2021 (1) TMI 674 - AT - Income Tax

Validity of Reopening of assessment - legality of jurisdiction u/s 147 - addition as unaccounted income - AR contended that the reasons recorded by the AO do not meet the pre-requisites for assumption of jurisdiction - HELD THAT - Revenue pointed out that the reasons were actually recorded on 19.03.2013 itself which is evident from the proposal sent by the AO to the Jt. CIT for his approval under s. 151 of the Act on 19.03.2013. The reasons recorded showing date of 26.03.2013 is merely a date on which the reasons recorded might have been reproduced and provided to the assessee and does not convey the date of recording of reasons per se. We find from the proposal memo under s. 151 of the Act dated 19.03.2013 that exact reasons were pre-existing on the date of issuance of the notice. Thus, we see no merit in this first line of argument. Certain information stated to be received from the Director of Income Tax (I CI), New Delhi - No definite formation of belief towards escapement of income was existing at the time of issuance of notice by the AO. What the AO really intended is to make an objective inquiry into the correctness or otherwise of the information received from other wing of the department to find out if there is any escapement of chargeable income indeed. The AO merely seeks to conclude that there is a case for investigation to unearth and ascertain truthfulness of alleged transactions. This is not the same thing as saying that there are 'reasons to believe' that some chargeable income has escaped assessment. Ostensibly, the AO, at best, has made out a case of probable escapement in contrast to a definite prima facie conclusion of escapement of income. Mere quoting of Section or iteration of expression 'reason to believe' would not satisfy the requirement of law. Thus, the requirement of section 147 of the Act is clearly not fulfilled in the instant case. A receipt of some information from another wing of the Department cannot be equated with a realization of escapement per se. Such information/evidence can possibly give birth to realization or belief of the AO as contemplated under section 147 of the Act. However, an independent formation of belief thereon is sine qua non for taking action under section 147 of the Act. The assessment under section 147 of the Act as a sequel to the illegal notice under section 148 of the Act is therefore a nullity and requires to be quashed. - Decided in favour of assessee.

Summary

Issues: Jurisdiction under section 147 of the Income Tax Act and addition of unaccounted income.

Jurisdiction under section 147:
The appeal was filed challenging the jurisdiction under section 147 of the Income Tax Act and the addition of unaccounted income. The counsel for the assessee argued that the reasons recorded for assuming jurisdiction were flawed as they were dated after the notice was issued. However, the Revenue contended that the reasons were pre-existing and the date mentioned was for reproduction purposes. The tribunal found no merit in the argument and noted that the jurisdictional requirements were met. The counsel further argued that the AO lacked a genuine belief of income escapement and was merely conducting a fishing inquiry. Citing judicial precedents, the counsel contended that such actions were impermissible in law. The tribunal agreed, emphasizing that the AO's actions did not meet the legal mandate, and the notice under section 148 was deemed invalid.

Addition of unaccounted income:
The reasons recorded indicated that the AO intended to verify transactions based on information received from another departmental wing. The tribunal observed that the AO did not have a definite belief of income escapement but sought to investigate the accuracy of the information. It was noted that the AO's actions did not fulfill the requirements of section 147, as an independent belief of income escapement was necessary. Citing legal precedents, the tribunal emphasized that reopening assessments solely for investigation without a prima facie belief of income escapement was impermissible. Consequently, the tribunal deemed the assessment under section 147 as null and void, leading to the quashing of the appeal based on jurisdictional grounds.

In conclusion, the tribunal allowed the appeal on the grounds of jurisdiction under section 147 of the Income Tax Act, without delving into the merits of the case. The decision was pronounced in open court on 04/01/2021.