Assessment reopening under Section 147 quashed for borrowed belief without independent verification by AO

ITAT Rajkot held that reopening of assessment under Section 147 was invalid due to borrowed belief. AO relied solely on information from DCIT regarding alleged accommodation entry without independent verification or inquiry. AO failed to independently apply mind to determine if amounts were actually received by assessee or manner of receipt. The belief of income escapement was borrowed rather than AO's own independent assessment. Jurisdiction under Section 147 was deemed invalid without proper independent application of mind. Assessment reopening was quashed in favor of assessee.

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Issues Involved: Validity of assessment framed under Section 147 of the Income Tax Act, 1961.

Summary:

Issue 1: Validity of Assessment under Section 147 of the Act

The assessee challenged the validity of the assessment framed under Section 147 of the Income Tax Act, 1961, arguing that the belief of escapement of income was not that of the Assessing Officer (AO) but was a borrowed belief from the DCIT, Central Circle-1, Rajkot. The AO formed the belief based on information that the assessee had taken accommodation entries during the year without verifying the information himself.

The Tribunal noted that the AO had received information from the DCIT that M/s. National Shroff & Co. had given the assessee cheque/DD of Rs. 20,75,100/-, which was believed to represent unaccounted sales. However, the AO did not verify this information from the assessee's records or conduct any inquiry before forming the belief of escapement of income. The details of the amount received were obtained only after recording the reasons for reopening the case, and even then, no verification was done.

The Tribunal agreed with the assessee that the AO's belief of escapement of income was a borrowed belief, as the AO had not independently verified the information. The Tribunal cited various court decisions, including those from the Karnataka High Court and ITAT Visakhapatnam Bench, which held that the belief of escapement of income must be that of the AO and cannot be based on borrowed belief.

Conclusion:

The Tribunal held that the jurisdiction assumed by the AO to frame assessment under Section 147 of the Act was invalid, as it was based on borrowed belief. Consequently, the assessment framed was quashed, and the appeal of the assessee was allowed. Other grounds raised by the assessee on merits were deemed academic and not adjudicated.

Order Pronounced:

The appeal was allowed, and the order was pronounced in the open Court on 03/10/2023 at Ahmedabad.

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