2015 (11) TMI 1535 - AT - Income Tax

Reopening of assessment - reasons to believe - Held that - AO has merely relied on the report of the investigation wing but it is apparent that he has not applied his mind to the materials which were before him. In our view without forming a prima facie opinion on the basis of only the report of the Investigation Wing of the Income Tax Department it was not legal for the AO to have simply concluded that he has reason to believe that income chargeable to tax has escaped assessment. Unless the basic requirement is satisfied an exercise in analysing the materials produced subsequent to the reopening will not rescue an inherently defective reopening order from invalidity. In the circumstances and respectfully following the judgment of the Hon ble High Court of Delhi in the case of Pr. Commissioner of Income Tax-4 vs. G&G Pharma India Ltd. (2015 (10) TMI 754 - DELHI HIGH COURT ) we hold that the reopening of the case of the assessee for the assessment year is bad in law and we accordingly quash the reassessment proceedings. - Decided in favour of assessee

Issues Involved:
1. Validity of reopening assessment under Sections 147/148 of the Income Tax Act, 1961.
2. Compliance with mandatory conditions under Sections 147 to 151 of the Income Tax Act, 1961.
3. Application of mind by the Assessing Officer (AO) in forming a belief that income had escaped assessment.

Detailed Analysis:

1. Validity of Reopening Assessment under Sections 147/148 of the Income Tax Act, 1961:
The primary issue in this case was whether the AO validly reopened the assessment for the assessment year 2004-05 under Sections 147/148. The AO initiated the reopening based on information from the Investigation Wing indicating that the assessee received accommodation entries amounting to Rs. 22 lacs from identified entry operators. The Tribunal found that the AO's reasons for reopening were based solely on the Investigation Wing's report and lacked independent analysis or application of mind. The Tribunal cited the Hon'ble Delhi High Court's decision in Pr. Commissioner of Income Tax-4 vs. G&G Pharma India Ltd., which emphasized that the AO must apply his mind to the materials before forming a belief that income had escaped assessment. The Tribunal concluded that the AO's reopening was mechanical and lacked the necessary jurisdictional requirement, making it invalid.

2. Compliance with Mandatory Conditions under Sections 147 to 151 of the Income Tax Act, 1961:
The appellant argued that the AO did not comply with the mandatory conditions under Sections 147 to 151. Specifically, the AO failed to independently analyze the information from the Investigation Wing and did not demonstrate a "reason to believe" that income had escaped assessment. The Tribunal agreed with the appellant, noting that the AO did not apply his mind to the materials and merely relied on the Investigation Wing's report. The Tribunal emphasized that the AO must have tangible material to form a belief that income had escaped assessment, which was missing in this case. Consequently, the reassessment proceedings were quashed as they did not meet the statutory requirements.

3. Application of Mind by the Assessing Officer (AO) in Forming a Belief that Income had Escaped Assessment:
The Tribunal scrutinized whether the AO applied his mind to the information received before forming a belief that income had escaped assessment. The appellant contended that the AO acted mechanically without independent analysis. The Tribunal found that the AO's reasons were vague and lacked any tangible material to support the belief that income had escaped assessment. The Tribunal reiterated that the AO must independently analyze the information and form a prima facie opinion, which was not done in this case. The Tribunal cited Supreme Court decisions, including Chhugamal Rajpal v. SP Chaliha and ACIT v. Dhariya Construction Co., to support its conclusion that the AO's reopening was invalid due to the lack of independent application of mind.

Conclusion:
The Tribunal held that the reopening of the assessment was invalid as the AO did not comply with the mandatory conditions under Sections 147 to 151, and there was a lack of independent application of mind. The reassessment proceedings were quashed, and the appeal filed by the assessee was allowed. The Tribunal did not address other grounds as they became academic in nature. The order was pronounced in the open court on 27th November 2015.

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