2015 (11) TMI 1886 - AT - Income Tax

Reopening of assessment u/s 147 - Reason to believe - necessity of independent application of mind by AO - HELD THAT - A plain reading of the reasons recorded demonstrate that the A.O. has not applied his mind to the material/information received from the Director (Investigations). Without such independent application of mind it is not possible for the A.O. to come to a conclusion that he has reason to believe that income assessable to tax has escaped assessment. Thus respectfully following the propositions of law laid down by the Hon ble Delhi High Court in the case of Pr.CIT vs. G G Pharma India Ltd. ( 2015 (10) TMI 754 - DELHI HIGH COURT hold that the reopening is bad in law. Assessee s appeal is allowed.

Summary

Issues:
Challenge of reopening of assessment based on lack of independent application of mind by Assessing Officer (AO).

Analysis:
The appeal was filed against the order of the Ld. Commissioner of Income Tax (Appeals)-XVII dated 18.11.2013 for the Assessment Year (A.Y.) 2004-05. The assessee contested the reopening of assessment, arguing that the AO did not independently apply his mind to the material referred to while recording reasons for reopening. The contention was that without forming a prima facie opinion based on the material, it was not correct for the AO to believe that income had escaped assessment and proceed with reopening. Both parties relied on various case laws during the proceedings.

The reasons for reopening, as recorded by the AO, were based on information received from the Investigation Wing regarding accommodation entries provided to the assessee by certain entry operators. The AO concluded that the income chargeable to tax had escaped assessment due to the failure of the assessee to disclose all material facts. However, the Hon'ble Delhi High Court in a related case highlighted the importance of the AO applying his mind to the materials to have valid reasons to believe that income had escaped assessment. It was noted that the AO's conclusion lacked the necessary foundation of an independent application of mind to the material.

The Tribunal found that the AO had not properly assumed jurisdiction in the case, as the reasons for reopening lacked an independent application of mind. Citing the judgment of the Hon'ble Supreme Court, it was emphasized that when the assumption of jurisdiction itself is flawed, there is no basis for remanding the matter back to the AO for fresh adjudication. Therefore, the Tribunal held that the reopening of assessment was legally invalid based on the principles established in the aforementioned case law.

In conclusion, the Tribunal allowed the assessee's appeal, declaring the reopening of assessment to be bad in law. The decision was pronounced in the Open Court on 30th November 2015.