Incorrect wrong & non-existing reasons recorded for reopening is non application of mind

Incorrect wrong and non-existing reasons recorded for reopening of assessment is non application of mind

ABCAUS Case Law Citation
ABCAUS 3430 (2020) (12)

Important case law relied upon by the parties:
CIT vs. Atlas Cycle Industries [1989] 180 ITR 319
Pr. CIT vs., SNG Developers Ltd., [2018] 404 ITR 312
Shamshad Khan vs. ACIT [2017] 395 ITR 265
Siemens Information Systems Ltd. vs. ACIT & Others [2007] 293 ITR 548
CIT vs. RMG Polyvinyl (I) Ltd., 396 ITR 5
CIT vs. Meenakshi Overseas (P) Ltd., 395 ITR 677
Sarthak Securities Co. (P) Ltd., 329 ITR 110

In the instant case, the assessee had challenged the order passed by the CIT(A) in confirming the reopening of the assessment u/s 147/148 of the Income Tax Act, 1961 (the Act).

A notice under section 148 of the Act was issued to the assessee after duly recording the reasons.

The Assessing Officer (AO) completed the re-assessment after making several additions.

The assessee challenged the reopening of the assessment as well as additions made on merit before the Ld. CIT(A). However, the appeal of assessee has been partly allowed.

Before the Tribunal, the assessee submitted that AO in the reasons specified the amounts of investments allegedly made by the assessee for purchase of mutual fund and transaction of commodities exchange contract during the subject year.

It was submitted that the assessee did not make any fresh investment during subject period in mutual fund and even the AO did not make any addition on account of alleged MF investment. Further, the addition made on account of transaction of commodity exchange contract, the addition made was far less than the amount mentioned in the show cause notice.  

Thus, it was contended that the reasons recorded were wrong, incorrect and non-existing and the AO did not apply his mind to the material on record before recording reasons for reopening of the assessment.

The Tribunal observed that the AO mentioned that he had information received through NMS that assessee had made investment of specified amounts for purchase of mutual funds and transaction of commodity exchange contract in the assessment year under appeal and thus, there was an escapement of income to the extent of specified amounts.

The Tribunal noted that the AO in the reason recorded mentioned that the information needed examination.

The Tribunal observed that Rule 114E of the Income Tax Rules provides the statement of financial transactions required to be furnished under sub-section (1) of Section 285BA of the Act in Form 61-A. The Rule provides that return or the statement shall be provided in respect of receipt from any person of an amount of Rs. 2 lakhs rupees or more for acquiring units of mutual fund and other statements in different cases of the amount more than Rs. 10 lakhs in different categories.

The Tribunal stated that it appeared that the information which AO received was the details to be submitted under Rule 114E of the Income Tax Rules which may not be actual figure received by the AO as per NMS information. The actual figure might be different. Therefore, such information received was not in accordance with Law and would not provide any information to the AO to record reasons for reopening of the assessment as regards escapement of income for making the investment in purchase of mutual funds or transaction of different commodity exchange contract.

The Tribunal opined that the AO recorded wrong, incorrect and non-existing reasons for reopening of the assessment without application of mind which is not permissible under Law.

The Tribunal observed that there was catena of judgments of various High Courts which lay down that in case incorrect, wrong and non-existing reasons are recorded by the AO for reopening of the assessment and AO failed to verify the information received due to non application of mind to information, reopening of the assessment would be unjustified and is liable to be quashed.

Accordingly, the Tribunal set aside the Orders of the authorities below and quashed the reopening of the assessment.

Thus, the appeal was allowed in favour of the assessee.

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