In a recent judgment, the Income Tax Appellate Tribunal (ITAT) in Delhi, quashed the reopening of an assessment under Section 147 of the Income Tax Act, 1961 in the case of Tej Singh for the assessment year 2012-13. This case highlighted the importance of a fair and thorough application of mind when reopening assessments, particularly when based on Air Information Report (AIR).
Background of the Case:
The primary issue arose from the addition of Rs. 11,97,100/- to the income of Tej Singh due to unexplained cash deposits in his bank account at the Oriental Bank of Commerce. The ITO, Ward-3(3), Bulandshahar, after receiving AIR information regarding these cash deposits, reopened the assessment under Section 147. The appellant failed to provide an adequate explanation for these deposits, leading to the addition to his income.
The Reopening of the Case:
The reopening of the assessment was done solely based on the AIR information, which pointed to unexplained cash deposits. The Assessing Officer (AO) took the stance that the amounts deposited far exceeded the basic exemption limit, which suggested that these funds had escaped assessment. However, the appellant argued that the reopening was done mechanically, with no independent application of mind by the concerned authorities.
Tej Singh’s legal counsel pointed out that the reopening was based merely on the AIR data and was without any substantial independent inquiry or tangible evidence to support the claim of escaped income. The counsel referred to a previous ruling by the Hon’ble Madhya Pradesh High Court in the case of M/s Goyanka Lime and Chemicals Ltd. v. CIT, arguing that such mechanical reopening without proper justification is not sustainable in law.
Key Legal Points Raised:
- Lack of Independent Application of Mind: The appellant argued that the sanction for reopening the assessment was granted without any meaningful application of mind. The authorities simply relied on the information available from AIR, rather than conducting a thorough independent inquiry.
- Mechanistic Reassessment: The re-opening was claimed to be a “borrowed satisfaction,” based solely on AIR information and lacking tangible material evidence to support the belief that income had truly escaped assessment.
- Reference to Precedents: The appellant’s counsel cited the judgment in Gopal Chand Mundhra and Sons v. ITO, where the reassessment was quashed due to similar issues. The ITAT, in this case, also noted that the lack of new, tangible evidence could not justify reopening the assessment.
Tribunal’s Ruling:
Thus, having regard to the entire aspect of the matter, when the reason has been recorded by the Ld. A.O solely on the basis of AIR information and further sanction of the same made by the concerned authority does not show any independent application of mind and furthermore when no tangible material which could form the basis for reason to believe that income has escaped assessment, the reopening is found to have been made on the basis of borrowed satisfaction and thus, liable to be quashed.
The tribunal cited previous rulings, including the Gopal Chand Mundhra and Sons case, which highlighted that reassessment proceedings could not be initiated solely based on borrowed satisfaction without tangible material.
Conclusion:
In light of these observations, the ITAT quashed the reassessment proceedings and ruled in favor of the appellant, Tej Singh. The reopening of the case was found to be unsustainable, and the addition of Rs. 11,97,100/- was not justified.
This judgment serves as a critical reminder for tax authorities to ensure that reopening assessments is done based on tangible and substantial evidence, rather than relying solely on information obtained from AIR. It emphasizes the need for a thorough and independent review process to ensure that taxpayers are not unfairly burdened.
Takeaway:
Taxpayers and legal professionals must be aware of their rights when it comes to the reopening of assessments. If the reopening is based on insufficient or mechanistic grounds, as in this case, there is a strong case for challenging it in the tribunal.
Case Reference: ITA No. 496/Del/2023
Assessment Year: 2012-13
Appellant: Tej Singh
Respondent: ITO, Ward-3(3), Bulandshahar
Bench: SMC Bench, Delhi
Date of Hearing: 29.10.2024
Date of Pronouncement: 29.11.2024
