2018 (4) TMI 1287 - HC - Income Tax

Reopening of assessment invalid where AO relied on DIT(Inv.) intimation without independent satisfaction under Section 147

HC held the reopening of assessment invalid because the AO failed to apply independent mind and merely relied on DIT(Inv.) intimation without connecting ... Reopening of assessment - non application of mind by AO - information received from the DIT (Investigation) - Held that:- No information received from the DIT (Investigation) about a particular entity, entering into suspicious transactions. Material is not further linked by any reason to come to the conclusion that the Assessee has indulged in any activity which could give rise to reason to believe on the part of the AO that income chargeable to tax has escaped Assessment. This reason that the recorded reasons even does not indicate the amount which according to the Assessing Officer, has escaped Assessment. This is an evidence of a fishing enquiry and not a reasonable belief that income chargeable to tax has escaped assessment. The reasons clearly shows that the Assessing Officer has not applied his mind to the information received by him from the DDIT (Inv.). The Assessing Officer has merely issued a reopening notice on the basis of intimation regarding reopening notice from the DDIT (Inv.) This is clearly in breach of the settled position in law that reopening notice has to be issued by the Assessing Office on his own satisfaction and not on borrowed satisfaction. The view taken by the impugned order of the Tribunal cannot be found fault with. This view of the Tribunal is in accordance with the settled position in law. Issues:Challenge to reopening of assessment for Assessment Year 2003-04 under Section 260A of the Income Tax Act, 1961.Analysis:1. Reopening of Assessment: The Respondent, a company engaged in Investment and Trading, filed its return of income for Assessment Year 2003-04, declaring a loss. The Assessing Officer issued a notice under Section 148 seeking to reopen the Assessment based on suspicious transactions found during a search action on another entity. The Tribunal found the reasons for reopening incomplete and lacking a link between the Respondent and the suspicious activity, citing precedents to allow the appeal.2. Legal Grounds: The Revenue argued that the Assessing Officer had the right to reopen the Assessment for any reason, citing a Supreme Court decision. However, the Court highlighted the importance of providing complete reasons for reopening to the Assessee, as failure to do so renders the Assessment Order bad. The Court also rejected the argument that the reopening notice could not be challenged, emphasizing the need for tangible material leading to a reasonable belief of income escapement.3. Jurisdictional Review: The Court clarified that the Assessing Officer's belief of income escapement must be based on tangible material, not just obtaining information. The Court emphasized that the reasons recorded for reopening must indicate a rational connection to the belief of income escapement, as settled by previous judgments. The lack of linkage between the provided material and the Assessee's activity indicated a fishing enquiry, not a reasonable belief of income escapement.4. Assessing Officer's Duty: The Court highlighted that the Assessing Officer must apply his mind to the information received before issuing a reopening notice, emphasizing that the notice should be based on the Assessing Officer's satisfaction, not borrowed satisfaction. The Tribunal's decision aligns with established legal principles, leading to the dismissal of the appeal without costs.In conclusion, the Court dismissed the appeal challenging the reopening of the Assessment for Assessment Year 2003-04, emphasizing the importance of providing complete and rational reasons for reopening and ensuring a direct link between the material obtained and the belief of income escapement. The judgment underscores the Assessing Officer's duty to independently form a reasonable belief of income escapement based on tangible material.