2024 (9) TMI 1446 - AT - Income Tax

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

Jagadeesan Mani Versus ITO (Int. Tax) -Ward 3 (2) (1), Mumbai

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 ... Validity of final assessment order passed u/s. 147 r.w.s. 144C(13) in pursuance of the Hon’ble Dispute Resolution Panel direction - Addition u/s 69A - unexplained investment/credit - failure on the part of the assessee to furnish the same before the lower authorities - whether the draft assessment order passed by the ld. A.O. on irrelevant facts could be sustained pursuant to the rejection of the same by the Hon’ble DRP and also for the allegation made by the assessee that the same was passed mechanically and without application of mind? HELD THAT:- Hon’ble High Court of Calcutta in the case of Excel Commodity Derivative (P) Ltd. [2022 (9) TMI 310 - CALCUTTA HIGH COURT] wherein it was held that the term ‘information’ stated in Explanation 1 of section 148 cannot be taken at ease for the purpose of reopening an assessment and the Revenue cannot be given an unbridled power to reopen the assessment based on such information. Further, it held that the ld. A.O. has lightly used the said information and had issued notice and further proceeded to make addition on a fresh ground after duly considering the assessee’s submission. As evident that the assessee’s case would squarely be covered by the said decision where the Hon'ble High Court has held that in such situation there is no necessity to remand the matter back to the ld. AO by holding that the said order is illegal and wholly unsustainable. AR has also placed reliance on the decision of Akshar Builders & Developers [2019 (1) TMI 1277 - BOMBAY HIGH COURT] wherein it was held that the ld. A.O. cannot reopen the assessment mechanically based on erroneous information received by him. Further, it was held that there was complete non application of mind on the part of the ld. A.O. This proposition was further supported by the decision of the Hon'ble Jurisdictional High Court in the case of Paranjape Schemes (Construction) Ltd. [2024 (3) TMI 736 - BOMBAY HIGH COURT] As evident that the action of the ld. A.O. in reassessing a case on erroneous facts and on non application of mind has been reprimanded by various decisions of the Hon’ble High Courts and Hon'ble Apex Court. This fallacy which occurred while reopening the assessment in the present case cannot be rectified by the subsequent action of the Hon’ble DRP in rejecting the draft assessment order and in proposing a fresh addition.We hold that the impugned draft assessment order and the consequential final assessment order are held to be invalid and are hereby quashed. Appeal filed by the assessee is allowed. 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.