2024 (10) TMI 996 - AT - Income Tax

Validity of reassessment proceedings u/s 148 - reasons to believe - borrowed satisfaction of ADIT - addition u/s 68 of the Act to the income of the assessee in respect of loan raised - HELD THAT - The case of the assessee finds support from the decisions of SFIL Stock Broking Ltd. 2010 (4) TMI 102 - DELHI HIGH COURT and in the case of Meenakshi Overseas Pvt. Ltd. 2017 (5) TMI 1428 - DELHI HIGH COURT wherein it was held that the AO has to apply his mind to the information and independently arrived at a belief that income had escaped assessment otherwise the reopening of assessment cannot be sustained. The Hon'ble Delhi High Court has held that where the reasons to believe contain not the reasons but the conclusions of the AO one after the other and there was no independent application of mind by the AO to the tangible material which forms the basis of the reasons to believe that income has escaped assessment. Conclusions of the AO are at best a reproduction of the conclusion in the investigation report. Indeed it is a borrowed satisfaction. In our opinion, the reasons have to be read as were recorded by the AO and no substitution or addition or deletion are allowed at a later stage for the reasons that the AO by reopening the assessment is unsettling the already settled assessment of the assessee. In our opinion the AO is supposed to exercise utmost care and caution in the matter of exercising the jurisdiction us u/s 147. As we find that the AO has re-opened the assessment absolutely without application of mind and without making any further enquiries on the information received from the investigation wing. In our view the reopening has been made just on borrowed satisfaction of ADIT which cannot be a basis of re-opening of assessment u/s 147 of the Act. Therefore, we quash the re-opening of assessment u/s 147 of the as well as the assessment framed pursuant thereto. Decided in favour of assessee.

Summary

Issues:
Appeal against order of Ld. CIT(A) confirming reassessment proceedings u/s 148 of the Act.

Analysis:
The appeal pertains to the reassessment proceedings initiated by the AO under section 148 of the Act. The assessee contested the validity of the reassessment on the grounds of being wrong, invalid, illegal, and unjustified. The facts reveal that the premises of the assessee were searched under section 132 of the Act, leading to the assessment order u/s 153A read with Section 144 of the Act. Subsequently, the assessment was reopened u/s 147 of the Act based on the belief that the assessee received accommodation entries. The Ld. CIT(A) upheld the validity of the reassessment, stating that there was a clear linkage with the information available and the belief that income had escaped assessment.

The assessee argued that the reassessment was invalid and void-ab-initio due to borrowed satisfaction by the AO without independent application of mind. The AO incorrectly noted that the assessee received Rs. 3,20,00,000 from a specific entity, whereas the actual amount received was Rs. 50,00,000 from a different source. The reassessment lacked proper application of mind and was based on borrowed satisfaction. The AO failed to independently verify the information received from the Investigation Wing, rendering the reassessment invalid. The AR relied on various decisions to support the argument that the AO must apply his mind independently before reopening an assessment.

On the other hand, the DR contended that the presence of information in the possession of the AO was sufficient to validly initiate reassessment under section 147 of the Act. The DR suggested restoring the issue to the AO for a fresh examination in light of the facts and law.

After considering the arguments and perusing the record, it was observed that the reassessment lacked proper application of mind by the AO. The reasons recorded by the AO did not align with the actual facts, indicating a clear case of borrowed satisfaction. The reassessment was deemed invalid and void-ab-initio due to the absence of independent verification and application of mind by the AO. Citing relevant case laws, the tribunal quashed the reassessment under section 147 of the Act along with the assessment framed thereafter.

In conclusion, the appeal of the assessee was allowed on the legal issue, and the reassessment proceedings were declared invalid. The judgment was pronounced on 15th October 2024.