2024 (11) TMI 1416 - AT - Income Tax

AO lacked valid belief formation when issuing Section 148 notice, reassessment proceedings quashed as invalid

The ITAT AGRA quashed reassessment proceedings u/s 147 for assessment year 2012-13, ruling the assumption of jurisdiction invalid and void ab initio. The ... Validity of assumption of jurisdiction for reopening the assessment u/s 147 - reasons to believe - assessee had received some accommodation entries through RTGS and were not disclosed by the assessee in the regular return filed - HELD THAT:- At the time of recording the reasons, AO did not have any information that was received from the Investigation Wing in his possession. Hence, the very basis of formation of belief of income escaping assessment in the case of the assessee was obtained much after recording of reasons and issuance of notice u/s148 - relevant documents were indeed sought for by AO from the Investigation Wing only during the course of reassessment proceedings post issuance of notice under section 148. Hence, since there was absolutely no information available with the AO, which could enable him to form a belief that income of the assessee had escaped assessment, the reopening of assessment deserves to be quashed as void ab initio in view of the fact that there could not be any valid formation of belief by the AO that income of the assessee had indeed escaped assessment for the assessment year 2012-13. Difference in issue mentioned in the reasons recorded and final re-assessment order framed by AO - AO had formed a belief that the assessee was in receipt of Rs 5 lakhs as accommodation entry which was sought to be treated as undisclosed income of the assessee together with related commission expenditure there on. This was the primary reason for formation of belief to reopen the assessment, but in the final reassessment order u/s 147 no addition has been made by AO on this account. Instead, an addition on account of estimated gross profit was made by the AO finally in the reassessment proceedings. As relying on Ranbaxy Laboratories Limited [2011 (6) TMI 4 - DELHI HIGH COURT] no hesitation in quashing the re-assessment proceedings of AO for the assessment year 2012-13. Accordingly, we hold that the assumption of jurisdiction u/s 147 is hereby declared invalid and void abinition - Decided in favour of assessee. 1. ISSUES PRESENTED and CONSIDEREDThe core legal question in this judgment revolves around the validity of the reopening of an assessment under Section 147 of the Income-tax Act, 1961. Specifically, the issue is whether the Assessing Officer (AO) had a legitimate reason to believe that the income of the assessee had escaped assessment, thus justifying the issuance of a notice under Section 148 of the Act.2. ISSUE-WISE DETAILED ANALYSISIssue: Validity of Reopening Assessment under Section 147Relevant Legal Framework and Precedents:Section 147 of the Income-tax Act, 1961, allows the AO to reassess income if there is a reason to believe that income has escaped assessment. The notice for reassessment is issued under Section 148. The jurisprudence on this matter, including the Delhi High Court's decision in Ranbaxy Laboratories Limited vs CIT, underscores that the AO must have a valid reason to believe that income has escaped assessment, and this belief must be based on tangible material.Court's Interpretation and Reasoning:The Tribunal examined whether the AO had a valid basis for forming the belief that the income had escaped assessment. It was noted that the AO's belief was primarily based on alleged accommodation entries from M/s Star Technologies India Delhi, which were not substantiated by any concrete evidence at the time of recording the reasons for reopening.Key Evidence and Findings:The AO claimed that the assessee received Rs. 5 lakhs as accommodation entries, which were not disclosed. However, the Tribunal found that the AO did not have possession of the necessary information or documents from the Investigation Wing at the time of recording the reasons for reopening. The request for documents was made post the issuance of the notice under Section 148, indicating a lack of basis for the initial belief.Application of Law to Facts:The Tribunal applied the principles from the Ranbaxy case, which require the AO to assess the income that was the basis for the belief of escapement. In this case, since no addition was made on the basis of the alleged accommodation entry in the final reassessment order, the Tribunal concluded that the original reason for reopening did not hold.Treatment of Competing Arguments:The assessee argued that the AO's action was void ab initio due to the lack of valid reasons at the time of reopening. The Tribunal agreed, emphasizing that the AO's subsequent actions could not validate the initial lack of basis for reopening.Conclusions:The Tribunal concluded that the reopening of the assessment was invalid as the AO did not have a legitimate reason to believe that income had escaped assessment at the time of issuing the notice under Section 148. Therefore, the reassessment proceedings were quashed.3. SIGNIFICANT HOLDINGSPreserve Verbatim Quotes of Crucial Legal Reasoning:'Respectfully following the decision of the Hon'ble Delhi High Court referred supra, we have no hesitation in quashing the re-assessment proceedings of the Learned AO for the assessment year 2012-13.'Core Principles Established:The judgment reinforces the principle that the AO must have a valid and tangible basis for forming a belief that income has escaped assessment. The basis for reopening must be present at the time of issuing the notice under Section 148, and not developed subsequently.Final Determinations on Each Issue:The Tribunal determined that the assumption of jurisdiction under Section 147 by the AO was invalid and void ab initio. The appeal of the assessee was allowed, and the reassessment proceedings were quashed.