AO's reassessment under Section 147 quashed for borrowed satisfaction without independent application of mind

ITAT Patna quashed reassessment proceedings u/s 147 initiated by AO without independent application of mind. The tribunal found AO relied on borrowed satisfaction from ADIT's investigation report without conducting independent enquiry or forming personal belief that income escaped assessment. Following Delhi HC precedents in SFIL Stock Broking Ltd. and Meenakshi Overseas Pvt. Ltd., tribunal held that mere reproduction of investigation conclusions without independent assessment constitutes borrowed satisfaction, invalidating reopening. Assessment and subsequent proceedings were quashed in assessee's favor.

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Issues:
Appeal against order of Ld. CIT(A) confirming reassessment proceedings u/s 148 of the Act.

Analysis:
The appeal pertains to the reassessment proceedings initiated by the AO under section 148 of the Act. The assessee contested the validity of the reassessment on the grounds of being wrong, invalid, illegal, and unjustified. The facts reveal that the premises of the assessee were searched under section 132 of the Act, leading to the assessment order u/s 153A read with Section 144 of the Act. Subsequently, the assessment was reopened u/s 147 of the Act based on the belief that the assessee received accommodation entries. The Ld. CIT(A) upheld the validity of the reassessment, stating that there was a clear linkage with the information available and the belief that income had escaped assessment.

The assessee argued that the reassessment was invalid and void-ab-initio due to borrowed satisfaction by the AO without independent application of mind. The AO incorrectly noted that the assessee received Rs. 3,20,00,000 from a specific entity, whereas the actual amount received was Rs. 50,00,000 from a different source. The reassessment lacked proper application of mind and was based on borrowed satisfaction. The AO failed to independently verify the information received from the Investigation Wing, rendering the reassessment invalid. The AR relied on various decisions to support the argument that the AO must apply his mind independently before reopening an assessment.

On the other hand, the DR contended that the presence of information in the possession of the AO was sufficient to validly initiate reassessment under section 147 of the Act. The DR suggested restoring the issue to the AO for a fresh examination in light of the facts and law.

After considering the arguments and perusing the record, it was observed that the reassessment lacked proper application of mind by the AO. The reasons recorded by the AO did not align with the actual facts, indicating a clear case of borrowed satisfaction. The reassessment was deemed invalid and void-ab-initio due to the absence of independent verification and application of mind by the AO. Citing relevant case laws, the tribunal quashed the reassessment under section 147 of the Act along with the assessment framed thereafter.

In conclusion, the appeal of the assessee was allowed on the legal issue, and the reassessment proceedings were declared invalid. The judgment was pronounced on 15th October 2024.

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