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2025 (4) TMI 996 - AT - Income TaxReopening of assessment u/s 147 - no valid approval granted by the competent authority u/s 151(1) - HELD THAT - The fact of the assessee filing the return and that it was processed u/s 143(1) of the Act has not at all been taken cognizance of by the ld. AO and he merely relied whatever information reached the Investigation Wing and how it was examined. It appears that the AO has merely reproduced the facts coming up from the Investigation Wing and added his remark of escapement of income. It is coming up from the reopening reasons that the ITO (Inv.) had called for all the relevant information with regard to credit and debit entries in the bank accounts which were filed before the ITO (Inv.). However not a word of the same has been examined by the ld. AO to show as to if this information has been part of the assessee s return. The aforesaid also established that authority granting the approval has also not entered into the facts of the case by application of mind. The non application of mind to information to record a live link of information with the escapement of income thus not being there the reasons for reopening suffer fatal defect and thus we are inclined to allow this ground no. 2. The appeal is allowed
The core legal questions considered in this appeal relate primarily to the validity of the reopening of the assessment under section 147 of the Income Tax Act, 1961. Specifically, the issues are:
Issue-wise Detailed Analysis: 1. Validity of Reopening under Section 147 and Approval under Section 151(1) The legal framework governing reopening of assessments under section 147 requires that the AO must have "reason to believe" that income chargeable to tax has escaped assessment. This belief must be based on tangible material and must be recorded in writing. Further, reopening beyond four years requires prior approval of the competent authority under section 151(1), who must also apply his mind to the reasons presented. The AO recorded reasons based on information received from the investigation wing alleging high volume transactions in the assessee's savings bank account inconsistent with declared income. The AO noted that the assessee had taken an unsecured loan of Rs. 8,99,12,000/- from M/s Shiva Chain Pvt. Ltd., a company with questionable creditworthiness, which had declared minimal income and no interest was charged on the loan. The AO concluded that this loan represented income from unexplained sources, thereby justifying reopening under Explanation 2 to section 147. The competent authority granted approval for reopening, but the Tribunal found no evidence that the authority applied independent mind to the facts. The approval appeared to be a mere formality, lacking critical examination of the materials or the assessee's submissions. The Court emphasized that both the AO and the competent authority failed to consider that the return was processed under section 143(1) and that the assessee had submitted detailed explanations and supporting documents to the investigation wing. The non-application of mind to these facts rendered the reopening invalid. 2. Quantification of Escaped Income under Section 149(1) Section 149(1) mandates that the AO must quantify the amount of escaped income when reopening an assessment beyond four years. The AO's reasons included a figure of Rs. 12,73,65,912/- as escaped income, but the Tribunal noted that the AO failed to explain or justify how this amount was derived from the facts or evidence. The Revenue's inability to substantiate the quantification suggested a lack of application of mind. The Tribunal relied on precedent holding that quantification is obligatory at the stage of recording reasons, and failure to do so vitiates the reopening. 3. Examination of Evidence and Application of Law to Facts The AO's reliance on information from the investigation wing was superficial. Although the assessee provided explanations for the bank transactions, including the nature of unsecured loans and fund transfers among related entities, the AO did not critically assess these submissions or verify whether these were reflected in the return or otherwise accounted for. The Tribunal observed that the AO merely reproduced the investigation wing's findings without independent scrutiny or evaluation of the evidence. The fact that the unsecured loan was from a company with minimal declared income and no interest charged was noted, but this alone was insufficient to establish escapement without further inquiry or corroboration. Moreover, the Tribunal highlighted that the company had not filed returns after the relevant year, but this fact alone did not conclusively prove the loan was income from unexplained sources. 4. Treatment of Competing Arguments The assessee argued that the reopening was based on non-application of mind, lack of quantification, and failure to consider the return processed under section 143(1) and the explanations furnished. The Revenue contended that the information from the investigation wing justified reopening and that the loan was suspicious. The Tribunal sided with the assessee, finding the Revenue's arguments unsubstantiated and the AO's reasons defective. The non-application of mind by both the AO and the competent authority was fatal to the validity of reopening. Conclusions: The Tribunal concluded that the reopening of the assessment was invalid due to:
Significant Holdings: The Tribunal held that:
Core principles established include:
Final determinations were that the reopening order was quashed and the appeal was allowed on the ground of invalid reopening due to non-application of mind and procedural defects.
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