Reopening assessment under section 147 invalid when based on wrongful assumption assessee hadn't filed return

ITAT Delhi held that reopening of assessment under section 147 was invalid where the AO erroneously assumed the assessee had not filed income tax return for AY 2010-11. The tribunal found that the assessee had indeed filed return under section 139(1) before the same AO. The AO failed to examine available records properly to verify whether bank deposits were reflected in the return. Since the reopening was based on wrongful assumption of facts, the proceedings under section 147/144 were vitiated and declared invalid. Appeal decided in favour of assessee.

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Issues Involved:
1. Validity of the assessment order passed u/s 147/144 of the Income-tax Act, 1961.
2. Reopening of assessment based on incorrect facts.

Summary:

Issue 1: Validity of the assessment order passed u/s 147/144 of the Income-tax Act, 1961

The assessee challenged the validity of the assessment order passed u/s 147/144 of the Income-tax Act, 1961. The Assessing Officer (AO) reopened the assessment based on AIR information indicating cash deposits of Rs. 46,34,231/- in the assessee's savings bank account. The AO proceeded ex-parte and added Rs. 95,24,077/- to the income, representing both cash and cheque deposits. The first appellate authority upheld the validity of the proceedings u/s 147 but granted partial relief by deleting the addition of cheque deposits.

Issue 2: Reopening of assessment based on incorrect facts

The assessee contended that the reopening of the assessment was based on a wrong assumption of facts, as the AO incorrectly noted that no return of income was filed for the year in question, despite the return being filed u/s 139(1). The Tribunal observed that the AO did not thoroughly examine the materials on record, leading to an incorrect assumption of facts. This vitiated the initiation of proceedings u/s 147, rendering the assessment order invalid.

The Tribunal relied on the decision in Shri Anuj Chaudhary Vs. ITO, ITA No. 3453/Del/2018, where it was held that reopening based on incorrect facts invalidates the proceedings. Similar views were upheld by various High Courts, emphasizing that reopening based on erroneous facts and non-application of mind by the AO is unsustainable.

Consequently, the Tribunal quashed the reassessment, holding that the assumption of jurisdiction u/s 147 was based on incorrect facts. The appeal was allowed, and the assessment order was declared invalid. The grounds on merits were deemed academic and not adjudicated.

Order pronounced in the open court on 4th April, 2024.

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