2018 (7) TMI 2231 - AT - Income Tax

Reopening of assessment u/s 147 - Investment made by assessee - Eligibility of reasons to believe - HELD THAT - We find that in the facts of the present case there is no reference to any fact information or tangible material referred to by the AO to hold that some material was considered by him after which he formed the belief that income has escaped assessment. AO notes the bare fact as available in AIR information. Apart from that there is no other material referred. The mere fact that on investment is made in a specific year by itself cannot be a triggering fact or for reopening. It may be a triggering factor to consider the record and then record reasons referring to material which led to the formation of the belief. AO is well aware that in the returns there was no column for referring to investments made. Thus the so called justification that as per the office records the assessee had not declared this transactions in her income tax return by itself is of no relevance and supports the assessee s arguments that no other material was seen by the AO and he has blindly accepted this information as an act of income escaping assessment. There is no material referred to by him which can be said to have been considered by the AO so as to demonstrate that he had formed his view taking into consideration the facts. The reasons recorded shows that the AO in the facts of the present case the AO has proceeded to act on the basis of suspicions. DR was unable to show any material which could be said to have been considered before the formation of belief. The mere fact that the assessee has made investment cannot be said to be information warranting reopening by itself. The AIR information that the assessee had made an investment could be a triggering fact for creating a suspicion which the AO was under law required to cross check from the information by way of returned income for the last few years and then he could be said to have formed a belief that such an investment could have been made or not. We find no such effort had been done we further find support from the decision of the Co-ordinate Bench in the case of Amrik Singh 2016 (5) TMI 768 - ITAT AMRITSAR . Reopening based on suspicions cannot be upheld the AO having failed to record the reasons for formation of his belief which only suggest that he has proceeded on surprising - Decided in favour of assessee.

Summary

Issues Involved:
1. Validity of reassessment proceedings initiated under sections 147/148 read with section 143 of the Income-tax Act, 1961.
2. Justification of the addition of Rs. 10,00,000/- in the income of the appellant.
3. Initiation of penalty proceedings under section 271(1)(c) of the Act.

Issue-wise Detailed Analysis:

1. Validity of Reassessment Proceedings:
The primary issue was whether the reassessment proceedings initiated by the AO under sections 147/148 were justified. The appellant argued that the AO did not have sufficient reasons to believe that income had escaped assessment. The reasons recorded by the AO were based solely on AIR information about the appellant's investment, without any independent verification or material evidence. The Tribunal noted that the AO had not referred to any tangible material or fact that could substantiate the belief that income had escaped assessment. The mere existence of an investment was not sufficient to trigger reassessment. The Tribunal cited several judicial precedents, including decisions from the Delhi High Court and the Supreme Court, emphasizing that the reasons for reopening must be based on concrete material and not mere suspicion. Consequently, the Tribunal found the reassessment proceedings to be invalid and quashed them.

2. Justification of the Addition of Rs. 10,00,000/-:
The appellant contended that the addition of Rs. 10,00,000/- was unjustified as the amount had already been disclosed in the return of income. The Tribunal observed that the AO had not considered the appellant's explanation regarding the source of the investment, which included past savings and rental income. The Tribunal criticized the AO for not examining the appellant's financial records over the years to verify the availability of funds. Given that the reassessment itself was quashed, the Tribunal did not delve deeply into the merits of the addition but noted that the AO's approach lacked due diligence.

3. Initiation of Penalty Proceedings under Section 271(1)(c):
The appellant also challenged the initiation of penalty proceedings under section 271(1)(c) of the Act. Since the Tribunal quashed the reassessment proceedings and found the addition of Rs. 10,00,000/- to be unjustified, it implicitly rendered the penalty proceedings baseless. The Tribunal did not provide a detailed analysis on this issue but the quashing of the reassessment proceedings inherently nullified the penalty proceedings.

Conclusion:
The Tribunal allowed the appeals, quashing the reassessment proceedings and the consequent additions. The decision emphasized the necessity for the AO to have concrete material evidence before forming a belief that income had escaped assessment, underscoring that mere suspicion or unverified information is insufficient for reopening assessments. The Tribunal's judgment aligns with established judicial principles requiring a rational connection between the material and the belief of income escapement.