2020 (3) TMI 1490 - AT - Income Tax

Assessment reopening under Section 147 invalid due to AO's failure to apply independent mind, appeal allowed

M/s. Shreyans Jain, HUF Versus Income Tax Officer, Wd-36 (2), Kolkata.

The ITAT Kolkata held that the reopening of the assessment under section 147 was invalid as the AO failed to independently apply his mind and relied on ... Reopening of assessment u/s 147 - Non independent application of mind by AO - HELD THAT:- We hold that the re-opening is bad in law as the Assessing Officer has not independently applied his mind to the material and has recorded reasons which are vague and based on borrowed satisfaction. Appeal of the assessee is allowed. ISSUES: Whether reopening of assessment under Section 147 of the Income Tax Act, 1961 is valid when the Assessing Officer alleges that income offered is 'bogus income' rather than income escaping assessment.Whether reasons recorded by the Assessing Officer for reopening must demonstrate a bona fide application of mind and be supported by clear, relevant, and specific material.Whether vague, ambiguous, or non-specific information from the investigation wing can constitute sufficient grounds for reopening assessment under Section 147.Whether the Assessing Officer can rely solely on information received from the investigation wing without independent verification or application of mind to form a reason to believe that income has escaped assessment. RULINGS / HOLDINGS: The reopening of assessment under Section 147 is invalid where the Assessing Officer's allegation is that the income offered is 'bogus income' and not that income has escaped assessment, as 'the question of income escaping assessment does not arise' in such a case.The reasons recorded for reopening must not be 'vague, scanty and ambiguous' but must disclose the Assessing Officer's mind with respect to the nature, amount, date, and mode of the alleged bogus transactions; failure to do so renders the reopening bad in law.Information received from the investigation wing that is 'vague and uncertain' and lacking in specific details cannot be treated as sufficient and relevant material for forming a reasonable belief under Section 147.Reopening is bad in law if the Assessing Officer has not made an independent application of mind and has merely relied on 'borrowed satisfaction' or unverified reports without examining the basis and material of the information received. RATIONALE: The Court applied the statutory framework of Section 147 of the Income Tax Act, which mandates that reopening can only be initiated if the Assessing Officer has 'reasons to believe' that income chargeable to tax has escaped assessment, and such reasons must be recorded in writing.Precedents from various High Courts and Tribunals were relied upon, emphasizing that the reasons for reopening must be clear, specific, and based on prima facie material, not merely vague or unsupported allegations.The Court reiterated the principle that the Assessing Officer's reasons must disclose the 'nature and amount of bogus entries or transactions,' the 'persons with whom the transactions had taken place,' and the 'dates and modes' of such transactions to sustain reopening.The Court followed the doctrine that the Assessing Officer cannot substitute form for substance by merely submitting reports or letters from the investigation wing as reasons without independent satisfaction.There was no dissenting opinion; the decision aligns with established jurisprudence reinforcing the mandatory requirement of bona fide application of mind and sufficiency of reasons in reopening assessments.