Facts of the Case

The assessee filed its return of income for Assessment Year 2011-12 on 30.09.2011 declaring nil income. The assessment was completed under Sections 153A read with 143(3) on 27.03.2014 at nil income. Subsequently, the Assessing Officer issued notice under Section 148 on 30.03.2018, reopening the assessment under Section 147 based on information from the Investigation Wing alleging that the assessee had received ₹50 crores from M/s Pahargoomiah Exports Ltd. as an accommodation entry. The assessee filed objections to reopening, which were disposed of by the Assessing Officer through a brief letter dated 16.12.2018. Thereafter, the Assessing Officer completed the assessment under Section 147 read with Sections 144 and 153A and made an addition of ₹50 crores under Section 68. The CIT(A) upheld the reopening in a cryptic manner. Aggrieved, the assessee appealed before the Tribunal.

Issues Involved

Whether reassessment initiated beyond four years from the end of the relevant assessment year was valid in absence of any allegation of failure on the part of the assessee to disclose fully and truly all material facts, whether reopening based solely on information from the Investigation Wing amounted to borrowed satisfaction without independent application of mind, and whether disposal of objections without a speaking order vitiated the reassessment proceedings.

Petitioner’s Arguments

The assessee contended that the reassessment was initiated beyond four years after completion of assessment under Section 143(3)/153A and therefore could be sustained only if conditions of the proviso to Section 147 were satisfied. It was argued that the reasons recorded did not allege any failure by the assessee to disclose material facts during original assessment. It was further contended that reopening was based entirely on borrowed satisfaction of the Investigation Wing without any independent enquiry or application of mind by the Assessing Officer, amounting merely to reasons to suspect and not reasons to believe. The assessee also argued that objections to reopening were not disposed of by a speaking order as mandated by the Supreme Court in GKN Driveshafts, rendering the entire proceedings void.

Respondent’s Arguments

The Revenue supported the orders of the Assessing Officer and the CIT(A) and contended that reopening was validly initiated based on information received from the Investigation Wing and after obtaining sanction under Section 151. It was argued that the assessee had received accommodation entries and therefore income had escaped assessment.

Court Order / Findings

The ITAT Kolkata held that the reassessment was initiated beyond four years from the end of the relevant assessment year and that the reasons recorded did not attribute escapement of income to any failure on the part of the assessee to disclose fully and truly all material facts, as required under the proviso to Section 147. The Tribunal further held that the Assessing Officer merely reproduced the information received from the Investigation Wing and failed to conduct any independent enquiry or demonstrate a live nexus between the material and the formation of belief, amounting to borrowed satisfaction. The Tribunal also found that the objections raised by the assessee were disposed of in a perfunctory and non-speaking manner, in violation of the procedure laid down by the Supreme Court in GKN Driveshafts and CBDT Circular dated 10.01.2018. On these legal infirmities, the Tribunal held the reopening to be invalid and unsustainable in law.

Important Clarification

The Tribunal clarified that reassessment beyond four years requires strict compliance with the proviso to Section 147 and cannot be sustained without a clear allegation of failure on the part of the assessee to disclose material facts. Reopening based on borrowed satisfaction without independent application of mind and disposal of objections without a reasoned speaking order vitiates the jurisdiction assumed under Section 147.

Final Outcome

The appeal filed by the assessee was allowed. The notice issued under Section 148 and the consequent reassessment order for Assessment Year 2011-12 were quashed as being without jurisdiction and invalid in law. The issues on merits were left open.

Source Link- https://itat.gov.in/public/files/upload/1767169865-f27nQ9-1-TO.pdf

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