Reassessment under s.147/s.148 invalid where tax officer relied on borrowed satisfaction, failed independent enquiries or reasons

DELHI HC held the reassessment under s.147/s.148 invalid because the AO triggered proceedings without independent application of mind, relying on borrowed satisfaction and failing to consider or articulate reasons based on the material allegedly showing accommodation entries. The court found opacity in the record, absence of proper enquiries and non-use of crucial letters available to the AO, and concluded the notice and order could not be sustained. Decision for the assessee.

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Issues: Whether the notice dated 29.03.2018 issued under Section 148 of the Income-tax Act, 1961 and the order dated 24.10.2018 rejecting objections to the reasons to believe are sustainable where (i) the Assessing Officer had earlier examined and closed the issue in original assessment under Section 143(3) after disallowing interest, and (ii) the reassessment was initiated based on material placed by the DDIT (Inv.) without the AO applying independent mind.

Analysis: The record shows that during original scrutiny assessment the petitioner had disclosed and furnished ledger accounts, confirmations and related material regarding the unsecured loan of Rs. 2,00,00,000/- from TGFL and the AO examined this material and disallowed interest of Rs. 14,14,288/- in the order under Section 143(3). Earlier communications from the DDIT (Inv.) indicating possible accommodation entries were available before the assessment, yet no actionable inquiry (such as issuing notices to third parties) was conducted by the AO for nearly four years. The reasons to believe framing the reassessment relied largely on a later communication dated 16.03.2018 and did not refer to or demonstrate an independent application of mind to the material already on record. The Court noted the qualitative distinction between a mere reason to suspect and a reason to believe and held that reassessment cannot be triggered on borrowed satisfaction or without articulable actionable material showing that income chargeable to tax escaped assessment.

Conclusion: The impugned notice dated 29.03.2018 under Section 148 and the order dated 24.10.2018 rejecting objections are set aside; the reassessment proceedings initiated thereby are unsustainable for lack of independent application of mind and reliance on borrowed satisfaction.

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