2022 (12) TMI 1210 - AT - Income Tax

Reopening of assessment u/s 147 - new material and evidences available with the assessing officer to arrive at the reason indicating escapement of income - independent application of mind v/s borrowed satisfaction - addition made by the AO u/s 68 - As argued income has escaped assessment in the case of the assessee by trading in the bogus penny stocks of Splash Media was based entirely on the satisfaction of the Directorate of Investigation, Kolkata, and there was no independent application of mind on the part of the AO - HELD THAT - In the present case, it is pertinent to note that no scrutiny assessment was conducted in the case of the assessee and therefore the only data available with the AO was the data provided along with the income tax return and the report/information received subsequently from the office of Directorate of Investigation, Kolkata. The said information constitutes new and tangible material for initiating the reassessment proceedings in the case of the assessee. Though this information was received from Investigation Wing, Kolkata but the AO applying his mind extracted the relevant details pertaining to the assessee. In the first paragraph of the reasons, information of penny stock was noted. Based on this in second paragraph, relevant details about the alleged bogus transaction of the assessee were identified. In the third paragraph, the AO has clearly identified the escapement of income and in the last paragraph, the satisfaction of the AO is recorded. Thus, there was a tangible material on which the AO applied his mind independently. Hence, it is not correct to state that reopening has been made on the basis of borrowed satisfaction. Also undisputed that the assessee has transacted in shares of Splash Media and earned Rs. 14,91,646.90 and has declared an amount of Rs. 13,93,293 as a long-term capital gain on the sale of shares in its return of income. Thus when new and tangible material in form of a report from the Directorate of Investigation, Kolkata was received, reassessment proceedings were initiated. The expression reason to believe imports the cumulative presence of the following four elements viz. some tangible material or materials to establish that income has escaped assessment; nexus between such material and the belief of escapement of income from assessment as envisaged under Section 147; application of mind by the Assessing Officer to such material; and an inference, based on reason, drawn tentatively by the officer that income has escaped assessment. The application of mind by the AO to the new and tangible material has to be discerned from the reasons recorded in each case and from the perusal of the reasons recorded for reopening the assessment in the present case, we are of the considered view that all the aforesaid conditions are fulfilled and the AO has rightly initiated the reassessment proceedings under section 147 - Decided in favour of revenue.

Summary

Issues Involved:
1. Validity of the notice issued under section 148 of the Income Tax Act, 1961.
2. Quashing of reassessment proceedings under section 147 of the Act.
3. Merits of the additions made by the Assessing Officer under section 68 of the Act.

Issue-wise Detailed Analysis:

1. Validity of the notice issued under section 148 of the Income Tax Act, 1961:
The Revenue challenged the quashing of the notice issued under section 148 for the assessment year 2011-12. The learned CIT(A) held that the notice was "bad in law" as it was based on the "borrowed satisfaction" of the Directorate of Investigation, Kolkata, without any independent application of mind by the Assessing Officer (AO). The Tribunal found that the AO had received new and tangible material from the Directorate of Investigation, Kolkata, which justified the initiation of reassessment proceedings. The AO had independently applied his mind to the information received and recorded detailed reasons for reopening the assessment, thus fulfilling the requirement of "reason to believe" that income had escaped assessment.

2. Quashing of reassessment proceedings under section 147 of the Act:
The learned CIT(A) quashed the reassessment proceedings on the ground that the AO had relied entirely on the investigation report without independent inquiry. However, the Tribunal held that the AO had conducted a proper inquiry and independently analyzed the information received from the Directorate of Investigation. The AO had identified specific transactions of the assessee involving penny stocks and recorded reasons indicating escapement of income. Therefore, the reassessment proceedings were validly initiated under section 147 of the Act.

3. Merits of the additions made by the Assessing Officer under section 68 of the Act:
The learned CIT(A) did not adjudicate the merits of the additions made by the AO under section 68, as the appeal was allowed on jurisdictional grounds. The Tribunal directed the learned CIT(A) to adjudicate the grounds raised by the assessee challenging the additions made by the AO. The Tribunal emphasized that the sufficiency or correctness of the material is not to be considered at the stage of recording the reasons for reopening the assessment. The AO had tangible material and had applied his mind independently, justifying the reassessment proceedings.

Conclusion:
The appeals by the Revenue for the assessment years 2011-12 and 2012-13 were allowed for statistical purposes. The Tribunal set aside the findings of the learned CIT(A) quashing the reassessment proceedings and directed the learned CIT(A) to adjudicate the grounds challenging the additions made by the AO. The Tribunal held that the AO had valid reasons to believe that income had escaped assessment based on new and tangible material, and the reassessment proceedings were rightly initiated under section 147 of the Act.