2020 (2) TMI 1036 - AT - Income Tax

Validity of reopening of assessment u/s 147 - borrowed satisfaction - reliance on CBI Report which has later been thoroughly investigated by the CBI itself and assessee has been discharged by the CBI on the basis of the CBI Court - approval granted bt ACIT in mechanical and without application of mind, HELD THAT - AO has not investigated the matter himself and has not made any enquiry to corroborate the Report of the Investigation on which basis the case of the assessee has been reopened, meaning thereby the AO has not applied his mind and only issued notice u/s. 148 of the Act on the basis of the CBI Report which has later been thoroughly investigated by the CBI itself and assessee has been discharged by the CBI on the basis of the CBI Court decision. Since the basic Report of the CBI has remained no more and subsequent notice u/s. 148 of the Act is invalid and resultantly the reassessment is void ab initio. Thus, the AO has acted mechanically and without any independent application of mind. It is further noted that initiation of proceedings is based on non application of mind much less independent application of mind but is a case of borrowed satisfaction. Nothing is independently examined or considered by the AO which can demonstrate application of mind by him. Proceedings initiated by invoking the provisions of section 147 of the Act by the AO and upheld by the Ld. CIT(A) are nonest in law and without jurisdiction and needs to be quashed. Reasons recorded by the AO and approval granted by the Addl. CIT, Range-45, New Delhi, wherein the Addl. CIT, Range-45, New Delhi has granted the approval by mentioning that After perusing the reasons given above I am satisfied that it is a fit case for issue of notice u/s. 148 of the I. Tax Act, 1961. , which shows that Ld. Addl. CIT, Range-45, New Delhi has not recorded proper satisfaction and without application of mind gave the approval in a mechanical manner - Reopening in the case of the assessee for the asstt. Year in dispute is bad in law and deserves to be quashed - Decided in favour of assessee.

Summary

Issues Involved:

1. Validity of reopening under Section 147 of the Income Tax Act, 1961.
2. Application of mind by the Assessing Officer (AO) and Additional Commissioner of Income Tax (Addl. CIT) in granting approval for reopening.
3. Merits of the addition made by the AO based on the alleged undisclosed income from the property transaction.

Detailed Analysis:

1. Validity of Reopening under Section 147 of the Income Tax Act, 1961:

The assessee challenged the reopening under Section 147 on various grounds, asserting that the reassessment was invalid. The reopening was based on information from the Asstt. Director of Income Tax (Investigation) and the CBI, which indicated a discrepancy between the sale consideration mentioned in an agreement and the registered sale deed. The AO initiated the reassessment proceedings based on this information without independent verification. The Tribunal found that the AO acted mechanically without applying his mind independently, relying solely on the CBI report, which was later invalidated by the CBI Court. The Tribunal cited various judgments, including ACIT vs. Dhariya Construction Co. and Pr. CIT vs. RMG Polyvinyls (I) Ltd., to conclude that the reopening was invalid as it lacked independent application of mind by the AO.

2. Application of Mind by the AO and Addl. CIT in Granting Approval for Reopening:

The assessee argued that the Addl. CIT granted approval for the notice under Section 148 in a mechanical manner without proper satisfaction or application of mind. The Tribunal examined the recorded reasons and the approval granted by the Addl. CIT, noting that the approval was given in a routine manner without detailed consideration. The Tribunal referenced the decision in United Electrical Company (P) Ltd. Vs. CIT & Ors., where it was held that the CIT must apply his mind to the proposal for approval and not exercise the power casually. The Tribunal concluded that the approval was mechanical and without proper application of mind, rendering the reopening invalid.

3. Merits of the Addition Made by the AO Based on the Alleged Undisclosed Income from the Property Transaction:

The AO added ?76,62,500 to the assessee's income, treating it as undisclosed business and unaccounted investment based on the difference between the sale consideration mentioned in the agreement and the registered sale deed. The assessee contended that the agreement was fabricated and not signed by witnesses, and no cash transactions were found in the bank accounts of the involved parties. The Tribunal noted that the AO did not investigate the matter independently and relied solely on the CBI report, which was later invalidated. Since the reassessment proceedings were quashed due to invalid reopening, the Tribunal did not adjudicate on the merits of the addition, rendering the other grounds academic.

Conclusion:

The Tribunal quashed the reassessment proceedings initiated under Section 147, holding that the AO acted mechanically without independent application of mind and the approval granted by the Addl. CIT was mechanical and without proper satisfaction. Consequently, the reassessment was declared void ab initio, and the appeal was partly allowed in favor of the assessee.