2020 (12) TMI 255 - AT - Income Tax

Reopening of assessment u/s 147 - Borrowed satisfaction - long term capital gain addition - proceedings on the basis of borrowed information only without there being any reason to believe based on tangible material that the tax payer's income liable to be assessed had escaped assessment - HELD THAT - No merit in the Revenue's stand that the Assessing Officer had rightly set section 148/148 machinery in motion against this tax payer. We afforded ample opportunities to the departmental representative to place on record all necessary details indicating the assessee's Assessing Officer to have independently verified all the documents coming from Merrut. No such records forms part of the case file to this effect. We notice in this factual backdrop that the impugned reopening is not based on any independent application of mind at the assessee's Assessing Officer's end. Reopening forming subject matter of our consideration in the instant case is not sustainable in law in absence of the Assessing Officer's having made his independent enquiry or due application of mind. The same stands quashed therefore. - Decided in favour of assessee.

Issues Involved:
1. Validity of reopening proceedings under Section 148 instead of Section 153C.
2. Alleged escapement of income warranting issuance of notice under Section 148.
3. Use of borrowed information as the basis for reopening.
4. Addition of ?81,53,086/- on account of alleged understatement of capital gains.
5. Reliance on photocopied documents for making additions.
6. Charging of interest under Section 234.

Issue-wise Detailed Analysis:

1. Validity of Reopening Proceedings under Section 148 Instead of Section 153C:
The assessees argued that the assessment should have been framed under Section 153C since the documents were found at the premises of a searched person. The CIT(A) upheld the Assessing Officer’s action, stating that the information obtained from the search was relevant and led to the belief that income had escaped assessment. The tribunal found that the reopening was not based on independent application of mind by the Assessing Officer but on borrowed information.

2. Alleged Escapement of Income Warranting Issuance of Notice under Section 148:
The assessees contended that there was no escapement of income warranting the reopening of the assessment. The CIT(A) dismissed this ground, stating that the Assessing Officer had relevant material to believe that income had escaped assessment. The tribunal, however, concluded that the reopening was not sustainable as it was based on borrowed information without independent verification by the Assessing Officer.

3. Use of Borrowed Information as the Basis for Reopening:
The assessees argued that the reopening was based on borrowed information without any independent reason to believe. The CIT(A) upheld the Assessing Officer's action, stating that the information was independently verified. The tribunal disagreed, finding no evidence of independent verification by the Assessing Officer and quashed the reopening on this basis.

4. Addition of ?81,53,086/- on Account of Alleged Understatement of Capital Gains:
The assessees challenged the addition, stating it was based on photocopied documents and not permissible under the Act. The CIT(A) upheld the addition, citing corroborating documents and the admission of a power of attorney holder. The tribunal did not address this issue in detail as it quashed the reopening itself, rendering the merits of the addition infructuous.

5. Reliance on Photocopied Documents for Making Additions:
The assessees contended that the addition was based on photocopied documents found at a third party’s premises. The CIT(A) found these documents to be genuine and corroborated by other evidence. The tribunal did not delve into this issue separately, as the reopening was quashed.

6. Charging of Interest under Section 234:
The assessees argued against the charging of interest under Section 234. The CIT(A) dismissed this ground, stating that charging of interest is mandatory. The tribunal did not specifically address this issue, as the primary ground of reopening was quashed.

Conclusion:
The tribunal quashed the reopening proceedings under Section 148, finding that the Assessing Officer did not independently verify the information received and merely relied on borrowed information. Consequently, all other grounds on the merits of the case were rendered infructuous. The appeals were allowed in favor of the assessees.

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