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2025 (1) TMI 1292 - AT - Income TaxValidity of reopening of assessment - jurisdiction assumed u/s 147 - addition towards LTCG on sale of shares - assessee has not filed the return of income - Reason to believe - HELD THAT - As pointed out on behalf of the assessee the belief towards escapement of chargeable income has been entertained by the AO on the basis that the assessee has not filed the return of income for AY 2016-17 in question which is grossly contrary to the facts on record. As demonstrated on behalf of the assessee that the assessee has duly filed return of income on 02.08.2016. The most basic reason of holding belief itself is wholly incorrect. The basis that return of income has not been filed giving rise to the reason to belief towards escapement in the reasons recorded is itself contradicted by the AO himself in the assessment order where it categorically notes that the assessee had filed return of income for AY 2016-17 on 02.08.2016 declaring total income of INR 6, 40, 160/-. Thus the reasons have been recorded grossly contrary to the facts on record. Reason to believe is the starting point for re-opening a case. A freak foundation or reason that assessee did not file ROI is blatantly contrary to the facts. Belief stemmed from wholly unfounded reasons thus betrays the prerequisites of s. 147 of the Act. See ARVIND SAHDEO GUPTA 2023 (8) TMI 522 - BOMBAY HIGH COURT - Assumption of jurisdiction allegedly without meeting the pre-requisites of s.151 of the Act - In consonance with the view expressed in Jagbir Singh 2025 (1) TMI 503 - ITAT DELHI we see palpable merit in the plea of the assessee that the sanction granted under s. 151 of the Act is extraneous and an empty formality and do not accord with its salutary purpose. The requirement of law is to grant speaking approval u/s 151 of the Act which is not found to be fulfilled. The notice issued u/s 148 as a sequel to such sanction and resultant assessment is thus vitiated in law. Decided in favour of assessee.
ISSUES PRESENTED and CONSIDERED
The core legal issues considered in this judgment are:
ISSUE-WISE DETAILED ANALYSIS 1. Legitimacy of Jurisdiction under Section 147 Relevant Legal Framework and Precedents: Section 147 of the Income Tax Act permits the AO to re-open an assessment if there is a "reason to believe" that income has escaped assessment. The precedents cited include judgments from the Bombay High Court and various coordinate benches, emphasizing that re-opening based on incorrect facts is unsustainable. Court's Interpretation and Reasoning: The Tribunal noted that the AO's belief that the assessee had not filed a return for AY 2016-17 was factually incorrect, as the return was filed on 02.08.2016. The Tribunal emphasized that a "reason to believe" must be based on accurate and factual premises. Key Evidence and Findings: The Tribunal found that the AO's reasons for re-opening were based on the incorrect assumption that no return was filed, which was contradicted by the assessment order itself. Application of Law to Facts: The Tribunal applied the legal requirement that the "reason to believe" must be based on correct facts and found that this prerequisite was not met in the present case. Treatment of Competing Arguments: The Tribunal favored the assessee's argument that the re-opening was based on incorrect facts, over the Revenue's defense of the AO's actions. Conclusions: The Tribunal concluded that the jurisdiction assumed under Section 147 was invalid due to the incorrect factual basis for the AO's belief. 2. Validity of Additions towards LTCG This issue was rendered academic as the Tribunal found the re-assessment proceedings themselves to be invalid. Consequently, the merits of the additions were not adjudicated. 3. Adequacy of Sanction under Section 151 Relevant Legal Framework and Precedents: Section 151 requires the sanctioning authority to apply its mind before approving the issuance of notice under Section 148. Precedents from various High Courts were cited, emphasizing the need for a "speaking approval." Court's Interpretation and Reasoning: The Tribunal found that the approval by the Addl. CIT was mechanical and lacked the necessary application of mind, as it merely contained a generic statement of satisfaction. Key Evidence and Findings: The Tribunal noted that the approval was a mere formality without any objective assessment of the reasons recorded by the AO. Application of Law to Facts: The Tribunal applied the legal standard requiring a detailed and reasoned approval and found that the sanction in this case did not meet this standard. Treatment of Competing Arguments: The Tribunal agreed with the assessee's contention that the approval process was mechanical and failed to fulfill its statutory purpose. Conclusions: The Tribunal concluded that the sanction under Section 151 was invalid, further vitiating the re-assessment proceedings. SIGNIFICANT HOLDINGS Core Principles Established:
Final Determinations on Each Issue:
The appeal of the assessee was allowed, and the re-assessment order was set aside as bad in law on both counts.
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