 - burden to prove - credible information to initiate reassessment proceedings - Whether the notice issued u/s 148 of the Act is illegal, wrong and liable to be quashed? - HELD THAT - In the present case, evidently the assessee received a sum of Rs. 20 Lakh as the statement submitted by the ld. Counsel for the assessee from M/s. Brahma Tradelinks Pvt. Ltd. during the relevant financial year. There is nothing brought by the AO with regard to the receiving of Rs. 35 Lakh, save and except this fact that he received credible information. The AO failed to provide any details of the alleged receipt of Rs. 35 Lakh from the said party at any point of time. Burden lies upon the AOs to verify the genuineness of the credible information. In the present case, there is nothing brought by the AO to substantiate that an amount as received by the assessee from M/s. Brahma Tradelinks Pvt. Ltd., contrary to that the statement filed by the assessee goes to establish that an amount of Rs. 20 Lakh was received. So, we are of this opinion that information as alleged to be received by the AO cannot be said to be a credible information. Moreover, we further find that in the preceding A/Y 2012-2013, reopening proceeding was initiated by the then Ld. AO against the assessee on the same issue, i.e the transaction of the assessee with the same entity, viz. M/s Brahma Tradelink Pvt. Ltd. and after being satisfied with the identity of the entity and the genuineness of the transaction, no addition was made. A/O did not apply his own mind to the information and examine the basis and material of the information. He(AO) accepted the plea in a mechanical manner. It is settled law that mere reliance on the information received, without having acted there on before recording the reason, showing non application of mind on the part of the A/O., is unsustainable in law. Assessee appeal allowed.

Summary

Issues Involved:
The judgment involves the legality of the notice issued u/s 148 of the Income Tax Act, 1961 and the subsequent proceedings based on the alleged escapement of income amounting to Rs. 35,00,000.

Details of the Judgment:

Issue 1: Legality of Notice u/s 148 of the Act
The appeal challenged the order passed by the Commissioner of Income Tax (Appeals) u/s 250 of the Act, arising from an assessment order framed u/s 147 read with Section 144B. The assessee, a non-banking financial company, received a notice u/s 148 based on information regarding fund layering through bank accounts. The AO enhanced the total income by Rs. 35 Lakh, which was upheld by the CIT(A).

Issue 2: Challenge to the Addition of Rs. 35,00,000
The assessee contested the addition of Rs. 35 Lakh, arguing that the proceedings were without jurisdiction and bad in law. The counsel highlighted discrepancies in the alleged amount received from a specific company, emphasizing that only Rs. 20 Lakh was actually received. The counsel cited relevant case laws to support the argument that the AO failed to verify the genuineness of the information, rendering the notice illegal.

Judgment Summary:
The Tribunal examined the legality of the notice u/s 148 and subsequent proceedings. The AO's failure to substantiate the alleged receipt of Rs. 35 Lakh, coupled with the lack of verification of information, led to the quashing of the notice. Citing precedents, the Tribunal emphasized the importance of a valid notice and the necessity for a rational connection between the information and the belief of income escapement. The Tribunal held that the AO did not apply his mind to the information, leading to the illegal issuance of notices u/s 148, which were subsequently quashed. Consequently, the appeal by the assessee was allowed, and the entire proceedings were annulled.

Conclusion:
The Tribunal's decision focused on the procedural irregularities in issuing the notice u/s 148 and emphasized the AO's obligation to verify information before taking action. The judgment underscored the significance of a valid notice and the need for a rational basis for believing in income escapement, ultimately leading to the quashing of the proceedings in favor of the assessee.