2018 (5) TMI 1540 - AT - Income Tax

Reopening of assessment - reasonable belief - reopening merely on the information received from the Investigation Wing of the Department - differential judgments on issue - Held that - Where there is a cleavage of opinion between different High Courts on an issue and none of the decisions has been rendered by the jurisdictional High Court, the view in favour of the assessee needs to be followed. Hence, in deferential keeping with Meenakshi Overseas (2017 (5) TMI 1428 - DELHI HIGH COURT), the reasons recorded by the AO to form belief of escapement of income are found to be no reasons in the eye of the law. The nature of the transactions allegedly entered into by the assessee have not been specified and that the reasons were recorded without any application of mind, merely on the basis of information received from the Investigation Wing of the Department, i.e., just on borrowed satisfaction. - Decided in favour of assessee.

Issues:
Reassessment proceedings validity under section 143(3) of the Income Tax Act, 1961; Addition made under section 68 on account of alleged gift; Independent application of mind by the Assessing Officer; Reopening of assessment based on borrowed belief; Validity of reasons recorded for reopening the case.

Reassessment Proceedings Validity under Section 143(3) of the Income Tax Act, 1961:
The appellant challenged the reassessment proceedings as arbitrary, illegal, and contrary to the law. The appellant denied liability to be assessed under section 143(3) of the Income Tax Act, 1961. The Commissioner of Income Tax (Appeals) was criticized for not considering the invalidity of the assessment completed under section 143(3) without issuing a notice under section 143(2). The issue revolved around the procedural irregularities in the reassessment process and the failure to follow due process.

Addition Made under Section 68 on Account of Alleged Gift:
The Assessing Officer added ?2,00,000 under section 68 of the Income Tax Act, 1961, based on a gift allegedly taken from M/S Garg Enterprises Trust. The appellant contested this addition, claiming that the amount was neither received from the mentioned party nor reflected in the appellant's books of accounts. The authenticity and legitimacy of the gift transaction were in question, leading to a dispute regarding the addition made under section 68.

Independent Application of Mind by the Assessing Officer:
The Additional Ground raised by the appellant questioned the Assessing Officer's lack of independent application of mind to the tangible material forming the basis of the reasons to believe that income had escaped assessment. This issue highlighted the importance of the Assessing Officer's due diligence and critical analysis in initiating reassessment proceedings based on concrete evidence and valid reasoning.

Reopening of Assessment Based on Borrowed Belief:
The appellant contended that the reasons for reopening the assessment lacked specificity regarding the nature of transactions and were based on borrowed satisfaction from information received from the Investigation Wing of the Department. The challenge focused on whether the Assessing Officer had valid reasons to believe that income had escaped assessment, emphasizing the need for a direct nexus between the information received and the decision to reopen the assessment.

Validity of Reasons Recorded for Reopening the Case:
The debate centered on the adequacy of the reasons recorded by the Assessing Officer for reopening the case. The appellant argued that the reasons did not demonstrate an independent application of mind to the information received, raising doubts about the validity of the reassessment proceedings. The judgment scrutinized the link between the information available to the Assessing Officer and the formation of belief regarding income escapement, emphasizing the necessity of clear and self-evident reasons to support reassessment actions.

In conclusion, the judgment addressed multiple issues concerning the procedural validity of reassessment proceedings, the legitimacy of additions made under specific sections of the Income Tax Act, and the Assessing Officer's obligation to apply an independent mind when initiating reassessment based on received information. The decision highlighted the significance of clear, self-evident reasons and a direct link between information and decision-making in reassessment cases, ultimately leading to the allowance of the appeal due to deficiencies in the reasons recorded for reopening the assessment.

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