2025 (1) TMI 182 - AT - Income Tax

Reopening of assessment u/s 147 - reason to believe or 'reason to suspect' - addition u/s 68 - HELD THAT - AO solely relied on some unspecified and unintelligible information in the category of high risk transactions of unsecured loans. Allegations towards escapement without giving specific particulars of the lenders is apparently in the realm of bald allegations devoid of any specific details. To reiterate, the name of the lendor(s) who are alleged to be susceptible to section 68 of the Act do not feature in the reasons recorded at all. No definitive link is present. At the time of formation of belief, the AO is not shown to be in possession of any document of adverse nature which may led to allegations of escapement. Clearly, the AO has harboured belief on vague and non-descript hypothesis emerging from so-called analysis of any specified information collected. No tangible material has been referred in the reasons recorded which is capable in igniting the belief towards alleged escapement. Mere identification of transactions fueling in high risk transaction category ipso facto would not provide cause of action to invoke the drastic power of reopening of a concluded assessment. Requirement of main provision of section 147 is thus apparently not met. AO must have reason to believe that chargeable income has escaped assessment. The expression reason to believe is the most valuable safeguard available to prevent arbitrary exercise of jurisdiction. It is trite that the reason to suspect cannot be equated with expression reason to believe . The reasons recorded in the instant case, gives an infallible impression that it is a case of reason to suspect on so-called risk transactions categorised by the automated system of the Department. rather than reason to believe . It is well-settled that notice of re-opening can be supported by the Revenue within the confines of the reasons recorded by the AO alone. AO cannot supplement the reasons at a later stage. Other principle which is equally well-settled and which applies in the present case is that re-opening of assessment would not be permitted for a fishing or a roving inquiry as a part of requirement of main provision of section 147 of the Act. The purported belief in the instant case is premised on some vague and undisclosed grounds and thus, a mere pretence. Such action does not pass the test of reason to believe . We thus, see no semblance in the action of the AO on the touchstone of main provision of section 147 of the Act. Assessee appeal allowed.

Summary

1. ISSUES PRESENTED and CONSIDERED

The legal judgment involves several core legal questions:

• Whether the assumption of jurisdiction under Section 147 of the Income Tax Act, 1961, by the Assessing Officer (AO) was valid.
• Whether the reassessment order passed under Sections 147/144B was legally sustainable.
• Whether the additions made by the AO under Section 68 for unexplained credits and Section 69 for unexplained investments were justified.
• Whether the reassessment order was barred by limitation.
• Whether the interest charged under Sections 234A, 234B, and 234C was appropriate.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Validity of Assumption of Jurisdiction under Section 147

• Relevant Legal Framework and Precedents: Section 147 of the Income Tax Act allows the AO to reopen assessments if there is reason to believe that income has escaped assessment. The reasons must be based on tangible material and not merely on suspicion.
• Court's Interpretation and Reasoning: The Tribunal emphasized that the reasons for reopening must be specific and reliable. The AO's reasons were found to be vague and lacking specific material evidence.
• Key Evidence and Findings: The AO's reasons were based on unspecified high-risk transactions, without identifying specific transactions or parties involved.
• Application of Law to Facts: The Tribunal found that the AO's reasons did not meet the legal requirements for reopening an assessment, as they were based on general information rather than specific, tangible evidence.
• Treatment of Competing Arguments: The Tribunal considered the assessee's argument that the reopening was based on vague and non-specific reasons and agreed with this position.
• Conclusions: The Tribunal concluded that the assumption of jurisdiction under Section 147 was invalid, as the reasons recorded were insufficient to justify reopening the assessment.

Issue 2: Legality of Reassessment Order under Sections 147/144B

• Relevant Legal Framework and Precedents: The reassessment order must be based on valid jurisdiction under Section 147.
• Court's Interpretation and Reasoning: Since the jurisdiction under Section 147 was invalid, the reassessment order was also deemed invalid.
• Key Evidence and Findings: The reassessment order was based on the same vague reasons that invalidated the jurisdiction.
• Application of Law to Facts: The Tribunal found that without valid jurisdiction, the reassessment order could not stand.
• Treatment of Competing Arguments: The Tribunal did not need to consider the merits of the reassessment order due to the jurisdictional issue.
• Conclusions: The reassessment order was quashed due to the lack of valid jurisdiction.

Issue 3: Additions under Sections 68 and 69

• Relevant Legal Framework and Precedents: Section 68 pertains to unexplained credits, while Section 69 pertains to unexplained investments.
• Court's Interpretation and Reasoning: The Tribunal did not address the merits of the additions due to the jurisdictional issue.
• Key Evidence and Findings: The Tribunal noted that the AO did not conduct meaningful inquiries into the evidence provided by the assessee.
• Application of Law to Facts: The Tribunal found that the additions were not sustainable due to the invalid jurisdiction.
• Treatment of Competing Arguments: The Tribunal did not consider the arguments on the merits due to the jurisdictional issue.
• Conclusions: The additions were not addressed on their merits.

Issue 4: Limitation of Reassessment Order

• Relevant Legal Framework and Precedents: The reassessment must be initiated within the prescribed time limits.
• Court's Interpretation and Reasoning: The Tribunal did not address this issue due to the jurisdictional finding.
• Key Evidence and Findings: Not applicable due to the jurisdictional issue.
• Application of Law to Facts: Not applicable due to the jurisdictional issue.
• Treatment of Competing Arguments: Not applicable due to the jurisdictional issue.
• Conclusions: The issue was not addressed.

Issue 5: Interest Charged under Sections 234A, 234B, and 234C

• Relevant Legal Framework and Precedents: Interest is charged for defaults in furnishing return, payment of advance tax, and deferment of advance tax.
• Court's Interpretation and Reasoning: The Tribunal did not address this issue due to the jurisdictional finding.
• Key Evidence and Findings: Not applicable due to the jurisdictional issue.
• Application of Law to Facts: Not applicable due to the jurisdictional issue.
• Treatment of Competing Arguments: Not applicable due to the jurisdictional issue.
• Conclusions: The issue was not addressed.

3. SIGNIFICANT HOLDINGS

• Preserve Verbatim Quotes of Crucial Legal Reasoning: "The reasons recorded are delightfully vague, bald and non-speaking and thus, proceedings under s.147 of the Act based on non-descript reasons do not meet the requirement of law."
• Core Principles Established: The Tribunal reinforced the principle that reopening of assessments must be based on specific and tangible material, not vague or generic information.
• Final Determinations on Each Issue: The Tribunal quashed the reassessment order due to the invalid jurisdiction under Section 147, rendering the other issues moot.