2023 (4) TMI 886 - AT - Income Tax

Invalid reassessment proceedings quashed for lack of jurisdiction and compliance. AIR info alone insufficient for jurisdiction.

Vipin Kumar Versus ITO, Ward-2 (5), Ghaziabad

The Tribunal found that the reassessment proceedings initiated without proper jurisdiction and compliance with mandatory conditions were unsustainable and ... Validity of Reassessment u/s 147/144 - non assuming jurisdiction as per law and without complying with the mandatory conditions u/s 147 to 151 - tangible material to initiate reopening - Borrowed satisfaction - non applIcation of mind by AO - HELD THAT:- There was AIR information available with the AO in the form tangible material and thereafter the AO proceeded to initiate reassessment proceedings and to issue notice u/s. 148 of the Act to the assessee. Analysis of reasons recorded by the AO clearly shows that except AIR information there was nothing else in the hands of AO at the time of initiating reassessment proceedings and the AO without applying mind to the information and without any further verification from the bank prosecute to record he had reason to believe that income has escaped assessment for A.Y. 2010-11. As decided in Bir Bahdur Singh Sijwali [2015 (2) TMI 60 - ITAT DELHI] we are inclined to hold that mere AIR information of cash deposit without any other information and verification or examination by the AO the AO is not entitle to assume valid jurisdiction to initiate reassessment proceedings u/s. 147 of the Act and issue notice u/s. 148 of the Act. Decided in favour of assessee. ISSUES PRESENTED AND CONSIDERED 1. Whether initiation of reassessment proceedings under section 147 read with section 148 can be validly based solely on AIR (Annual Information Report) information of cash deposits without further verification or application of mind by the Assessing Officer. 2. Whether an Assessing Officer who records erroneous factual premises (e.g., stating a bank account as solely operated when it is joint, or misstating deposit amounts) and does not obtain bank statements before recording 'reason to believe' has validly assumed jurisdiction under sections 147-151. 3. Consequence of invalid initiation of reassessment proceedings on all consequential orders, including assessment passed under section 147 read with section 144. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Validity of initiating reassessment proceedings based solely on AIR information Legal framework: Section 147 requires that the Assessing Officer have a 'reason to believe' that income has escaped assessment; section 148 prescribes issuance of notice upon such belief. The Assessing Officer must record reasons and obtain requisite approvals under section 151 where applicable. AIR information is a source of information that may inform the AO's belief. Precedent Treatment: The Tribunal followed the view in the earlier ITAT Delhi decision (referred to in the judgment) that mere AIR information, without corroboration or independent verification, is not ordinarily sufficient to constitute a valid 'reason to believe' for initiating reassessment under section 147. Interpretation and reasoning: The Court examined the reasons recorded by the AO and found that they consisted solely of AIR information indicating cash deposits. There was no contemporaneous documentary verification (e.g., obtaining the bank statement, reconciling deposits, or seeking further information) before issuing notice under section 148. The AO's act of recording a conclusory belief without such inquiry amounted to lack of application of mind. The Court emphasized that AIR information, being an external intelligence input, requires examination and corroboration before it can form the basis for assumption of jurisdiction under section 147. Ratio vs. Obiter: Ratio - An Assessing Officer cannot validly initiate reassessment under section 147/148 on the sole basis of AIR information without additional verification or material to justify a 'reason to believe.' Conclusion: The initiation of reassessment proceedings based only on AIR information, without further verification, is not sustainable; such initiation is invalid. Issue 2 - Effect of erroneous factual premises and failure to obtain bank statements on jurisdiction Legal framework: The recorded reasons must correctly reflect material facts and the AO must apply mind to available data before forming a 'reason to believe.' Procedural safeguards (including correct recording of facts and adherence to conditions in sections 147-151) underpin the validity of jurisdictional assumption. Precedent Treatment: The decision relied on the principle in the cited ITAT authority that both quality of information and the AO's verification steps matter; incorrect factual recording or omission of simple verification undermines the validity of the recorded reasons. Interpretation and reasoning: The AO's reasons mischaracterized the bank account as a sole account and misstated the deposited amount; despite having details of the bank account, the AO did not obtain the bank statement from the relevant branch and did not indicate that the verification letter sent was served. The Tribunal held that such factual errors and omission to undertake available verification demonstrate absence of genuine application of mind and an unsound basis for the belief that income escaped assessment. Ratio vs. Obiter: Ratio - Recording incorrect facts and failing to obtain available, relevant documents (e.g., bank statement) before forming a 'reason to believe' vitiates the jurisdictional foundation of reassessment proceedings under sections 147-148. Conclusion: Reassessment initiation was defective because it rested on erroneous factual premises and lack of basic verification, and therefore the jurisdiction assumed was invalid. Issue 3 - Consequence of invalid initiation on consequential orders Legal framework: If the initial jurisdictional act (recording of reasons/issuance of notice under section 148) is invalid, consequent proceedings and orders made pursuant to that act are ordinarily unsustainable. Precedent Treatment: The Court applied the established remedial principle that proceedings founded on an invalid jurisdictional assumption must be quashed. Interpretation and reasoning: Having held that the AO's reasons were confined to unverified AIR information and contained factual inaccuracies, the Tribunal concluded that the entire chain-notice under section 148, reassessment framing under section 147, and assessment ex parte under section 144-lacked jurisdictional validity. The Tribunal therefore quashed initiation of reassessment, the notice, and all consequent orders. Ratio vs. Obiter: Ratio - Where reassessment proceedings are initiated without valid jurisdictional foundation, all consequential orders flowing from that initiation are invalid and liable to be quashed. Conclusion: The initiation of reassessment proceedings, issuance of notice under section 148, and all consequential orders were quashed as unsustainable. Additional Point - Merits of addition not adjudicated Legal framework and reasoning: Once jurisdictional foundation was quashed, adjudication on the merits (e.g., addition of the deposited amount to income) became academic and was not considered. Ratio vs. Obiter: Obiter (procedural consequence) - Quashing jurisdictional acts precludes judicial determination on substantive merits in the same proceedings unless and until valid reassessment is properly initiated. Conclusion: Substantive grounds (including the correctness of the addition of the alleged undisclosed deposit) were not adjudicated due to the quashing of the reassessment proceedings.