Use of words, “either and or” in recording reasons to believe shows Ao was unsure of the facts and initiated proceedings in mechanical manner – ITAT
In a recent judgment, ITAT Ahmedabad held that use of words, “either and or” in reasons to believe reveals that the Assessing Officer was unsure of the facts and initiated proceedings under section 148 in a speculative and mechanical manner.
ABCAUS Case Law Citation:
4709 (2025) (08) abcaus.in ITAT
In the instant case, the assessee had challenged the order passed by the CIT(A) of National Faceless Appeal Centre in upholding the reopening of assessment under section 147 of the Income-tax Act, 1961 (the Act) despite the reopening being based on incorrect facts that the appellant had not filed return of income or purchased immovable property.
For the relevant Assessment Year, the Assessing Officer observed that the assessee had not filed its return of income despite having made substantial investments amounting to ₹ 4,50,00,000/- in the purchase of immovable property during the relevant financial year.
The details of the property purchased by the assessee clearly showed that the assessee had made transactions relating to purchase of property situated. In view of the assessee’s failure to file the return voluntarily, the Assessing Officer issued a notice under Section 148 of the Act to initiate reassessment proceedings.
As there was no response to various notices issued by the Assessing Officer, the assessment was completed ex-parte u/s 144 of the Act, and the entire investment amount was treated as unexplained income under Section 69 of the Act and brought to tax under Section 115BBE of the Act.
In appeal before CIT(Appeals), the assessee contended that it had, in fact, filed its return of income, declaring a minor loss, and further clarified that the amount in question represented an advance by the assessee against property purchase, recorded under “Loans and Advances” in its balance sheet.
The assessee submitted that the property was actually acquired in the subsequent financial year by way of a registered sale deed. The assessee submitted various supporting documents, including the sale deed, the agreement and a copy of the return of income filed by the assessee.
The CIT(Appeals) held that due to the assessment being completed ex-parte under section 144, these crucial aspects could not be verified by the AO. In view of the same, CIT(Appeals) set aside and remanded the matter to the AO for fresh consideration.
Before the Tribunal, the assessee contended that the initiation of reassessment proceedings under section 147 of the Act was invalid and without proper application of mind by the Assessing Officer.
The Tribunal observed that the Assessing Officer has stated in the “reasons to believe” that the assessee has “either not filed return of income or not disclosed the investment in property in the return of income filed.” Such a statement was vague, uncertain, and clearly indicates non-application of mind at the stage of recording of “reasons to believe”.
The Tribunal opined that the Assessing Officer did not make a specific observation, which is a mandatory requirement for valid assumption of jurisdiction under section 147 of the Act, indicating non-application of mind and lack of analysis of complete facts by the Assessing Officer before initiating re-assessment proceedings.
The Tribunal held that use of the expression “either…or” reveals that the Assessing Officer was unsure of the facts and initiated proceedings in a speculative and mechanical manner, rather than on the basis of concrete material and belief.
The Tribunal further noted that in the appellate proceedings before CIT(Appeals), it had come to light that the assessee had indeed filed its return of income for the relevant assessment year, disclosing all relevant particulars. The assessee also clarified that it had not purchased any immovable property during the year under consideration but had merely advanced towards purchase of property, which was reflected as “Loans and Advances” in the balance sheet. The actual purchase of the immovable property took place in the subsequent financial year, which was supported by the sale deed furnished during appellate proceedings before CIT(Appeals). These facts, crucial to the matter, were not verified or considered by the Assessing Officer before reopening or completing the assessment.
In view of the above, the Tribunal agreed with the argument of the assessee that the reassessment proceedings had been initiated without proper application of mind. The recording of vague and ambiguous reasons, coupled with the failure to consider that the return had been filed and the transaction in question pertained to a different assessment year, which rendered the reopening bad in law.
The Tribunal also noted that the above position of law is further supported by the decision of the Hon’ble Bombay High Court where it was held that reopening of assessment without application of mind, and merely proceeding in a mechanical manner, is not sustainable in law
In view of the nonspecific and mechanical recording of reasons to believe, non-verification of the return of income filed, and the failure to consider that the investment was not made in the relevant year, the Tribunal held that the reopening of assessment under section 147 of the Act was invalid and was accordingly quashed.
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