2018 (10) TMI 1027 - AT - Income Tax

Tribunal quashes reassessment order due to lack of independent assessment, procedural errors, and vague justification.

M/s. Devansh Exports Versus Assistant Commissioner of Income tax, Circle-32, Kolkata

M/s. Devansh Exports Versus Assistant Commissioner of Income tax, Circle-32, Kolkata - TMI Issues Involved:1. Reopening of regular assessment under Section 143(3) of the Income-tax Act, 1961.2. Compliance with Supreme Court's direction in GKN Driveshaft (India) Ltd. Vs. ITO & Ors.3. Validity of the reasons recorded by the Assessing Officer (AO) for reopening the assessment.4. Jurisdictional validity of the AO's actions based on information from the Directorate of Income Tax (DIT) Investigation.Detailed Analysis:1. Reopening of Regular Assessment under Section 143(3) of the Income-tax Act, 1961:The main grievance of the assessee was against the action of the AO to reopen the regular assessment completed under Section 143(3) on 15.03.2013. The AO issued a notice under Section 148 on 08.09.2014 proposing to reopen the assessment. The assessee objected to this reopening, arguing that the AO did not apply his mind independently and merely acted on the information received from the DIT (Investigation), Kolkata.2. Compliance with Supreme Court's Direction in GKN Driveshaft (India) Ltd. Vs. ITO & Ors.:The assessee contended that the AO did not dispose of the objection to the reopening of the assessment as mandated by the Supreme Court in GKN Driveshaft (India) Ltd. Vs. ITO & Ors. This omission was argued to make the order fragile in the eyes of the law. The Tribunal noted that the AO's failure to address the objection was a significant procedural lapse.3. Validity of the Reasons Recorded by the Assessing Officer (AO) for Reopening the Assessment:The Tribunal scrutinized the reasons recorded by the AO for reopening the assessment. The AO's reasons were based on information from the DIT (Investigation) indicating that the assessee exported iron ore to its associated enterprise (AE) in Hong Kong at prices lower than the prevailing market prices in China, suggesting profit shifting from India to Hong Kong. The Tribunal found that the AO did not independently verify this information or conduct further inquiries to substantiate the claim of income escapement. The reasons recorded were deemed vague, lacking specific details, and based on borrowed satisfaction rather than independent application of mind.4. Jurisdictional Validity of the AO's Actions Based on Information from the Directorate of Income Tax (DIT) Investigation:The Tribunal emphasized that the AO must have a 'reason to believe' that income has escaped assessment, which requires a foundation based on information and belief based on reasoning. The AO's reliance on the DIT (Investigation) report without independent verification was insufficient to establish a valid reason to believe. The Tribunal cited various judicial precedents, including decisions from the Delhi High Court and Bombay High Court, to support the view that the AO's reasons must demonstrate a tangible link between the information received and the belief that income has escaped assessment. The Tribunal concluded that the AO's actions were based on borrowed satisfaction and did not meet the legal requirements for reopening the assessment.Conclusion:The Tribunal allowed the appeal of the assessee, quashing the reopening and the consequent reassessment order framed by the AO. The Tribunal held that the AO's assumption of jurisdiction to reopen the assessment was invalid due to the lack of independent application of mind and failure to comply with procedural requirements as mandated by the Supreme Court. The reasons recorded by the AO were found to be vague and insufficient to justify the reopening of the assessment.