2022 (3) TMI 294 - AT - Income Tax

Reopening of assessment u/s 147 - eligibility of reasons to believe - unexplained cash deposits - borrowed satisfaction - non independent application of mind - HELD THAT - AO has never disputed that the assessee has not filed the return of income or that the copy of the acknowledgment of the return of income dated 25.07.2011 is false or untrue. Therefore, AO has recorded wrong facts while recording reasons that the assessee has not filed the return of income Approval given by the Pr. CIT - Even the superior authority has also given her approval in a mechanical manner and without independent application of mind especially when the assessee has filed her return of income and reopening was made on the ground that no return has been filed. It has been held in various decisions that reopening of the assessment on incorrect or wrong facts is a nullity - reopening of the assessment on wrong facts or incorrect facts and without independent application of mind by the AO and on borrowed satisfaction makes such reopening a nullity. Since, the AO in the instant case, has reopened the assessment on the basis that the assessee has made cash deposits of ₹ 21,10,000/- and has not filed the return of income, whereas, the assessee in fact has filed her return of income on 25.07.2011 declaring total income of ₹ 3,03,640/-, therefore, it is established that the reopening was based on incorrect/wrong facts and without application of mind and on borrowed satisfaction. Therefore, it has been held that the reopening of assessment on incorrect/wrong facts makes such reopening a nullity - Decided in favour of assessee.

Summary

Issues Involved:
1. Validity of reassessment proceedings initiated under Section 147 of the Income Tax Act, 1961.
2. Legitimacy of the addition of ?21,10,000 as unexplained money.

Issue-wise Detailed Analysis:

1. Validity of Reassessment Proceedings Initiated under Section 147 of the Income Tax Act, 1961:

The primary issue revolves around the validity of the reassessment proceedings initiated by the Assessing Officer (AO) under Section 147 of the Income Tax Act, 1961. The AO reopened the assessment on the grounds that the assessee had deposited ?21,10,000 in her savings bank account and had not filed her return of income for the relevant assessment year (AY 2011-12).

The assessee contended that she had indeed filed her return of income on 25.07.2011, declaring a total income of ?3,03,640. The AO's reasons for reopening the assessment were based on the incorrect assumption that no return had been filed. This was evidenced by the acknowledgment of the return filed by the assessee, which was placed on record.

The Tribunal noted that the AO had recorded the reasons for reopening based on incorrect facts. The AO's failure to acknowledge the filed return of income indicated a lack of application of mind. The Tribunal referenced several judicial precedents, including the decisions in ACIT vs. Asis Plywood P. Ltd., Krissh Impex Pvt. Ltd. vs. ITO, and Deepak Gupta & Sons vs. ITO, which held that reopening of assessment based on incorrect facts is invalid and constitutes a nullity.

Additionally, the approval for reopening obtained from the Principal Commissioner of Income Tax (PCIT) was given in a mechanical manner without independent application of mind. This was evident from the PCIT's approval statement, which merely stated satisfaction with the AO's reasons without verifying the correctness of the facts.

The Tribunal concluded that the reopening of the assessment was based on incorrect and wrong facts, and the AO had not applied his mind independently. Therefore, the initiation of reassessment proceedings was quashed.

2. Legitimacy of the Addition of ?21,10,000 as Unexplained Money:

Given that the Tribunal quashed the reassessment proceedings on the grounds of invalid initiation, the issue of the addition of ?21,10,000 as unexplained money became academic. The Tribunal did not adjudicate on the merit of the addition since the primary ground of the validity of reassessment was decided in favor of the assessee.

Conclusion:

The Tribunal allowed the appeal filed by the assessee, quashing the reassessment proceedings initiated under Section 147 of the Income Tax Act, 1961, on the grounds that the reopening was based on incorrect facts and lack of application of mind by the AO. Consequently, the other grounds challenging the addition on merit were not adjudicated as they became academic in nature. The order was pronounced in the open court on 23rd February 2022.