2024 (12) TMI 204 - HC - Income Tax

AO's cryptic reasons without nexus between investigation information and escaped income makes section 148 reopening invalid

J.K. Bullions Private Limited Versus Deputy Commissioner of Income Tax Circle 2 (1) (1), Ahmedabad & Anr.

The Gujarat HC quashed the reopening of assessments under section 148 for assessment years 2014-15, 2015-16, and 2016-17. The court held that the AO's ... Validity of the reopening of assessments u/s 148 - reasons to believe - HELD THAT:- Information made available by the Investigation Wing Ahmedabad is also common. Only the information of the Investigation Wing Indore so far as AY 2015-16 is different which is explained by the petitioner. However, the same is not considered by the AO in the order disposing of the objections. On perusal of the reasons recorded, it is apparent that the same are absolutely cryptic and vague. It does not disclose any nexus between the information received and the satisfaction recorded to form reason to believe that income has escaped assessment resulting into non-application of mind by the AO while recording reasons to assume jurisdiction to reopen the assessment. It is a trite law that when the reasons recorded are cryptic, vague having no nexus and no application of mind, the AO cannot assume the jurisdiction to reopen the assessment. Even the order disposing of the objection is a non-speaking order. We are unable to understand as to how the deposits made in the bank account would result in escapement of income, more particularly, when the assessee has categorically stated in the objections that the same represent the cash sales which is deposited in the bank account and duly recorded in the books of account. AO has failed to show even prima facie reason to believe as to how the information received from the Investigation Wing would amount to escapement of income as there is total lack of formation of reason to believe on part of the AO to prima facie arriving at a finding that it is a fit case to reopen the assessment for escaping income of more than Rs. 500 Crore for Assessment Year 2014-15, for Assessment Year 2015-16, and for A.Y. 2016-17. Issues Involved:1. Validity of the reopening of assessments under Section 148 of the Income Tax Act, 1961 for Assessment Years 2014-15, 2015-16, and 2016-17.2. Adequacy of reasons recorded by the Assessing Officer for reopening the assessments.3. Alleged failure of the petitioner to disclose fully and truly all material facts necessary for assessments.4. Treatment of cash deposits and sales in the petitioner's bank accounts as income escaping assessment.Detailed Analysis:1. Validity of the Reopening of Assessments:The petitions challenge the notices issued under Section 148 of the Income Tax Act, 1961, for reopening assessments for the years 2014-15, 2015-16, and 2016-17. The petitioner contends that the reopening is based on vague and cryptic reasons without any nexus between the information received and the satisfaction recorded by the Assessing Officer. The court noted that the reasons for reopening were repetitive and lacked specificity, failing to demonstrate a clear basis for the belief that income had escaped assessment. The reopening was deemed invalid as it was based on a mere change of opinion rather than new tangible material.2. Adequacy of Reasons Recorded:The court examined the reasons recorded by the Assessing Officer for reopening the assessments. It was observed that the reasons were vague and lacked a direct connection to the alleged escapement of income. The reasons did not provide a clear explanation of how the cash deposits in the bank accounts led to income escaping assessment. The court emphasized that for reopening assessments, there must be a clear and specific reason to believe that income has escaped assessment, which was absent in this case.3. Alleged Failure to Disclose Material Facts:The respondent argued that the petitioner failed to disclose fully and truly all material facts necessary for the assessment. However, the petitioner contended that all relevant information, including cash sales, was duly recorded in the books of accounts and disclosed during the original assessments. The court found that the petitioner had responded to all notices and summons, providing the required details. The absence of incriminating evidence during the investigation further weakened the respondent's claim of non-disclosure.4. Treatment of Cash Deposits and Sales:The Assessing Officer alleged that the cash deposits in the petitioner's bank accounts represented income that had escaped assessment. However, the petitioner explained that these deposits were cash sales duly accounted for in the books. The court noted that the Assessing Officer failed to demonstrate how these deposits constituted unexplained income, especially when the petitioner had provided explanations and documentation. The court found no prima facie reason to believe that the cash deposits resulted in income escaping assessment.Conclusion:The court concluded that the reasons recorded for reopening the assessments were inadequate, vague, and lacked application of mind. The Assessing Officer failed to establish a credible link between the information received and the belief that income had escaped assessment. Consequently, the notices for reopening assessments for the years 2014-15, 2015-16, and 2016-17 were quashed and set aside. The court ruled in favor of the petitioner, holding that the reopening of assessments was not justified under the circumstances presented.