2014 (5) TMI 1169 - AT - Income Tax

Reopening of assessment proceedings u/s 147 - bogus share capital receipt - non independent application of mind by AO - borrowed knowledge - Held that - The reason recorded by the Assessing Officer were merely on the basis of information received from DDIT (Inv.) Udaipur and Mumbai therefore from the so called reason it was not at all discernable as to whether the Assessing Officer had applied his mind to the information and independently arrived at a belief that on the basis of the material which he had before him the income had escaped assessment therefore the reassessment u/s 147 of the Act was not valid and accordingly the same is quashed. - Decided in favour of assessee

Summary

Issues Involved:
1. Validity of reopening of assessment proceedings under Section 147 of the Income Tax Act, 1961.

Issue-Wise Detailed Analysis:

1. Validity of Reopening of Assessment Proceedings under Section 147 of the Income Tax Act, 1961:

The primary issue in these appeals was whether the reopening of assessment proceedings under Section 147 of the Income Tax Act, 1961, was valid. The assessee challenged the reopening on the grounds that the Assessing Officer (AO) did not have an independent reason to believe that income had escaped assessment, but rather acted on borrowed satisfaction from the Directorate of Income Tax (Investigation) (DDIT).

The facts of the case reveal that the assessee filed returns for the assessment years 2006-07 and 2007-08 declaring minimal income. The AO reopened the assessments based on information received from the investigation wing that the assessee had received Rs. 10 lakhs as share application money from companies associated with Mukesh Choksi, who was known for providing bogus entries.

The assessee contended that the AO issued the notice under Section 148 based on directions from the DDIT and not on his own satisfaction, which is a prerequisite for valid reassessment proceedings. The assessee relied on the Delhi High Court's decision in CIT vs. SFIL Stock Broking Ltd. [2010] 325 ITR 285, which held that the AO must independently apply his mind to the information received and not act mechanically.

The CIT(A) upheld the AO's action, stating that the AO had received specific information about the bogus share capital introduced by Mukesh Choksi's companies and had recorded detailed reasons for reopening the case. However, the Tribunal found that the AO's reasons were based solely on the information from the investigation wing without any independent verification or application of mind.

The Tribunal referred to the provisions of Section 147, which require the AO to have "reason to believe" that income has escaped assessment. This belief must be the AO's own and not based on external directions. The Tribunal noted that the AO acted on the information supplied by the DDIT without independent satisfaction, rendering the reassessment proceedings invalid.

The Tribunal quashed the reassessment orders for both assessment years, citing the lack of independent application of mind by the AO. Consequently, the appeals were allowed, and the reassessment proceedings were deemed invalid.

Conclusion:

The Tribunal concluded that the reopening of assessment proceedings under Section 147 was invalid due to the AO's reliance on borrowed satisfaction from the DDIT without independent verification. The reassessment orders were quashed, and the appeals were allowed.