2021 (2) TMI 722 - AT - Income Tax

Reopening of assessment u/s 147 - Addition qua bank deposits and ICICI credit card payments - HELD THAT - Assessing Officer has to act on the basis of reasons to believe and not on reasons to suspect . In the instant case, the initiation of proceedings u/s. 147 of the Act are based upon no evidence and/or un-corroborative material. The Assessing Officer further failed to establish the nexus with the reasons recorded and alleged material available with the AO before initiation of proceedings and Bank Statements later received and got verified by the AO and/or produced by the Assessee. Competent authority is also required to indicate some link or nexus with the material available, while recording reasons for belief that the amount acquired is chargeable to tax has escaped the assessment, which in this case the AO failed to establish. Even the Ld. CIT(A) was absolutely unjustified in upholding the reopening of the assessment u/s. 147 of the Act, without appreciating the facts of the case, explanation submitted and evidences placed on record judiciously. In cumulative effect on the aforesaid analyzations, observations and peculiar facts and circumstances, we do not have any hesitation to hold that the proceedings u/s. 147 of the Act itself are vague, consequently the assessment order is liable to be quashed, hence ordered accordingly. Resultantly the order under challenge is set aside. Decided in favour of assessee.

Summary

Issues Involved:
1. Validity of the notice issued under Section 148 of the Income Tax Act.
2. Validity of the reassessment proceedings under Section 147 of the Income Tax Act.
3. Legitimacy of the additions made by the Assessing Officer (AO) and sustained by the Commissioner of Income Tax (Appeals) [CIT(A)].

Issue-wise Detailed Analysis:

1. Validity of the notice issued under Section 148 of the Income Tax Act:

The Assessee challenged the validity of the notice issued under Section 148, arguing that the notice was not valid in the eyes of the law. The Tribunal noted that the reasons recorded for issuing the notice under Section 148 are foundational for the case against the Assessee. It was observed that the reasons recorded by the AO were based on suspicion rather than concrete evidence. The AO had stated that the Assessee made deposits in a Nationalized Bank and ICICI Bank without specifying the bank name clearly. The Tribunal found that the AO did not apply his mind independently or verify the material before initiating the reassessment proceedings. The Tribunal held that the reasons to believe must be bona fide and based on relevant material, not mere suspicion. Consequently, the notice under Section 148 was deemed invalid.

2. Validity of the reassessment proceedings under Section 147 of the Income Tax Act:

The Tribunal analyzed the provisions of Section 147, which allows the AO to assess or reassess income if there is reason to believe that income chargeable to tax has escaped assessment. The Tribunal emphasized that the reasons to believe must be based on relevant material and not on suspicion. In this case, the AO's reasons for reopening the assessment were found to be vague and unsubstantiated. The AO failed to establish a clear link between the material available and the belief that income had escaped assessment. The Tribunal cited the Punjab and Haryana High Court's judgment in the case of Commissioner of Income Tax vs. Smt. Pramjit Kaur, which held that the AO must act on "reasons to believe" and not on "reasons to suspect." The Tribunal concluded that the reassessment proceedings under Section 147 were invalid due to the lack of corroborative material and independent application of mind by the AO.

3. Legitimacy of the additions made by the AO and sustained by the CIT(A):

Since the Tribunal quashed the reassessment proceedings and set aside the assessment order, it did not consider it necessary to address the other issues raised by the Assessee regarding the legitimacy of the additions made by the AO and sustained by the CIT(A). The Tribunal noted that addressing these issues would be an academic exercise only, given that the foundational reassessment proceedings were invalid.

Conclusion:

The Tribunal allowed the appeal filed by the Assessee, quashing the reassessment proceedings under Section 147 and setting aside the assessment order. The Tribunal emphasized the importance of bona fide reasons based on relevant material for initiating reassessment proceedings and invalidated the proceedings based on suspicion and vague reasons. The order was pronounced in open court on February 12, 2021.