2025 (3) TMI 597 - AT - Income Tax

AO's reassessment under Section 147 invalid due to borrowed satisfaction without independent application of mind

ITAT Chennai quashed reassessment proceedings for AY 2010-11 and 2011-12, holding that AO's reopening under Section 147 was invalid due to 'borrowed ... Reopening of Assessment - reason to believe - borrowed satisfaction - Denial of exemption claimed u/s 11 taxing its income in status of AOP - AY 2010-11 HELD THAT:- In this case, there is no whisper in the recorded reasons about assessee applying its income for the benefit of any particular religious or caste in violation of Section 13(1)(a) of the Act. Even the reference to the information stated and conclusion thereafter, has got no nexus whatsoever basis which any prudent person properly instructed in law could draw a linkage that the AO was in possession of tangible material that there is an escapement of income from assessment to the tune. AO simply on the basis of the letter from DCIT(E) has jumped into conclusion that there is an escapement of income which is erroneous since it does not satisfy the jurisdictional fact and law for reopening as envisaged u/s. 147. AO simply taking note of the DCIT(E) letter has borrowed the satisfaction without independent application of mind to form reason warrant holding a belief that income chargeable to tax has escaped assessment. Just because a letter has been received from the DCIT(E) the AO cannot reopen the assessment even if original assessment was u/s. 143(1) of the Act. Thus, reasons recorded by the AO to justify reopening the assessment u/s. 147 fails and, therefore, the very assumption of jurisdiction to reassess the assessee falls. AY 2011-12 - AO did not satisfy the requisite requirement of law to validly reopen the assessment and therefore, it is held to be bad in law. As held above, the AO had taken the information of Special Audit of donor, M/s CBV and that too for AY 2013-14 as gospel truth and has reopened the assessment based on borrowed satisfaction, without independently applying his mind to the information and forming his own view, which is found absent in this case. According to us, the information given by the DCIT(E) can at best trigger “reason to suspect” and not “reason to believe” escapement of income and that, in the absence of any tangible material or enquiry as discussed in appeal of AY 2010-11, we have no other alternative but to hold that the reopening of the assessment for AY 2011-12 is also bad in law and we thus quash the impugned reopening proceedings and consequential reassessment. Appeals of the assessee are allowed. 1. ISSUES PRESENTED and CONSIDEREDThe primary legal issue considered in these appeals was the denial of exemption claimed by the assessee trust under Section 11 of the Income Tax Act, 1961, on the grounds that the trust carried out religious activities, thus disqualifying the expenses claimed as charitable. The core question was whether the reopening of assessments under Sections 147/148 was valid, given the alleged religious activities.2. ISSUE-WISE DETAILED ANALYSISReopening of Assessment under Sections 147/148:- Relevant Legal Framework and Precedents: The reopening of assessments requires the Assessing Officer (AO) to have 'reason to believe' that income chargeable to tax has escaped assessment. This belief must be based on tangible material and cannot be based on mere suspicion or borrowed satisfaction from another authority. The legal framework is supported by precedents such as Hindustan Lever Ltd. vs. R.B. Wadkar and Ganga Saran & Sons P. Ltd. Vs. ITO.- Court's Interpretation and Reasoning: The Tribunal emphasized that the AO must independently evaluate the material and not rely solely on information from another authority. The AO's reasons must be self-explanatory and based on tangible evidence, not vague or general allegations.- Key Evidence and Findings: The AO relied on information from the DCIT (Exemptions) alleging that the trust received funds for religious activities. However, the Tribunal found that the AO did not independently verify this information or provide specific evidence of religious activities.- Application of Law to Facts: The Tribunal found that the AO's reasons for reopening were based on borrowed satisfaction and lacked independent application of mind. The AO failed to provide specific details or evidence of religious activities that would justify the denial of exemption under Section 11.- Treatment of Competing Arguments: The Tribunal considered the argument that the reopening was based on information received from the DCIT (Exemptions) but found that this information alone was insufficient to form a 'reason to believe' without further investigation by the AO.- Conclusions: The Tribunal concluded that the reopening of assessments for both assessment years was invalid due to lack of independent application of mind and tangible evidence by the AO.3. SIGNIFICANT HOLDINGS- Preserve Verbatim Quotes of Crucial Legal Reasoning: 'The reasons recorded by AO does not stand the test as laid by plethora of judicial precedence as discussed above which is sine qua non to assume jurisdiction u/s 147 of the Act.'- Core Principles Established: The AO must independently verify information and provide tangible evidence when forming a 'reason to believe' that income has escaped assessment. Borrowed satisfaction from another authority is insufficient.- Final Determinations on Each Issue: The Tribunal quashed the reopening and reassessment orders for both assessment years, allowing the appeals of the assessee trust.