2020 (6) TMI 375 - AT - Income Tax

Reopening of assessment u/s 147 - absence of sufficient material to form satisfaction of the AO that income of the assessee had escaped assessment - validity of reason to believe - non independent application of mind by AO - HELD THAT - AO in this case had received the only information that the assessee had received a high premium along with share application money. However this information alone in our view does not constitute any tangible material or to say any incriminating material to form a belief by the Assessing Officer that the income of the assessee had escaped assessment or to say in other words that the share application money received by the assessee was an unaccounted money of the assessee. AO has not recorded that he had received any information that the assessee had received share application money from some bogus / paper companies. No information has been pointed out in the reasons recorded or receipt of any bogus transactions undertaken by the assessee. Even the name of the companies form whom the share premium received has not been mentioned nor there is any allegation that those share applicants were not traceable or they were bogus / paper companies indulged in sham transactions. Mere information that the assessee had received a high premium in our view cannot be said to be a reason to form the belief that the income of the assessee had escaped assessment. AO raised a suspicion as mentioned in the reasons itself regarding the source of the capital being not genuine or that it may be a modus operandi by the assessee to introduce its undisclosed income by way of share premium however this was a mere suspicion of the AO without even an iota of any incriminating tangible material against the assessee or even otherwise. The powers of Assessing Officer to reopen an assessment though wide are not plenary. The words of the statute are reason to believe and not reason to suspect . AO has wrongly and illegally assumed jurisdiction in this case to reopen the assessment. The reasons pointed out by the AO cannot be said to be the reasons to form the belief that income of the assessee had escaped assessment. In view of this since the assessment order framed by the AO is not sustainable in the eyes of law the same is accordingly quashed. - Decided in favour of assessee.

Issues Involved:
1. Validity of reopening of assessment under section 148 of the Income Tax Act, 1961.
2. Existence of "reason to believe" for the issuance of notice under section 148.
3. Independent satisfaction of the Assessing Officer in forming the belief for reopening the assessment.
4. Confirmation of addition of ?3,48,00,000/- in respect of share application money.
5. Consideration of detailed submissions during appellate proceedings.
6. Confirmation of addition of opening balance of share application money amounting to ?25 lacs.
7. Overall correctness of the addition confirmed by CIT(A).

Issue-wise Detailed Analysis:

1. Validity of Reopening of Assessment under Section 148:
The assessee contended that the reopening of the assessment under section 148 was illegal and void as there was no valid reason to believe that income had escaped assessment. The tribunal examined the reasons recorded by the Assessing Officer (AO) and found that the AO's belief was based on general information about high share premiums received by companies, including the assessee. The tribunal noted that this information alone did not constitute tangible material to form a belief that income had escaped assessment. Therefore, the reopening of the assessment was deemed invalid.

2. Existence of "Reason to Believe" for Issuance of Notice under Section 148:
The tribunal emphasized that the "reason to believe" must be based on tangible material and not mere suspicion. The AO's reasons for reopening the assessment were based on information received from the Directorate of Income Tax (Intelligence & Criminal Investigation) about high share premiums. However, the tribunal found that the AO did not have any specific information or incriminating material against the assessee to justify the belief that income had escaped assessment. The tribunal concluded that the AO's belief was based on suspicion rather than tangible evidence, making the issuance of the notice under section 148 invalid.

3. Independent Satisfaction of the Assessing Officer:
The tribunal observed that the AO's reasons for reopening the assessment relied heavily on general information and judicial precedents without establishing a direct connection to the assessee's case. The AO did not independently verify or gather specific evidence against the assessee. The tribunal cited previous judgments, including those by the Hon'ble Supreme Court and High Courts, to emphasize that the AO must have a rational connection and live link between the material and the belief of income escapement. The tribunal found that the AO's satisfaction was not independently formed and was based on non-specific routine information.

4. Confirmation of Addition of ?3,48,00,000/- in Respect of Share Application Money:
The assessee argued that the addition of ?3,48,00,000/- as share application money was unjustified. The tribunal, having quashed the assessment order on legal grounds, did not delve into the merits of this addition. The tribunal's decision to quash the assessment order rendered the issue academic.

5. Consideration of Detailed Submissions During Appellate Proceedings:
The assessee claimed that the CIT(A) failed to consider detailed submissions made during the appellate proceedings. The tribunal did not specifically address this issue in its judgment, as the primary focus was on the legality of the reopening of the assessment.

6. Confirmation of Addition of Opening Balance of Share Application Money Amounting to ?25 lacs:
Similar to the issue of ?3,48,00,000/-, the tribunal did not address the merits of the addition of ?25 lacs as the assessment order was quashed on legal grounds.

7. Overall Correctness of the Addition Confirmed by CIT(A):
The tribunal concluded that the AO had wrongly and illegally assumed jurisdiction to reopen the assessment. As a result, the assessment order was quashed, and the tribunal did not consider the correctness of the additions confirmed by the CIT(A).

Conclusion:
The tribunal allowed the appeal of the assessee, quashing the assessment order due to the invalidity of the reopening of the assessment under section 148. The tribunal emphasized the need for tangible material and independent satisfaction of the AO in forming the belief of income escapement. The decision rendered the merits of the additions academic and did not address them in detail.

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