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2021 (7) TMI 728 - AT - Income TaxReopening of assessment u/s 147 - reason to believe - HELD THAT:- AO should have ‘reason to believe' that any income chargeable to tax has escaped assessment. The words ‘reason to believe’ and ‘escapement of income’ have been judicially interpreted by various courts to mean that the reason for the formation of belief must have a rational connection with the information received. Rational connection postulates that there must be some direct nexus or live link between the material coming to the notice of the income tax officer and the formation of the belief that there has been escapement of income of the assessee from assessment in the particular year. We agree with the contentions raised by the Ld. A.R. that the ‘reason to believe’ that income chargeable to tax has escaped for the purposes of reopening assessment u/s 147 r/w 148 of the Act cannot be based on suspicion, surmises, conjectures but must be based on cogent and tangible material that establishes a causal nexus between the information available and inference drawn by the A.O. We are of the considered opinion that the A.O. had no specific information and/or material in his possession to even arrive at ‘reason to believe’ that the share capital or share premium received by the assessees from any of the shareholders for the Assessment Years in question were not genuine and/or bogus and/or represented assessees’ own unaccounted funds. The A.O.’s assumption of jurisdiction u/s 147/148 of the Act is therefore held to be illegal, erroneous and impermissible in law, rendering all subsequent proceedings to be non est. A.O.,by failing to confront the assessees with the evidence he had gathered u/s 142(2) Act, has, therefore, erroneously skipped the mandatory intermediary step prescribed u/s 142(3) of the Act. Thus, when the A.O. has directly gone on to pass the Assessment Orders u/s 147/143(3) of the Act to make the impugned additions u/s 68, the same is in direct violation of the procedure of enquiry prescribed in the Statute that inherently encompasses the Principle(s) of Natural Justice.There has been a violation of the Principle(s) of Natural Justice implied within Section142 (2) of the Act and such statutory non-compliance vitiates the entire assessment proceedings, therefore, rendering it to be null and void. Addition u/s 68 - HELD THAT:- As already observed that the assessees have discharged the initial burden of proof, wherein the documents submitted by the assessees have remained un-refuted by the A.O. CIT - D.R. has submitted that the documents were a façade since the Inspector Reports draw a very different picture and cast a shadow on the genuineness of the investors. Our views on the veracity of these Reports and why the same could have not been utilized by the A.O. behind the back of the assessee have already been expressed. Thus, in light of the aforesaid findings, the grounds taken by the Department in the aforesaid Appeals are dismissed in favour of the assessee.
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