Relying on investigation report without own reasons recorded is borrowed satisfaction u/s 148

Relying upon investigation report without own reasons recorded amounted to borrowed satisfaction u/s 148 which is not permissible

In a recent judgment, Hon’ble Supreme Court has dismissed SLP against the judgment of the Gujarat High Court which held that the AO relying upon investigation report the and not recorded his own reasons amounted to borrowed satisfaction u/s 148 which is not permissible under law.

ABCAUS Case Law Citation:
4879 (2025) (11) abcaus.in SC

The respondent assessee company was issued notice under Section 148 of the Act seeking, inter-alia, to reopen the assessment for the year under consideration.

The objection to the reopening raised by the respondent were rejected and it was held that the action of reopening was absolutely justified.

Before the Hon’ble High Court the assessee inter alia contended that notice under Section 148 of the Act can only be issued if the Assessing Officer has reason to believe that income chargeable to tax has escaped assessment. Meaning thereby, the Assessing Officer himself must be satisfied that some income chargeable to tax has escaped the assessment. The satisfaction of the Assessing Officer is must.

It was submitted that in the instant case, the revenue authorities had merely relied upon the information received from the DDIT (Inv.) for the purpose of reopening of the assessment in the present case. Thus, the Assessing Officer had not applied its independent mind, but sought to reopen the assessment on borrowed satisfaction, which is not permissible in the eye of law.

The Revenue contended that at the stage of issuance of notice, the only question is whether there was a relevant material on which a reasonable belief could have formed a reasonable belief and whether the material would conclusively prove the escapement is not the concern at this stage.

It was also submitted that recording of reasons for reopening proceedings is only the initial stage and no the final verdict on the issue of assessment of income. That only after verification of details, documents and explanation, a final decision can be taken on exact quantification of the income escaping assessment. In the present case, the reasons clearly mentioned the modus operandi through which the assessee obtained accommodation entries. The reasons also clearly mentioned the name of the companies through which layering of funds had been done before reaching the assessee through planned accommodation entries. Therefore, permission be given to authorities to go on with the assessment in the interest of revenue.

The Hon’ble High Court noted that the Coordinate Bench of the High Court had in detail explained the necessity of recording the reasons, after considering various decisions of the Apex Court.

Following the principles laid down by the Co-ordinate Bench, the Hon’ble High Court opined that while recording the reasons for reopening of the case, the Assessing Officer had not recorded his own reasons, but has heavily relied upon the report of the investigating team of Kolkata. Since the entire reasons have their own importance and has to be by the Assessing Officer with his independent acumen and not by merely relying upon the report of investigating agency. Admittedly, the Assessing Officer appeared to have not applied his mind independently and straightway, issued the notice under Section 148 of the Act, relying upon the investigation report from Kolkata, which was nothing but can be said to be borrowed satisfaction which is not permissible under law.

As a result, the Hon’ble High Court set aside the notice issued under section 148 of the Act.

Not satisfied with the judgment of the High Court, the Department challenged it before the Hon’ble Supreme Court by way of filing a Special Leave Petition. However, the Apex Court dismissed the SLP with the following observations,

“The Special Leave Petition is dismissed on the ground of delay as well as on merits.”

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