Recording two separate reasons for reopening u/s 147 148 bad as it itself shows non-application of mind and assumption of wrong jurisdiction – ITAT

Recording two separate reasons for reopening u/s 147 148 bad as it itself shows non-application of mind and assumption of wrong jurisdiction – ITAT

ABCAUS Case Law Citation:
1014 (2016) (09) ITAT

Brief Facts of the Case:
In the instant case, the assessee was aggrieved by the order of CIT(Appeals) in sustaining the addition for alleged unexplained cash deposits in the savings bank account by the assessee. Earlier the Assessing Officer (AO) assumed jurisdiction u/s 147 and issued notice u/s 148 after recording reasons that income has escaped assessment.

Before the Tribunal, the appellant assessee sought quashing of the reopening and contended that it was made in violation of jurisdictional conditions stipulated under the Income Tax Act.

Observations made by the Tribunal:

The ITAT noted that the AO had recorded two separate reasons for reopening as under:

“Reasons to issue notice under section 148
12.03.2013

On the basis of AIR information that the assessee has deposited cash of Rs.1601750/- in financial year 2007-08 in his Saving Bank Account verification letter ………….. dated 31.01.2013 was issued. The furnish his reply within 15 days of the receipt of the letter the assessee has deposited cash worth Rs.160175500/- in his saving bank account and has not responded to the verification letter issued from this office. I have reason to believe that the amount of Rs.1601750/- deposited in cash in the saving Bank account is escaped assessment within the meaning of section 147 of the Income tax Act, 1961. Issue notice under section 148 for the AY 2008-09.”

“Reasons to issue notice under section 148
12.03.2013

On the basis of AIR information that the assessee has deposited cash of Rs.1593000/- in financial year 2007-08 in his Saving Bank Account verification letter ………………. dated 31.01.2013 was issued. The furnish his reply within 15 days of the receipt of the letter the assessee has deposited cash worth Rs.1593000/- in his saving bank account and has not responded to the verification letter issued from this office. I have reason to believe that the amount of Rs.1593000/- deposited in cash in the saving Bank account is escaped assessment within the meaning of section 147 of the Income tax Act, 1961. Issue notice under section 148 for the AY 2008-09.”

The Tribunal opined that recording of two separate reasons for reopening itself exhibited non-application of mind. It concluded that the reasons were recorded without application of mind and therefore, on this ground itself, the reopening of assessment had to be held bad.

The ITAT referred to the judgment of the Delhi High Court in Signature Hotels Pvt. Ltd.  wherein it was held that notice issued based on a report from Investigation Wing is invalid where the AO does not examine the evidence.

Also, the Delhi High Court in the case Principal Commissioner of Income Tax vs. G & G Pharma India Ltd. held that the AO must apply his mind to the materials in order to have reasons to believe that the income of the assessee escaped assessment. In the said case, the AO had not undertaken any exercise, to make a reference to the manner the alleged accommodation entries were dealt with in the accounts of the assessee as per records filed along with income tax return. Without forming a prima facie opinion, on the basis of such material, it was not possible for the AO to simply concluded that income has escaped assessment. It was categorically stated by the Delhi High Court that:

“Unless that basic jurisdictional requirement is satisfied a post mortem exercise of analysing materials produced subsequent to the reopening will not rescue an inherently defective reopening order from invalidity”

The Tribunal also expressed its agreement with the appellant relying on the order of the Delhi Tribunal in the case Bir Bahadur Singh Sijwali vs. ITO (2015) 68 SOT 197 URO (Del) to the proposition that mere deposit in bank cannot lead to the conclusion, or even inference, that income has escaped assessment.