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Wednesday, 25 May 2016 15:17

Reopening u/s 148 - When the A.O. has Acted on the Basis of Suspicion and Not Applied his Mind before Recording the Reasons then Reopening of the Assessment is Not Valid Under the Law - Chandigarh Tribunal

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Validity of Reopening u/s 148 Validity of Reopening u/s 148

Reopening u/s 147 on the basis of Suspicion is Bad in Law

1. The reasons to be recorded by the Assessing Officer must relate to his belief under section 147 of the Act that any income chargeable to tax has escaped assessment for any assessment year 

2. It is well settled legal position with regard to initiation of re-assessment proceedings that there must be material for belief

3. Furthermore, there must be nexus between material and belief 

4. The reasons recorded by the Assessing Officer must show application of mind by him

5. It is well settled that the expression in section 147 ‘has reason to believe’ is stronger than the words ‘is satisfied’

Facts

1. The legal issue raised by the assessee in this appeal relates to validity of reopening of the assessment under section 147

2. For assessment year 2005-06, the assessee (individual) submitted his return of income on 25.7.2005 declaring total income at Rs. 1,79,563/-

3. The return was processed under section 143(1) of the Act

4. Subsequently, the Assessing Officer issued notice under section 148 of the Act, dated 31.3.2010 after recording reasons that the assessee had incurred expenditure on Roka and Engagement functions of her daughter solemnized on 29.8.2004, out of his unexplained income and income has escaped assessment for the period relevant to the assessment year 2005-06

5. Thereafter, the Assessing Officer issued statutory notices under sections 142(1) and 143(2) of the Act. On 15.11.2010, the assessee requested the Assessing Officer to supply the reasons recorded for reopening of the assessment

6. The Assessing Officer vide his letter dated 13.12.2010 asked the assessee as to why the expenses incurred amounting to Rs.7 lacs on Roka and Engagement functions should not be treated as ‘income from undisclosed sources’

7. In response to the above query, the assessee submitted a detailed reply on 13.12.2010

8. The Assessing Officer did not find any merit in the above reply of the assessee and observed that the assessee failed to explain the source of expenditure made on Roka and Engagement functions of his daughter Ms.Sarika Jain solemnized on 29.8.2004

9. The Assessing Officer took the view that the assessee had spent Rs.7 lacs in cash and jewellery of Rs.91,840/-. Therefore, the Assessing Officer made an addition of Rs.7,91,840/- under section 69C of the Act

10. On appeal, the learned CIT (Appeals) held that the reopening of the assessment by the Assessing Officer was valid and, therefore, the learned CIT (Appeals) dismissed the appeal of the assessee

11. Being aggrieved by the said order of the learned CIT (Appeals), the assessee has come up in appeal before the Tribunal

12. Honb. Tribunal quashed the reopening u/s 148 and decided the issue in favour of the Assessee

Adjudication

In the instant case, the Assessing Officer had not examined and corroborated the information received from DDIT (Investigation)-III, Ludhiana before recording his satisfaction of the escaped income and initiating the re-assessment proceedings. In my opinion, the Assessing Officer has thus acted on the basis of suspicion and he has also not applied his mind before recording the reasons for reopening of the assessment. Thus in my considered opinion, the statement made by Ms.Sarika Jain under section 161 of CrPc cannot be treated as relevant material for reopening proceedings under section 147 of the Act.

Cases Referred to

1. Emirates FZE Vs. Assistant Director of Income Tax (2012) 349 ITR 493 (Del)

2. CIT Vs. Atlas Cycle Industries (1989) 180 ITR 319 (P&H)

Additional Info

  • Order Date: Thursday, 19 May 2016
  • Court: Tribunals
  • Cout Name: Chandigarh Tribunal
  • Section: 148, 147, 69C
  • Favouring: Assessee
Read 9414 times Last modified on Wednesday, 25 May 2016 16:07
Amit

Amit is a Chartered Accountant and a part of Taxpundit's Support Team. He has experience in various industry sectors including manufacturing, power and utilities, financial services, alternative investments etc. He is a passionate blogger and keep writing articles on Income Tax for various publications.

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