2020 (3) TMI 1113 - AT - Income Tax

Reopening of assessment u/s 147 - additions u/s. 68 and u/s. 69C - AO received investigation report from the Pr. DIT about the assessee having rigged transaction - reason to believe OR reason to suspect - HELD THAT - It has to be kept in mind that reason to believe postulates a foundation based on information and belief based on reason. Even if there is foundation based on information, there still must be reason warrant holding a belief that income chargeable to tax has escaped income. A bare reading of the reasons recorded to reopen reveals that there was non application of mind before reopening the assessment. Based on an information/investigation report, the AO has jumped into the conclusion that the assessee is involved in the activities of penny stock rigging etc. It has to be kept in mind that information from the Investigation Wing(Income-tax Department) can only trigger the reasons to suspect . Then the AO to make some preliminary inquiry and collect some material which would suggest the escapement of income. AO based only on investigation report has recorded his satisfaction without conducting preliminary inquiry, which is nothing but the borrowed satisfaction from the report of Investigation Wing. The condition precedent to reopen an assessment that is reason to believe should be that of the AO not that of the investigation wing, so in the absence of the condition precedent to reopen, the AO lacks jurisdiction to reopen the assessment. Even though the department was aware as on 09 Jan. 2014 itself about the demise of late Sushila Choudhari, the notice issued u/s. 148 in the name of deceased person is also bad in law. So I find that reason recorded by AO does not satisfy the jurisdictional requirement as per the settled law on the subject and therefore AO lacks jurisdiction to reopen and thereafter notice u/s. 148 is bad in law and therefore, the same cannot be sustained in the eyes of law and therefore, the same is hereby quashed. - Decided in favour of assessee.

Summary

Issues Involved:
1. Legality of the notice issued under Section 148 of the Income-tax Act, 1961, on a deceased person.
2. Validity of the reopening of the assessment based on information from the Investigation Wing without preliminary inquiry.
3. Jurisdictional requirement for reopening the assessment under Section 147 of the Income-tax Act, 1961.

Issue-wise Detailed Analysis:

1. Legality of the Notice Issued Under Section 148 on a Deceased Person:
The primary contention raised by the appellant was that the notice under Section 148 of the Income-tax Act, 1961, was issued on a deceased person, Smt. Sushila Choudhuri, who had expired on 10-09-2012. The appellant's counsel highlighted that the department was informed about her death and had acknowledged Shri Ravi Choudhary as her legal heir as early as January 09, 2014. Despite this, the notice for reopening the assessment for AY 2011-12 was issued on 21-03-2018 in the name of the deceased. The tribunal noted that issuing a notice to a deceased person, despite being informed of the death, is legally untenable. The tribunal concluded that the notice issued under Section 148 in the name of a deceased person is bad in law.

2. Validity of the Reopening of the Assessment Based on Information from the Investigation Wing Without Preliminary Inquiry:
The appellant's counsel argued that the information received from the Principal Director of Income Tax (Investigation) regarding transactions in shares of "BLUEPRINT SECURITIES LTD." was used to reopen the assessment without any preliminary inquiry. The tribunal observed that the Assessing Officer (AO) had reopened the assessment solely based on the investigation report without conducting any preliminary inquiry to substantiate the information. The tribunal emphasized that information from the Investigation Wing can only trigger "reasons to suspect" and not "reasons to believe" escapement of income, which is a jurisdictional requirement for reopening the assessment. The tribunal found that the AO's action was based on borrowed satisfaction from the investigation report without independent application of mind, rendering the reopening invalid.

3. Jurisdictional Requirement for Reopening the Assessment Under Section 147:
The tribunal scrutinized the reasons recorded by the AO for reopening the assessment and found that the AO had not satisfied the jurisdictional requirement of having "reason to believe" that income had escaped assessment. The tribunal highlighted that "reason to believe" must be based on the AO's independent assessment and not merely on information from the Investigation Wing. The tribunal concluded that the AO's reasons for reopening the assessment were vague, lacked application of mind, and did not meet the legal standards required for invoking Section 147. Consequently, the tribunal held that the AO lacked jurisdiction to reopen the assessment.

Conclusion:
The tribunal quashed the notice issued under Section 148 and the subsequent reassessment order, declaring them legally unsustainable. The appeal of the assessee was allowed, and the tribunal pronounced the order in the open court on 18-03-2020.