Reopening us 147 based on merely tax evasion petition bad as AO did not apply mind and initiated proceedings without being satisfied-ITAT Delhi

Reopening  us 147 based on merely tax evasion petition itself bad in law as the AO had not satisfied himself before initiating the proceedings that income of the assessee has escaped assessment. ITAT Delhi

Case Details:
ITA No.1894/Del./2012 Assessment Year : 2002-03
Ashok Arora vs. ITO
Date of Order/Judgment: 18/05/2016

Important Judgments Cited:
Pr. Commissioner of Income Tax-4 vs. G & G Pharma Limited ITA 545/2015 Delhi HC
USG Buildwell Pvt. Ltd. vs. ACIT  ITAT, Delhi Bench ‘H’, New Delhi 
Chhugamal Rajpal vs. S.P. Chaliha – (1971) 79 ITR 603  (SC)

Brief Facts of the Case:
In this case, the Income Tax Department on the basis of a tax evasion petition received issued a notice u/s 148 for reopening. As per the tax evasion petition the assessee had advanced loans to two parties regarding which cases were pending before the Court. The Assessing Officer (AO) held that the assessee failed to explain the amount of Rs.5,50,000/- given as loan and as such, added it to his taxable income u/s 68.

Assessee carried the matter before the CIT (A) who also dismissed the appeal. Aggrieved, the assessee went in appeal before the Tribunal which is the subject of the present case law.

The ITAT obsered that the AO without applying the mind and without being satisfied, as required u/s 147 of the Income Tax Act, 1961 Act proceeded to reopen the proceedings which are bad in law

Important Excerpts from ITAT Judgment:

Similar issue has been decided by Hon’ble jurisdictional High Court in case of Pr. Commissioner of Income Tax-4 vs. G & G Pharma Limited in ITA 545/2015 order dated 08.10.2015 by relying upon the Hon’ble Supreme Court judgment cited as Chhugamal Rajpal vs. S.P. Chaliha (supra). The operative part of the judgment in case of G & G Pharma Limited (supra) is as under :

“12. In the present case, after setting out four entries, stated to have been received by the Assessee on a single date i.e. 10th February 2003, from four entities which were termed as accommodation entries, which information was given to him by the Directorate of Investigation, the AO stated: “I have also perused various materials and report from Investigation Wing and on that basis it is evident that the assessee company has introduced its own unaccounted money in its bank account by way of above accommodation entries.” The above conclusion is unhelpful in understanding whether the AO applied his mind to the materials that he talks about particularly since he did not describe what those materials were. Once the date on which the so called accommodation entries were provided is known, it would not have been difficult for the AO, if he had in fact undertaken the exercise, to make a reference to the manner in which those very entries were provided in the accounts of the Assessee, which must have been tendered along with the return, which was filed on 14th November 2004 and was processed under Section 143(3) of the Act. Without forming a prima facie opinion, on the basis of such material, it was not possible for the AO to have simply concluded: “it is evident that the assessee company has introduced its own unaccounted money in its bank by way of accommodation entries”. In the considered view of the Court, in light of the law explained with sufficient clarity by the Supreme Court in the decisions discussed hereinbefore, the basic requirement 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 is missing in the present case.”

we are of the considered view that initiation of the proceedings u/s 147 of the Act by the AO in this case on the basis of tax evasion petition are itself bad in law as the AO has not satisfied himself before initiating the proceedings that income of the assessee has escaped assessment for the following reasons :-

(i) that AO has merely proceeded to initiate proceedings u/s 147 of the Act on the basis of tax evasion petition that the assessee has provided loan of Rs.2,50,000/- and Rs.3,00,000/- to Mr. Deepak and Mr. Sanjay respectively;

(ii) that the AO has merely forwarded the intimation contained in the tax evasion petition to the assessee without recording any reasons whatsoever;

(iii) that the AO has not even came to prima facie conclusion that the alleged loan transaction between the assessee and Deepak and Sanjay were genuine transactions and as to what are the findings returned by the ld. Civil Court in the alleged suit filed by the assessee;

(iv) that the AO has admittedly not recorded that he has reason to believe that the income of Rs.5,50,000/- has escaped assessment and he has satisfied himself before initiating the proceedings u/s 147 of the Act;

(v) that when the AO without recording any reason for reopening forwarded the information received by way of tax evasion petition, according of approval by CIT for reopening is also a mechanical exercise without applying the mind and as such, approval accorded by the CIT is also not sustainable. Reliance in this regard is placed upon judgment in case of Vijay Rameshbhai Gupta vs. ACIT – (2013) 32 taxman.com 41 (Guj.).

(vi) that even after initiation of the proceedings u/s 147/148, the AO has failed to lay hand on the evidence if Sanjay has received a sum of Rs.2,50,000/- in cash as advance from Amita Arora, w/o Ashok Arora, rather resorted to the best judgment assessment u/s 144 of the Act;

(vii) that neither the AO has applied his mind to satisfy himself to reopen the case nor he has investigated the matter during reassessment proceedings nor CIT had applied his mind before according approval for reopening. 

Reopening us 147 based on merely tax evasion petition

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