2024 (2) TMI 641 - AT - Income Tax

Validity of re-opening of assessment u/s 147 - Procedure of recording satisfaction for reopening assessment - notice beyond period of four years - bogus long term capital gain/short term capital loss - Borrowed satisfaction v/s independent application of mind - as argued no application of mind by the AO for framing the reasons and the reopening is merely on the basis of borrowed satisfaction in the form of information received from the investigation wing - HELD THAT - We notice that the AO has not adhered to the standard procedures. Firstly, we notice that AO has only referred to the information received from the Investigation wing and assessee is stated to be one of the beneficiaries of receiving accommodation entry to avail bogus short term capital gain/loss. Now, admittedly, the return of income already stood filed by the assessee on 26/07/2013 and very much available before the AO. As incumbent upon him that after receiving the information from the investigation he should have first layed his hands on the Income tax return filed by the assessee and then should have examined the information vis- -vis the computation of income furnished and then has to form the belief that income subject to tax has escaped assessment. Now, in the income tax return assessee has disclosed long term capital gain, but AO in the reasons recorded has mentioned short term capital gain/loss which means that he was not sure of the transactions for which the reopening is carried out. Further, AO has mentioned the figure as long term capital gain/short term capital loss. This observation is also factually incorrect because the sum is merely a sale consideration and exempt income u/s 10(38) of the Act has been claimed and it is a case of long term capital gain and not short term capital loss. The above factual observation clearly indicates that the AO has not made application of mind for re-opening the case of the assessee after four years as the assessee has furnished all the details of the alleged transactions in its income tax return. It is also evident that the AO has not adhered to the standard operating procedures framed by the CBDT to record the reasons for re-opening. As there is no independent application of mind by the AO which forms the basis of reason to believe that income has escaped assessment then such reopening of assessments is merely on borrowed satisfaction. We are inclined to hold that the reopening u/s 147 was invalid as proper procedure to record the reasons for reopening of assessment have not been followed by the Assessing Officer and there is no independent application of mind before forming the reason to believe that income chargeable to tax has escaped assessment - Appeal of the assessee is allowed.

Summary

Issues Involved:
1. Validity of reopening of assessment under Section 147 of the Income Tax Act, 1961.

Summary:

Issue 1: Validity of Reopening of Assessment under Section 147

The appeal concerns the validity of the reopening of the assessment under Section 147 of the Income Tax Act, 1961, for the Assessment Year 2013-14. The assessee, a HUF, filed its return on 26/07/2013, declaring income of Rs. 5,55,720/- and long-term capital gain of Rs. 3,99,600/-. The Assessing Officer (AO) reopened the assessment based on information from the Investigation Wing, alleging that the assessee received accommodation entries to avail bogus LTCG/STCL.

The assessee challenged the reopening, arguing that there was no application of mind by the AO, and the reopening was based on "borrowed satisfaction." The Tribunal examined the reasons recorded by the AO and found that the AO did not adhere to the standard operating procedures issued by the CBDT for recording satisfaction under Section 147. The AO merely referred to the information received, without independently verifying the details in the assessee's return. The Tribunal noted discrepancies in the AO's reasons, such as incorrect references to short-term capital gain/loss and the amount involved.

The Tribunal held that the AO's lack of independent application of mind and failure to follow proper procedures rendered the reopening invalid. Citing its decision in the case of Jai Prakash Gupta vs. ITO, the Tribunal emphasized that the legal requirement of "reason to believe" that income had escaped assessment was not satisfied. Consequently, the notice under Section 148 and subsequent actions were deemed null and void.

Conclusion:

The Tribunal allowed the assessee's appeal, declaring the reopening of the assessment under Section 147 as invalid and quashing the consequent proceedings. The judgment underscores the necessity for AOs to independently apply their minds and adhere to prescribed procedures when reopening assessments.