2025 (3) TMI 530 - AT - Income Tax

Reopening of assessment - Additions u/s 69A - reasons to suspect OR reason to belief - investment made for purchase of flats and interest on such investments - based on certain information received by AO from ADIT (Investigation)-II Faridabad as per letter the case of the assessee was re-opened by issuance of notice u/s 148 HELD THAT - In the instant case neither the exact copy of reasons were provided nor were provided the copy of approval provided nor the material in possession of AO while allegations of vast proportions were made against the assessee. Apparently the vested right of the assessee to file meaningful objections to purported unlawful assumption of jurisdiction has been completely trampled causing serious prejudice to the assessee and embroiled him in protracted litigation. For assumption of lawful jurisdiction u/s 147 all jurisdictional conditions and procedural requirements need to be satisfied. In the absence of copy of reasons and copy of approval made available to assessee in spite of specific requests presumption would arise adverse to the Revenue on compliance of pre-requisites of sec 147 151. The re-assessment order thus framed is liable to be quashed on this ground alone. Jurisdictional issues - On perusal of the reasons recorded it is apparent that the information referred to in the reasons recorded are generic non-descript and unintelligible. No meaningful particulars of so-called information received are not mentioned at all. There is no reference to any material which may justify the bonafides of belief held by the AO. The basic particulars of property supposedly invested by the assessee are also not available. The date on which the transaction supposedly occurred for investment in property are also not recorded. In the absence of any basic particulars of specific nature and reliable in character emanating from extract of reasons the reason to belief claimed by the AO to justify the assumption of jurisdiction is nothing but reason to suspect as rightly held by the CIT(A). The reasons recorded apparently smacks of pedantic belief without disclosing any live link or close nexus between material if any and formation of belief. The threshold for meeting pre-requisites for re-opening the assessment are sorely missing in the instant case. We thus see no difficulty in endorsing the conclusion drawn by the CIT(A) that the re-opening action was without jurisdiction and thus impugned re-assessment order framed is outside the legal sanction and is bad in law. We also find merit in the plea raised on behalf of the assessee that in the absence of even basic material in possession of AO and confronted to the assessee the onus continues to be on the Revenue to demonstrate the alleged presence of unexplained investment which was not discharged at all. CIT(A) in our view has also addressed the issue on merits correctly in accordance with law. Without reiterating the process of reasoning we are of the view that no interference with the order of CIT(A) is called for. Appeal of the Revenue is dismissed.

Summary

1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered in this judgment include:

• Whether the re-assessment order framed under Section 147 read with Section 143(3) of the Income Tax Act is sustainable in law despite the refusal to provide a copy of reasons recorded under Section 148(2) and approval granted under Section 151, resulting in a denial of opportunity to the assessee to raise legal objections to the assumption of jurisdiction.
• Whether it was incumbent upon the Assessing Officer (AO) to provide relevant material that came into possession subsequent to the conclusion of the assessment, which formed the basis for the formation of belief towards alleged escapement of income.
• Whether the additions of INR 3,30,00,000/- made on account of alleged investment and quantification of interest thereon are permissible without observing principles of natural justice and confronting the relevant material to the assessee.

2. ISSUE-WISE DETAILED ANALYSIS

Re-assessment Order and Jurisdictional Compliance

• Relevant Legal Framework and Precedents: The re-assessment proceedings are governed by Sections 147 and 148 of the Income Tax Act. The legal framework requires the AO to have a "reason to believe" that income chargeable to tax has escaped assessment. The Supreme Court's decision in GKN Driveshafts (India) Ltd. v. ITO mandates providing the assessee with the reasons recorded for re-opening the assessment.
• Court's Interpretation and Reasoning: The Tribunal found that the AO failed to provide the exact copy of reasons recorded, the approval under Section 151, and the material forming the basis for the belief of income escapement. This failure resulted in a denial of the assessee's right to challenge the jurisdictional assumption effectively.
• Key Evidence and Findings: The AO's reasons were deemed generic and lacking specific details necessary to justify the belief of income escapement. The Tribunal noted that the AO's reasons amounted to "reason to suspect" rather than "reason to believe."
• Application of Law to Facts: The Tribunal applied the principles from GKN Driveshafts and other relevant precedents to conclude that the re-assessment order was unsustainable due to non-compliance with jurisdictional requirements.
• Treatment of Competing Arguments: The Revenue argued that sufficient reasons were provided, but the Tribunal found these arguments unconvincing due to the lack of detailed and specific information.
• Conclusions: The Tribunal concluded that the re-assessment order was invalid due to the AO's failure to meet jurisdictional requirements.

Material Evidence and Natural Justice

• Relevant Legal Framework and Precedents: The principles of natural justice require that the assessee be given an opportunity to rebut evidence used against them. The Supreme Court's decision in Andaman Timber Industries v. CCE emphasizes the need for cross-examination and fair play.
• Court's Interpretation and Reasoning: The Tribunal found that the AO did not provide the assessee with the material evidence, such as ledgers and statements, which were used to justify the additions. This omission violated principles of natural justice.
• Key Evidence and Findings: The AO relied on statements and ledgers without providing these to the assessee for verification or cross-examination, which the Tribunal found unacceptable.
• Application of Law to Facts: The Tribunal applied the principles of natural justice to determine that the AO's actions were procedurally unfair and invalidated the additions.
• Treatment of Competing Arguments: The Revenue's reliance on the AO's findings was insufficient to overcome the procedural deficiencies identified by the Tribunal.
• Conclusions: The Tribunal upheld the CIT(A)'s decision to delete the additions due to procedural unfairness and lack of evidence.

3. SIGNIFICANT HOLDINGS

• Verbatim Quotes of Crucial Legal Reasoning: "The reasons recorded apparently smacks of pedantic belief without disclosing any live link or close nexus between material, if any, and formation of belief."
• Core Principles Established: The Tribunal reinforced the necessity of providing detailed reasons and material evidence to the assessee to uphold the principles of natural justice and ensure valid jurisdictional assumptions in re-assessment proceedings.
• Final Determinations on Each Issue: The Tribunal dismissed the Revenue's appeal, affirming the CIT(A)'s decision to quash the re-assessment order and delete the additions due to procedural violations and lack of substantive evidence.