AO mechanically reopened assessment under section 147 without proper application of mind, entire process quashed

ITAT Mumbai quashed the final assessment order passed under section 147 read with section 144C(13) following DRP directions. The tribunal held that the AO mechanically reopened assessment based on erroneous information without proper application of mind, violating established legal principles. Despite DRP's rejection of the draft assessment order and proposal for fresh addition, the tribunal found the entire process invalid. The assessment order was deemed illegal and unsustainable, with the assessee's appeal being allowed and the impugned orders quashed completely.

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Issues Involved:
1. Reopening of assessment under Section 147 of the Income Tax Act, 1961.
2. Addition under Section 69A for unexplained investment/credit.
3. Validity of the draft and final assessment orders.
4. Admission of additional evidence.

Issue-wise Detailed Analysis:

1. Reopening of Assessment under Section 147:
The assessee, a non-resident individual, did not file a return for the Assessment Year (A.Y.) 2018-19. Based on information from the Directorate of Income Tax (System), the case was reopened as a 'high risk non-filers' case under the Risk Management System (RMS). The Assessing Officer (A.O.) issued a reassessment notice under Section 148A dated 27.03.2022, citing four transactions totaling Rs. 1,42,03,454/- as reasons for reopening, believing that income had escaped assessment.

2. Addition under Section 69A for Unexplained Investment/Credit:
The A.O. made an addition of Rs. 99,99,911/- under Section 69A for unexplained investment in the final assessment order dated 25.01.2024. The assessee contended that the source of the time deposit with Federal Bank was from his own bank account in Oman and closure proceeds of existing FDs in Federal Bank, substantiated by documentary evidence.

3. Validity of the Draft and Final Assessment Orders:
The Hon'ble Dispute Resolution Panel (DRP) rejected the original draft assessment order, stating that the A.O. had reopened the case based on erroneous facts unrelated to the assessee. The final assessment order was challenged for being based on irrelevant facts and for mechanical and non-application of mind. The Tribunal noted that the term 'information' in Explanation 1 of Section 148 cannot be lightly resorted to for reopening an assessment, and the Revenue cannot be given unbridled power to reopen assessments based on such information. The Tribunal relied on decisions from the Hon'ble High Courts, including Excel Commodity Derivative (P) Ltd. vs. Union of India and Akshar Builders & Developers vs. Asst. CIT, which emphasized the necessity of proper verification and application of mind before reopening assessments.

4. Admission of Additional Evidence:
The Tribunal admitted the additional evidence filed by the assessee for proper adjudication of the issue. The assessee had failed to furnish the evidence before lower authorities due to reasons justified by the learned Authorised Representative (AR).

Conclusion:
The Tribunal held that the draft and final assessment orders were invalid and quashed them. The action of the A.O. in reassessing the case based on erroneous facts and non-application of mind was reprimanded. The appeal filed by the assessee was allowed, and the grounds on the merits required no further adjudication.

Order Pronounced:
The order was pronounced in the open court on 02.09.2024.

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