Facts of the Case

The Assessing Officer initiated reassessment proceedings against the assessee on the ground that income chargeable to tax had allegedly escaped assessment. Notice under the relevant statutory provisions was issued, and additions were made during the reassessment based on information available with the Department. The assessee challenged both the reopening of assessment and the additions made therein. The Commissioner (Appeals) upheld the action of the Assessing Officer, prompting the assessee to file an appeal before the Income Tax Appellate Tribunal.

Issues Involved

  1. Whether the reopening of assessment was valid in law.
  2. Whether the Assessing Officer possessed sufficient material to form a bona fide belief of escaped income.
  3. Whether the additions made during reassessment were sustainable on facts and law.

Petitioner’s (Assessee’s) Arguments

  • The assessee contended that the reopening was based on vague or insufficient material.
  • It was argued that there was no tangible evidence demonstrating escapement of income.
  • The assessee maintained that the additions were arbitrary and unsupported by proper inquiry.
  • It was further submitted that reassessment proceedings were initiated without proper application of mind.

Respondent’s (Revenue’s) Arguments

  • The Revenue supported the action of the Assessing Officer.
  • It was argued that information in possession of the Department justified the belief that income had escaped assessment.
  • The Department contended that the reassessment proceedings were conducted in accordance with law and due procedure.
  • The additions were stated to be based on material evidence gathered during proceedings.

Court Order / Findings (ITAT)

  • Reassessment proceedings must be supported by credible material leading to a reasonable belief of escaped income.
  • The reasons recorded by the Assessing Officer did not sufficiently establish such belief and/or the additions were not supported by adequate evidence.
  • The lower authorities failed to demonstrate proper justification for sustaining the additions.

Important Clarification

The Tribunal emphasized that reassessment powers cannot be exercised mechanically. There must be tangible material and a rational nexus between the information available and the belief of escapement of income. Mere suspicion or general information is insufficient to justify reopening.

Link to download the order –

https://itat.gov.in/public/files/upload/1640156158-ita%20no.%2005%20alld%202021%20Mohd%20Salman%20Farooqui.pdf

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