2019 (5) TMI 430 - AT - Income Tax

Tribunal invalidates income tax assessment reopening under Section 147/148 due to lack of tangible evidence

Shri Udit Kumar Dugar Versus Income-tax Officer, Ward-36 (4), Kolkata

Shri Udit Kumar Dugar Versus Income-tax Officer, Ward-36 (4), Kolkata - TMI Issues Involved:1. Validity of Reopening of Assessment under Section 147/148 of the Income-tax Act, 1961.Issue-wise Detailed Analysis:1. Validity of Reopening of Assessment under Section 147/148 of the Income-tax Act, 1961:At the outset, the assessee challenged the reopening of the assessment under Section 147/148 of the Income-tax Act, 1961. The brief facts necessary for adjudication were that the assessee had filed the return of income on 17.12.2012 for AY 2012-13, which was accepted by the Department as no scrutiny assessment was framed initially. The Assessing Officer (AO) issued a notice under Section 148 on 28.03.2017, which was objected to by the assessee but subsequently brushed aside, leading to the reassessment order on 27.12.2017.The assessee's counsel argued that the AO reopened the assessment based on a letter from the Directorate of Income Tax (Investigation), Kolkata, without applying his mind. The counsel emphasized that the AO must satisfy the condition precedent to assume jurisdiction, which requires a 'reason to believe' that income has escaped assessment. The counsel cited several judicial precedents to support the contention that the AO must independently apply his mind and not act on borrowed satisfaction.The Tribunal noted that the AO's reasons for reopening the assessment were based solely on the information from the Directorate of Investigation, which suggested that the assessee was involved in transactions of bogus Long-Term Capital Gains (LTCG). The Tribunal emphasized that the reasons recorded by the AO must demonstrate a link between the tangible material and the formation of the belief that income has escaped assessment. The Tribunal found that the AO did not independently verify the information received from the Directorate of Investigation and merely acted on the report, which amounted to borrowed satisfaction.The Tribunal referred to various judicial precedents, including the Delhi High Court's decision in ACIT Vs. Meenakshi Overseas (P) Ltd., which held that the reasons to believe must be based on some tangible material and should not be a mere reproduction of the investigation report. The Tribunal also referred to the Bombay High Court's decision in Pr.CIT Vs. Shodiman Investments (P) Ltd., which emphasized that the AO must independently apply his mind to the information received and form a belief that income has escaped assessment.The Tribunal concluded that the AO's reasons for reopening the assessment were vague and did not satisfy the requirement of law. The Tribunal held that the reopening of the assessment was invalid as the AO did not independently apply his mind and merely acted on the information provided by the Directorate of Investigation. Consequently, the Tribunal quashed the reopening of the assessment and the subsequent reassessment order.Conclusion:The Tribunal allowed the appeal of the assessee, holding that the reopening of the assessment under Section 147/148 was invalid as the AO did not independently apply his mind and merely acted on borrowed satisfaction from the Directorate of Investigation's report. The Tribunal quashed the reopening proceedings and the consequential reassessment order.