2025 (4) TMI 544 - HC - Income Tax

Reopening of assessment u/s 147 - reasons to believe - AO has not provided any documents statements or any material to the petitioner as relied upon - HELD THAT - AO has recorded the reasons in mechanical manner referring on the basis of the information provided by the DCIT Central Circle-1 Rajkot which relied on the survey and the search operation carried out in case of M/s. National Shroff Company on 19th September 2014. There is no reference to the transaction carried out by the petitioner. The details of the transactions carried out by the petitioner appear to pertain to the reliefs from the seized material or from any other source. It is also pertinent that AO has not provided any documents statements or any material to the petitioner but on the contrary in the affidavit-in-reply it is averred that such information cannot be provided to the assessee because it is a confidential matter of the department. Such a stand taken by the respondent-Assessing Officer is contrary to the provision of the Act inasmuch as unless and until the petitioner is provided the material upon which the reasons are recorded the action of the respondent is illegal. Non disposal of objections - AO has failed to consider the objections of the petitioner in the true perspective and in absence of any material from M/s. National Shroff Rajkot pertaining to the details relating to the petitioner so as to prove that income has escaped assessment we are of the opinion that there is no link between the material and the reasons recorded resulting into dis-satisfaction on the part of the AO and in such circumstances the AO could not have assumed jurisdiction to issue impugned notice for reopening. Decided in favour of assessee.

ISSUES PRESENTED and CONSIDERED

The core legal issues considered in this judgment include:

Whether the notice for reopening assessments under Section 148 of the Income Tax Act, 1961, was validly issued.
Whether the reasons recorded for reopening the assessments were based on a valid and tangible material.
Whether the Assessing Officer applied an independent mind or merely relied on borrowed satisfaction.
Whether the procedural requirements, including the provision of material relied upon to the petitioner, were fulfilled.
Whether the approval for reopening the assessments was granted in a mechanical manner.

ISSUE-WISE DETAILED ANALYSIS

Validity of Reopening Notices

Legal Framework and Precedents: The reopening of assessments under Section 148 requires the Assessing Officer to have a reason to believe that income has escaped assessment. The Supreme Court's decision in Raymond Woollen Mills Ltd. v. ITO established that the sufficiency of the material is not to be considered at the stage of reopening.
Court's Interpretation and Reasoning: The Court found that the reasons recorded for reopening were fundamentally flawed as they were based on incorrect facts, notably the incorrect assertion that the petitioner had not filed returns for certain years when they had indeed done so.
Key Evidence and Findings: The Assessing Officer relied on information from a search operation at M/s. National Shroff & Company, but failed to provide any direct evidence linking the petitioner to the alleged unaccounted transactions.
Application of Law to Facts: The Court determined that the Assessing Officer's belief was based on borrowed satisfaction without independent verification or inquiry.
Treatment of Competing Arguments: The respondent argued that the mere availability of information was sufficient for reopening, but the Court emphasized the need for a tangible link between the information and the reasons recorded.
Conclusions: The Court concluded that the reopening notices were invalid due to non-application of mind and lack of tangible material.

Provision of Material to the Petitioner

Legal Framework and Precedents: The principles of natural justice require that the assessee be provided with the material on which the reasons for reopening are based.
Court's Interpretation and Reasoning: The Court noted that the petitioner was not provided with the incriminating documents or statements relied upon, which is contrary to the principles of natural justice.
Key Evidence and Findings: The respondent's affidavit stated that the information was confidential, which the Court found unacceptable.
Application of Law to Facts: The failure to provide material prevented the petitioner from adequately contesting the reasons for reopening.
Treatment of Competing Arguments: The respondent's argument of confidentiality was rejected as it contravened statutory requirements.
Conclusions: The Court held that the non-provision of material vitiated the reopening process.

Mechanical Approval for Reopening

Legal Framework and Precedents: Section 151 of the Act requires that reopening beyond four years needs prior approval, which should not be mechanical.
Court's Interpretation and Reasoning: The Court found that the approval was granted in a mechanical manner without due consideration of the facts.
Key Evidence and Findings: The approval was based on a standard format without reference to specific information or reasons.
Application of Law to Facts: The mechanical nature of the approval process undermined its validity.
Treatment of Competing Arguments: The respondent's reliance on procedural compliance was insufficient to counter the lack of substantive evaluation.
Conclusions: The Court concluded that the mechanical approval rendered the reopening notices invalid.

SIGNIFICANT HOLDINGS

Verbatim Quotes of Crucial Legal Reasoning: "The respondent-Assessing Officer has recorded the reasons in a mechanical manner, referring on the basis of the information provided by the DCIT, Central Circle-1, Rajkot, which relied on the survey and the search operation carried out in case of M/s. National Shroff & Company."
Core Principles Established: The necessity of independent application of mind by the Assessing Officer and the requirement to provide the assessee with the material relied upon for reopening.
Final Determinations on Each Issue: The Court quashed the reopening notices for all the assessment years in question due to the lack of valid reasons, non-provision of material, and mechanical approval.