2023 (10) TMI 1203 - HC - Income Tax

AO's vague reasons without specific transaction details invalidate Section 147 assessment reopening

The Gujarat HC held that reopening of assessment under section 147 was invalid where the AO failed to record specific reasons. The AO's reasons were vague ... Reopening of assessment u/s 147 - Reasons to believe - petitioner has entered into unaccounted transactions as per the information made available through Insight Portal along with the report of the DCIT Surat - Assessee submitted that the reasons recorded by the AO are absolutely vague, scanty and non-specific as AO has failed to disclose the nature of transaction, date of transaction, name of party with whom the transactions allegedly have been entered into and whether such transaction relates to balance-sheet item or profit and loss item of either of the petitioner - HELD THAT:- On perusal of the reasons recorded by the respondents, it is clear that no information is revealed with regard to the nature of transaction, date of transaction and name of party with whom such transaction has been entered into. In case of Harikishan Sunderlal Virmani (2016 (12) TMI 1558 - GUJARAT HIGH COURT) this Court held that from the reasons recorded, if the same are on borrowed satisfaction without forming an independent opinion, the assumption of the jurisdiction to re-open the assessment u/s 147 was bad in law. The entire exercise of re-opening would depend upon the reasons recorded by the AO and therefore the reasons recorded to re-open the assessment by the AO must disclose all relevant facts to the assessee so as to refute the reasons by filing objections. Unless the AO records his independent satisfaction in the reasons recorded on the basis of the information received and communicates the same to the assessee, right of the assessee to file objections would remain an empty formality. Therefore, recording of reasons in the facts of the case not disclosing the nature of the transactions, date of transactions and other relevant details would render the entire exercise of reopening vitiated as the respondent-assessing officer has failed to record independent reason to believe that income chargeable to tax has escaped the assessment. Decided in favour of assessee. Issues Involved:1. Validity of the notice under Section 148 of the Income Tax Act, 1961 for reopening the assessment.2. Adequacy and specificity of reasons recorded for reopening the assessment.3. Independent satisfaction of the Assessing Officer versus borrowed satisfaction.Summary:1. Validity of the Notice under Section 148:The petitions were filed under Article 226 of the Constitution of India seeking to quash the notice dated 31.03.2021 issued under Section 148 of the Income Tax Act, 1961 for the Assessment Year 2017-18. The petitioner contended that the reasons for reopening the assessment were vague and non-specific.2. Adequacy and Specificity of Reasons Recorded:The petitioner argued that the reasons recorded by the Assessing Officer were 'absolutely vague, scanty and non-specific,' failing to disclose the nature of the transaction, date, name of the party, and whether such transactions relate to balance-sheet items or profit and loss items. The petitioner cited the case of Bharatkumar Nihalchand Shah vs. Income Tax Officer, where it was held that non-specific and general reasons without establishing a rational nexus between the transaction and escapement of income are not valid for assumption of jurisdiction to reopen the assessment.3. Independent Satisfaction of the Assessing Officer:The petitioner argued that the Assessing Officer did not apply independent mind and merely relied on information received from the Insight Portal and the report of the Deputy Commissioner of Income Tax, Central Circle, Surat. The petitioner emphasized that the satisfaction for reopening must be of the concerned Assessing Officer himself and not based on 'borrowed satisfaction.' The petitioner cited the case of Harikishan Sunderlal Virmani vs. DCIT, asserting that the reasons recorded must reflect the independent satisfaction of the Assessing Officer.Court's Findings:The court found that the reasons recorded by the Assessing Officer did not reveal the nature of the transaction, date, or name of the party involved. The court referred to the case of Bharatkumar Nihalchand Shah, emphasizing the necessity of recording reasons in administrative, quasi-judicial, or judicial orders. The court highlighted that the reasons must be clear, detailed, and specific to enable the assessee to defend their case.The court concluded that the reasons recorded for reopening the assessment were cryptic and lacked necessary details, rendering the entire exercise of reopening vitiated. The court held that the Assessing Officer failed to record independent satisfaction based on the information received, violating the statutory requirement of 'independent satisfaction.'Conclusion:The court set aside the impugned notice issued under Section 148 of the Act for the Assessment Year 2017-18, ruling in favor of the petitioners. The notice dated 31st March 2021 was quashed, and the rule was made absolute to that extent.