2017 (5) TMI 1428 - HC - Income Tax

Reopening under Sec.147/148 invalid where AO merely reproduced investigation report, lacking independent reasons linking material to escaped income

HC upheld the ITAT, holding the reopening under Sec.147/148 invalid because the AO's reasons were conclusions reproducing the investigation report rather ... Reopening of assessment - reasons to believe - Borrowed satisfaction or independent application of mind -Held that:- In the present case, as already noticed, the reasons to believe contain not the reasons but the conclusions of the AO one after the other. There is no independent application of mind by the AO to the tangible material which forms the basis of the reasons to believe that income has escaped assessment. The conclusions of the AO are at best a reproduction of the conclusion in the investigation report. Indeed it is a 'borrowed satisfaction'. The reasons fail to demonstrate the link between the tangible material and the formation of the reason to believe that income has escaped assessment. The Court is satisfied no error has been committed by the ITAT in the impugned order in concluding that the initiation of the proceedings under Section 147/148 to reopen the assessments for the AYs in question does not satisfy the requirement of law. The question framed is answered in the negative, i.e., in favour of the Assessee and against the Revenue. Issues Involved:1. Validity of reopening assessment under Section 147/148 of the Income Tax Act.2. Adequacy of reasons for belief that income escaped assessment.3. Independent application of mind by the Assessing Officer (AO).Issue-wise Detailed Analysis:1. Validity of reopening assessment under Section 147/148 of the Income Tax Act:The Revenue's appeal under Section 260A challenged the ITAT's decision to quash the assessment proceedings initiated under Section 147/148. The Assessee had filed its return declaring an income of Rs. 2,050, which was processed under Section 143(1). Subsequently, based on information from the Director of Income Tax (Investigation) [DIT(I)], the AO issued a notice under Section 148, suspecting that the Assessee had received accommodation entries amounting to Rs. 5,00,000. The ITAT quashed the reassessment proceedings, concluding that the AO had not applied his mind independently and had relied solely on the information from DIT(I).2. Adequacy of reasons for belief that income escaped assessment:The AO's reasons for reopening the assessment were scrutinized. The reasons included details of the credit received, the payer, the payee, their respective banks, and the cheque number. However, the ITAT found that these reasons were merely conclusions without any verification or examination. The AO had not mentioned the nature of the transaction or the date of recording the reasons. The court emphasized that the reasons must be self-evident and demonstrate a link between the tangible material and the belief that income had escaped assessment. The reasons recorded by the AO were found to be insufficient and vague, failing to meet the legal requirement of forming a belief based on tangible material.3. Independent application of mind by the Assessing Officer (AO):The court emphasized that the AO must independently apply his mind to the information received and not merely reproduce the investigation report's conclusions. The AO's reasons must reflect an independent assessment of the material to form a belief that income has escaped assessment. In this case, the AO's reasons were found to be a mere repetition of the investigation report's conclusions, without any independent verification or examination. The court cited several precedents, including Commissioner of Income Tax v. G&G Pharma, where similar instances of reopening based on investigation reports without independent application of mind were invalidated.The court concluded that the AO had not demonstrated the crucial link between the information and the formation of the belief that income had escaped assessment. The reasons recorded by the AO were found to be inadequate, and the reopening of the assessment was invalidated. The court affirmed the ITAT's decision, answering the framed question in favor of the Assessee and dismissing the Revenue's appeal.