ITAT| Assessment Officer can’t “mechanically” act on incomplete and incorrect facts and reopen a case without consulting the assessment records

Income Tax Appellate Tribunal, Mumbai: Dealing with the issue on the validity of the reassessment proceedings objecting to the reasons based on which the A.O had assumed jurisdiction the tribunal has reiterated that A.O had failed to independently apply his mind to the “material” available on his record and mechanically acting on the information supplied by the Directorate of Income-tax (Inv.) had on the basis of incomplete and incorrect facts reopened the case of the Assessee u/s 147 of the Act.

The Assessee, in the present case, was engaged in the business of trading in shares and derivatives. The original assessment was framed by the A.O vide his order passed under Sec. 143(3). Whereby, an appeal against the original assessment was partly allowed by the CIT(A). Vide his order the assessed income of the Assessee was reduced. Subsequently, information was received by the A.O through a letter from the DIT(I&CI), New Delhi. Wherein it was intimated that search and seizure proceedings were conducted and the name of the Assessee had figured as one of the beneficiaries that had invested in shares of different securities amounting through a broker, during the financial year 2007-08.

In the backdrop of the aforesaid information, the A.O reopened the case of the Assessee under Sec. 147 of the Act. Notice under Sec. 148 was issued and served upon the Assessee. In compliance, the Assessee e-filed its return declaring the income as was determined pursuant to the order of the CIT(A).

The Assessee assailed the validity of the reassessment proceedings objecting to the reasons based on which the A.O had assumed jurisdiction. However, not finding favor with the objections raised by the Assessee the A.O rejected the same.

Aggrieved, the Assessee assailed the assessment framed by the A.O in appeal before the CIT(A). The Assessee assailed the validity of the jurisdiction that was assumed by the A.O under Sec.147 of the Act, as well as the disallowance of its F&O loss on merits. The CIT(A) did not find favour with the claim of the Assessee that the A.O had wrongly assumed jurisdiction u/s 147 of the Act and rejected the same. Accordingly, the CIT(A) partly allowed the appeal and vacated the disallowance of F&O loss.

The revenue being aggrieved with the order of the CIT(A) whereby the addition was deleted on account of loss on future & options, carried the matter in appeal before the LD. ITAT. The Assessee preferred a cross-appeal and assailed the order of the CIT(A) to the extent he had upheld the validity of the jurisdiction assumed by the A.O for framing the reassessment. Whereby, the tribunal was pleased to Dismiss the Appeal filed by the Revenue and conclude that A.O had failed to independently apply his mind to the “material” available on his record and mechanically acting on the information supplied by the Directorate of Income-tax (Inv.) had on the basis of incomplete and incorrect facts reopened the case of the Assessee u/s 147 of the Act

“Though the A.O had referred to the material/information on the basis of which the case of the Assessee was sought to be reopened under Sec. 147 of the Act i.e the information received from the DDIT(Inv.), Unit-1(4), Mumbai, but then, there is nothing discernible therefrom on the basis of which it could be gathered that there was any independent formation of a bonafide belief by the A.O that the income of the Assessee chargeable to tax had escaped assessment.”

“That the A.O had mechanically acted upon the information received from the DDIT(Inv.), Unit 1(4), Mumbai, and without even doing the bare minimum i.e consulting the assessment records of the Assessee for the year in question as was indispensably required on his part for arriving at a bonafide belief that the income of the Assessee chargeable to tax had escaped assessment therein reopened its concluded assessment.”

[DCIT Vs. M/s Shradha Tradelinks Pvt. Ltd ITA No. 656/Mum/2016 AND C.O No. 323/Mum/2017]


† Advocate, Supreme Court of India and Delhi High Court  

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