2019 (9) TMI 336 - AT - Income Tax

Reopening of assessment u/s 147 - arriving at the satisfaction for escapement of Income warranting recourse to notice under section 148 - unexplained investment - reasons to believe or reason to suspect - HELD THAT - reopening cannot be justified on any other material other than referred in the reasons recorded. Though in notice dated 19.01.15 the learned Addl. CIT, required the assessee to prove the sources of investment, in the forwarding letter addressed to the learned Assessing officer he even directed the learned Assessing officer to enquire about the sources of investment but to the advantage of the assessee while issuing notice dated 24.03.2015 no such query was made by the learned Assessing officer from the assessee. CIT(A) was factually not correct in holding that sources of investment were not satisfactorily explained before AO and which has led to satisfaction of the Assessing officer for escapement of income. The text of the reasons recorded do proves that virtually there has been no application of mind by the learned Assessing officer so as to form requisite satisfaction that any income has escaped assessment and that the reasons recorded in the case in hands are no reasons in the eye of lawas being completely barren and bald in nature. The content of reasons does not reveal that the AO has done some exercise by way of any enquiry having been conducted by him before arriving at the satisfaction for escapement of income. Reasons are his conclusions, leaving the reader to guess for the material on basis of which the belief of escapement is founded. In fact, the aforesaid reasons are instead of being reasons to believe are reasons to suspect. Mental exercise must be self-evident from the reasons recorded. Reasons must be self-speaking and self-defending. The purported reasons do not show any such exercise by the learned Assessing officer and hence we have no hesitation in holding that the learned Assessing officer has exceed his authority in wrongly acquiring the jurisdiction in the matter. - Decided in favour of assessee

Summary

Issues Involved:
1. Validity of the reopening of assessment under section 147/148 of the Income Tax Act, 1961.
2. Legality of the assessment order passed under section 144/147.
3. Adequacy of reasons recorded for reopening the assessment.
4. Compliance with procedural requirements for reopening the assessment.
5. Justification of additions made to the total income.
6. Validity of interest charged under sections 234A, 234B, and 234C.

Issue-Wise Detailed Analysis:

1. Validity of the reopening of assessment under section 147/148 of the Income Tax Act, 1961:
The reopening of the assessment was challenged by the assessee on the grounds that the reasons recorded for such reopening were not valid in the eyes of law. The assessee argued that the reasons did not show any "intelligible nexus" between the investment made and the income that had allegedly escaped assessment. The Tribunal found that the reasons recorded were based on the purchase of property and non-filing of a return, which were not sufficient to form a belief that income had escaped assessment. The Tribunal held that mere investment in property does not necessarily indicate that the income has escaped assessment.

2. Legality of the assessment order passed under section 144/147:
The assessment order was passed under section 144/147 after the assessee failed to file a return in response to the notice under section 148. The Tribunal observed that the assessment order was based on reasons that were not legally sufficient to justify the reopening. Consequently, the assessment order was quashed as being void-ab-initio.

3. Adequacy of reasons recorded for reopening the assessment:
The Tribunal scrutinized the reasons recorded by the Assessing Officer, which were primarily based on the purchase of property and non-filing of a return. The Tribunal concluded that these reasons were "barren and bald" and did not reflect any application of mind by the Assessing Officer. The Tribunal emphasized that reasons must show a direct nexus between the material and the belief of escapement of income, which was lacking in this case.

4. Compliance with procedural requirements for reopening the assessment:
The Tribunal examined whether the procedural requirements, such as obtaining the sanction from the Additional Commissioner of Income Tax under section 151, were met. It was found that the sanction was accorded mechanically without proper application of mind. The Tribunal also noted that the reasons recorded by the Assessing Officer did not refer to any specific material or evidence that could justify the reopening, thus failing to comply with the procedural requirements.

5. Justification of additions made to the total income:
The Tribunal found that the additions made to the total income were based on the assumption that the investment in property represented undisclosed income. The assessee had argued that the investment was made from loans and proceeds from agricultural produce. The Tribunal held that without concrete evidence linking the investment to undisclosed income, the additions could not be justified. Since the reopening itself was invalid, the additions were rendered academic and infructuous.

6. Validity of interest charged under sections 234A, 234B, and 234C:
The assessee challenged the interest charged under sections 234A, 234B, and 234C. The Tribunal did not specifically address this issue in detail as the primary focus was on the validity of the reopening and the assessment order. However, since the assessment order was quashed, the interest charged became irrelevant.

Conclusion:
The Tribunal quashed the assessment orders passed under section 144/147 for both the mother and son, holding that the reasons recorded for reopening the assessment were not legally sufficient. The Tribunal emphasized that reasons must show a direct nexus between the material and the belief of escapement of income and must reflect the application of mind by the Assessing Officer. Consequently, all other issues, including the additions made and the interest charged, were rendered academic and infructuous.