2024 (10) TMI 484 - AT - Income Tax

Validity of reopening of assessment u/s 147 - reasons to believe - as argued borrowed satisfaction without independent application of mind and therefore the same is invalid and may be quashed - HELD THAT - The banking authorities are asked to provide the opening form and KYC details in which it was found that Shri Utpal Das was the introducer of the transacting party Smt. Mira Indra. It was also noted that the cash transaction were made in account and RTGS were made from her bank account. Thereafter it was mentioned by Income Tax Officer (Intelligence Investigation), Durgapur that the transaction has been found there that Shri Utpal Das withdraws huge amount and thereafter the investigation wing noted that the AO has to proceed to reopen the case of the assessee on protective basis. Thus, there has not been any application of mind by the AO and it is a patent case of borrowed satisfaction. We have perused the bank statement a copy wherein the deposit were made. There was withdrawals of only Rs. 9 lacks whereas the AO states that there have been huge withdrawals of cash of which the assessee was the beneficiary. Therefore, this is the case where the AO has failed to carry out any enquiry before issuing notice u/s 148 of the Act and re-opened the assessment on borrowed satisfaction which is not permissible under the Act. Moreover, we note that the case was reopened for making the protective addition in the hands of assessee whereas the addition was made on substantive basis. The case of the assessee finds support from the decision of Meenakshi Overseas Pvt. Ltd. 2017 (5) TMI 1428 - DELHI HIGH COURT wherein held that the case has reopened without any independent application of mind and the reasons recorded failed to demonstrate the live link between the tangible material and the formation of the reasons to believe that income has escaped assessment, then there is no error of tribunal concluding that initiation of proceedings u/s 147/148 to reopen the assessments for the AY in question does not satisfy the requirement of law and accordingly, the question framed is answered in the negative in favour of the assessee and against the revenue. Similar ratio has been laid down in the case of ACIT vs. Nupower Renewables Pvt. Ltd. 2019 (10) TMI 520 - SC ORDER wherein as held that where the AO reopens the assessment based on the information supplied by the Investigation wing to investigate the source of genuineness and creditworthiness of the investor company which is just a fishing enquiry and not permissible in law. We are inclined the quash the reassessment proceedings and also the consequent order passed by the AO for having failed to satisfy the condition for reopening of assessment u/s 147/148. Appeal of the assessee is allowed.

Summary

Issues Involved:
1. Condonation of delay in filing the appeal.
2. Validity of the reopening of assessment under Section 147 of the Income Tax Act.
3. Alleged borrowed satisfaction without independent application of mind by the Assessing Officer (AO).
4. Substantive versus protective addition in the assessment.

Issue-wise Detailed Analysis:

1. Condonation of Delay in Filing the Appeal:
The appeal was filed with a delay of 53 days. The delay was attributed to personal circumstances involving the counsel's family, specifically the hospitalization of the counsel's elder brother. The Tribunal found that the delay was not attributable to the assessee and that there was a sufficient cause for the delay. Consequently, the delay was condoned, and the appeal was admitted for adjudication.

2. Validity of the Reopening of Assessment under Section 147:
The assessee challenged the reopening of the assessment, arguing that it was based on borrowed satisfaction without independent application of mind by the AO. The AO had reopened the assessment based on information received from the Income Tax Officer (Intelligence & Investigation), Durgapur, regarding cash deposits in a bank account. The AO concluded that the assessee was the beneficiary of these deposits and treated them as undisclosed income. However, the Tribunal found that the AO failed to independently verify the information or establish a direct link between the assessee and the cash deposits. The Tribunal noted that the reopening was based on borrowed satisfaction, which is impermissible under the law.

3. Alleged Borrowed Satisfaction without Independent Application of Mind:
The Tribunal critically examined the reasons recorded by the AO for reopening the assessment. It was observed that the AO merely reiterated the information received from the Investigation Wing without conducting any independent enquiry or verification. The Tribunal emphasized that the AO did not demonstrate a live link between the information received and the belief that income had escaped assessment. The Tribunal referenced decisions from higher courts, including the Delhi High Court and the Supreme Court, which underscored the necessity for the AO to independently apply their mind and not rely solely on information provided by the Investigation Wing.

4. Substantive versus Protective Addition in the Assessment:
The AO had initially intended to reopen the assessment on a protective basis but ended up making substantive additions to the assessee's income. The Tribunal noted this inconsistency and found that the AO's approach lacked justification. The Tribunal highlighted that the assessment for the assessee was framed on a substantive basis, while for Smt. Mira Indra, it was on a protective basis, without adequate reasoning provided by the AO.

Conclusion:
The Tribunal concluded that the reopening of the assessment was invalid due to the lack of independent application of mind by the AO and the reliance on borrowed satisfaction. The Tribunal quashed the reassessment proceedings and the consequent order passed by the AO. The appeal of the assessee was allowed, setting aside the additions made to the assessee's income. The decision was pronounced in the open court on 8th October, 2024.