2019 (9) TMI 857 - AT - Income Tax

Reopening of assessment u/s 147 - as alleged notice issued mechanically without application of mind and the satisfaction by the Assessing Officer is only the borrowed satisfaction of the Investigation Wing - HELD THAT - From the perusal of reasons, find no application of mind by the AO for reaching to the conclusion that there was escapement of income except the information from the Investigation Wing. Considerable cogency in the contention of the assessee that AO has completed the assessment in dispute u/s. 147/143(3) of the Act without appreciating the facts and circumstances of the case and wrongly assumed the jurisdiction u/s. 148 of the Act, 1961, which is in violation of mandatory jurisdictional conditions as stipulated under the Act. First Appellate Authority has wrongly upheld the order of the AO and dismissed the appeal of the assessee without passing any reasonable and elaborate finding as well as legal without properly adjudicating the legal ground as per the written submissions filed by the assessee, which is against the law and facts on the file. AO has completed the assessment and Ld. CIT(A) has wrongly upheld the order of the Ld. CIT(A) without appreciating that the reasons in this case are based on borrowed satisfaction and without independent application of mind - See M/S SBS REALTORS (P) LTD. VERSUS INCOME TAX OFFICER, WARD-22 (4) , NEW DELHI 2019 (4) TMI 357 - ITAT DELHI - Decided in favour of assessee.

Issues Involved:
1. Legality of the assumption of jurisdiction under Section 148 of the Income Tax Act, 1961.
2. Validity of the assessment order passed under Section 147/143(3) of the Income Tax Act, 1961.

Detailed Analysis:

1. Legality of the Assumption of Jurisdiction under Section 148 of the Income Tax Act, 1961:

The primary issue raised by the assessee was the legality of the assumption of jurisdiction under Section 148 by the Assessing Officer (AO). The assessee argued that the AO issued the notice under Section 148 mechanically without independent application of mind, relying solely on the information provided by the Investigation Wing. The assessee contended that this action violated the mandatory jurisdictional conditions stipulated under the Act.

The Tribunal reviewed the reasons recorded for the issuance of the notice under Section 148 and found that the AO had issued the notice based on borrowed satisfaction from the Investigation Wing without independent verification or application of mind. The Tribunal noted that the AO had concluded there was escapement of income solely based on information from the Investigation Wing, without any tangible material or independent assessment.

The Tribunal referenced a similar case, M/s SBS Realtors (P) Ltd. Vs. ITO, where the ITAT Delhi had quashed the assessment on similar grounds. The Tribunal reiterated that reopening an assessment under Section 147 for the purpose of verification of genuineness, identification, and creditworthiness of transactions is not permissible under law. The Tribunal emphasized that such actions should be conducted under Section 143(2) within the prescribed time limit, and once that time limit expires, Section 148 cannot be invoked merely for verification purposes.

2. Validity of the Assessment Order Passed under Section 147/143(3) of the Income Tax Act, 1961:

The Tribunal found that the AO's actions were not in compliance with the legal requirements. The reasons recorded for reopening the assessment were found to be contradictory. While the AO initially stated that income had escaped assessment, the concluding part of the reasons recorded indicated that the case was being reopened to verify the genuineness of transactions. The Tribunal held that reopening an assessment for verification purposes is not permissible.

The Tribunal also highlighted that the AO's satisfaction was based on the mere report from the Investigation Wing, without any independent application of mind or tangible material linking the information to the formation of belief of escapement of income. The Tribunal found that there was no crucial link between the information received and the AO's conclusion of escapement of income.

The Tribunal referenced multiple judgments from the Hon'ble Jurisdictional High Court, including cases like Sarthak Securities Co.P.Ltd. Vs. ITO, Signature Hotels P.Ltd. Vs. ITO, and PCIT Vs. G And G Pharma India Ltd., which supported the assessee's contention that notices issued under Section 148 based solely on Investigation Wing reports without independent verification are invalid.

Consequently, the Tribunal quashed the notice issued under Section 148 and the assessment order passed in pursuance thereof. The Tribunal held that since the notice under Section 148 was quashed, the subsequent assessment order was also invalid. Therefore, the other grounds raised by the assessee did not require adjudication on merits.

Conclusion:

The Tribunal allowed the appeals filed by the different assessees, quashing the notices issued under Section 148 and the assessment orders passed in pursuance thereof. The decision was pronounced on 14/08/2019.

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