2025 (3) TMI 1009 - HC - Income Tax

AO's mechanical reassessment under Section 147 quashed for lack of independent application of mind and valid reasons

Jambuwala Commodities Private Limited Versus Income Tax Officer, Ward 2 (1) (1)

Gujarat HC set aside reassessment proceedings u/s 147 for lack of valid reasons to believe. The AO mechanically recorded reasons without independent ... Reopening of assessment u/s 147 - Reasons to believe - nexus between the transaction and the alleged escapement of income - as argued no failure on the part of the petitioner to disclose fully and truly all material facts during the course of the regular assessment - HELD THAT:- AO while recording the reasons has failed to take into consideration the report of the Investigation Wing in true perspective. It also appears that the AO while recording the reasons for reopening has not even considered that the amount mentioned in the reasons regarding the AY 2013-14 is nothing but total of debit and credit side of the account of M/s. Affluence Commodities Pvt. Ltd. from the books of accounts of the petitioner. Similarly for AY 2014-15 also the reasons recorded reflects the total of the debit and credit side of the account of the said Company from the books of accounts of the petitioner meaning thereby that the AO without application of mind and contrary to any information in his possession has issued the impugned notices in a mechanical manner. This Court in case of Paresh Babubhai Bahalani [2023 (10) TMI 1203 - GUJARAT HIGH COURT] has referred to and relied upon the decision in the case of Bharatkumar Nihalchand Shah [2023 (3) TMI 1415 - GUJARAT HIGH COURT] wherein, it is held that non-specific and general reasons without establishing the rational nexus between transaction and the escapement of income are not valid for assumption of jurisdiction to reopen the assessment. r proceeded to record that the petitioner has failed to offer the income as deemed income amounting to Rs. 14, 03, 19, 900/- which is nothing but total of debit and credit side of the account from the books of account maintained by the petitioner of the said company. It is therefore, evident that the reasons recorded by the respondent are on the borrowed satisfaction without forming an independent opinion and therefore, the assumption of the jurisdiction to reopen the reassessment under Section 147 of the Act is bad in law. Reassessment proceddings set aside in absence of any independent satisfaction reflected in the reasons recorded on the basis of the information received by the AO. Decided in favour of assessee. 1. ISSUES PRESENTED and CONSIDEREDThe core legal issue considered in this judgment revolves around the validity of the notices issued under Section 148 of the Income Tax Act, 1961, for reopening the assessment of the petitioner for the Assessment Years 2013-14 and 2014-15. Specifically, the issues include:Whether the reasons recorded for reopening the assessments were vague, incorrect, and based on borrowed satisfaction.Whether there was a failure on the part of the petitioner to disclose fully and truly all material facts necessary for the assessment.Whether the reopening of the assessment was justified under the provisions of the Income Tax Act, particularly under Section 147.2. ISSUE-WISE DETAILED ANALYSISRelevant legal framework and precedents:The legal framework involves Sections 147 and 148 of the Income Tax Act, which deal with the reopening of assessments. The court referred to precedents such as the decision in Paresh Babubhai Bahlani Vs. Income Tax Officer and Bharatkumar Nihalchand Shah Vs. ITO, which emphasize the necessity of specific and detailed reasons for reopening assessments.Court's interpretation and reasoning:The Court found that the reasons provided by the Assessing Officer for reopening the assessments were vague and lacked specificity. It noted that the reasons were based on the total of debit and credit transactions with M/s. Affluence Commodities Pvt. Ltd., which did not necessarily indicate escapement of income. The Court emphasized that the reasons must establish a rational nexus between the transaction and the alleged escapement of income.Key evidence and findings:The evidence considered included the transactions between the petitioner and M/s. Affluence Commodities Pvt. Ltd., the interest income declared by the petitioner, and the reasons recorded by the Assessing Officer. The Court found that the reasons were based on borrowed satisfaction from the Investigation Wing's report without an independent assessment by the Assessing Officer.Application of law to facts:The Court applied the principles from the cited precedents to the facts of the case, concluding that the reasons recorded were insufficient to justify the reopening of the assessments. The Court noted that the reasons lacked details about the nature or date of the transactions and were based on a mechanical application of the total transactions as indicative of income escapement.Treatment of competing arguments:The petitioner argued that the reasons for reopening were vague and based on a change of opinion, while the respondent contended that the reopening was justified based on specific information from the Investigation Wing. The Court sided with the petitioner, finding that the reasons lacked the necessary specificity and independent assessment required by law.Conclusions:The Court concluded that the reopening of the assessments was not justified due to the lack of specific and detailed reasons. The reasons recorded by the Assessing Officer were based on borrowed satisfaction and did not demonstrate an independent application of mind.3. SIGNIFICANT HOLDINGSThe Court held that the impugned notices issued under Section 148 for both Assessment Years were invalid and quashed them. The Court emphasized the necessity of recording specific and detailed reasons for reopening assessments, as established in previous cases. The Court stated:'The reasons recorded by the respondent are on the borrowed satisfaction without forming an independent opinion and therefore, the assumption of the jurisdiction to reopen the reassessment under Section 147 of the Act is bad in law.'The core principles established include the requirement for specific, detailed, and independent reasons for reopening assessments, and the invalidity of reasons based on borrowed satisfaction or vague assertions.The final determination was that the notices under Section 148 were quashed, and the rule was made absolute to that extent, with no order as to costs.