2022 (8) TMI 1220 - AT - Income Tax

Validity of Reopening of assessment u/s 147 - Sufficient reasons for reopening of assessment or not? - recourse to section 148/147 mechanism based on the contents of seized material(s) found in the course of the search issue - HELD THAT - As relying on SANJAY SADASHIV NAVALE AND SUKHDEO NIVRUTTI NAVALE, 2022 (5) TMI 1442 - ITAT PUNE we are of the considered view that the reasons recorded by the Assessing Officer, as set out earlier, were not sufficient reasons for reopening the assessment proceedings. We, therefore, quash the reassessment proceedings. - Decided in favour of assessee.

Summary

Issues Involved:
1. Validity of the reopening of assessment under sections 147/148 of the Income Tax Act, 1961.
2. Merits of the additions made under unexplained cash credits.

Issue-wise Detailed Analysis:

1. Validity of the Reopening of Assessment:
The primary issue in these appeals is the validity of the reopening of assessments under sections 147/148 of the Income Tax Act, 1961. The reopening was based on seized materials found during a search operation conducted on 01.10.2013, which led the Assessing Officer (AO) to believe that the assessees' taxable income had escaped assessment. The AO recorded reasons for reopening, citing unexplained cash deposits in the assessees' bank accounts.

The tribunal examined the correctness of the AO's action and found that the AO's reasons were primarily based on the fact that the cash deposits "cannot be explained" from the known sources of income of the assessees. The tribunal noted that such non-application of mind in recording reasons does not justify reopening, as held in cases like Meenakshi Overseas Pvt. Ltd. Vs. CIT (2017) 395 ITR 677 and PCIT Vs. RMG Polyvinyl Ltd. (2017) 83 taxmann.com 348 (Del.). The tribunal emphasized that the reasons for reopening must be recorded before issuing the notice, and any reasons recorded after the issuance of the notice render the reassessment proceedings invalid, as highlighted in the case of Bir Bahadur Singh Sijwali Vs. ITO (2015) Tax Corp (AT) 39421 (ITAT-DELHI).

The tribunal also referred to the legal principle that reasons for reopening must indicate an income escaping assessment and not merely a need for inquiry. This principle was upheld in the case of ITO Vs. Lakhmani Mewal Das [(1976) 103 ITR 437], where it was stated that there must be a direct nexus or live link between the material and the formation of belief that income has escaped assessment.

In light of these legal precedents, the tribunal concluded that the AO's reasons for reopening were insufficient and based on a fallacious assumption that bank deposits constitute undisclosed income. Consequently, the tribunal quashed the reassessment proceedings.

2. Merits of the Additions Made Under Unexplained Cash Credits:
Given that the reassessment proceedings were quashed, the tribunal rendered all other issues on the merits of the additions academic and infructuous. The tribunal did not delve into the details of the additions made under unexplained cash credits, as the primary issue of the validity of the reopening was decided in favor of the assessees.

Conclusion:
The tribunal allowed the assessees' appeals, quashing the impugned reopening of assessments under sections 147/148. As a result, all other pleadings on the merits of the additions were rendered academic. The order was pronounced in the open court on 25th August 2022.