2021 (11) TMI 379 - AT - Income Tax

Reopening of assessment u/s 147 - Validity of reasons to believe - Reliance on information received from investigation wing - HELD THAT - Reasons have been recorded in a mechanical manner without ascertaining as to how the assessee has obtained fictitious losses through client code modification. The reasons are mere repetition of the information received from investigation wing without establishing the linkage of the assessee with the broker who manipulated the transactions. The details/nature of transactions which would, prima-facie, lead to reasonable belief of escapement of income has not been specified in the recorded reasons. No linkage of the assessee has been established with the information received from investigation wing and the reopening is based merely on borrowed satisfaction. The reasons were mere reasons to suspect and not the reasons to believe that the income had escaped assessment. This being the case, the reopening could not be held to be valid in the eyes of law since the jurisdictional requirements were not fulfilled. We order so. The assessment framed by Ld. AO is bad in law and accordingly, quashed.

Summary

Issues:
Challenge to reassessment jurisdiction under section 148.

Analysis:
The appeal for Assessment Year (AY) 2009-10 challenged the reassessment jurisdiction of the Assessing Officer (AO) under section 148. The appellant contended that the notice issued under section 148 had legal infirmities, rendering it void-ab-initio. The reasons for challenge included the use of borrowed facts by the AO, issuance of notice beyond the limitation period, and lack of independent formation of belief by the AO. The appellant argued that the reopening lacked proper jurisdiction due to these reasons.

The Counsel for the assessee highlighted that the AO did not independently form a belief that income had escaped assessment, relying on a decision of the Hon'ble High Court of Bombay. The Senior DR supported the assessment by the AO. The Tribunal noted the material facts, where the case was reopened based on information from the investigation wing regarding suspicious transactions leading to an addition in the assessee's income. The appellant contested the reopening, arguing that it was solely based on borrowed satisfaction without an independent application of mind by the AO.

The reasons leading to the reopening were examined, revealing a mechanical recording without establishing how the assessee obtained fictitious losses through client code modification. The Tribunal cited a judgment emphasizing the necessity of rational connection between the reasons recorded and the belief of income escapement. It was observed that the AO did not apply his mind to the information received, issuing the reopening notice based on borrowed satisfaction. Consequently, the Tribunal found the reopening invalid due to lack of linkage with the assessee and ordered the assessment framed by the AO to be quashed.

In conclusion, the Tribunal held that the reopening lacked valid jurisdiction as the reasons were mere suspicions without proper belief of income escapement. The assessment was deemed bad in law and subsequently quashed. Other arguments raised were considered academic in light of the decision. The appeal was allowed based on the above order pronounced on 28th October 2021.