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Facts
The Revenue's appeal and the assessee's cross-objection pertain to the AY 2016-17. The core of the dispute lies in the validity of the assessment re-opening initiated by the Assessing Officer (AO) based on information from the investigation wing regarding alleged bogus investments.
Held
The Tribunal held that the AO's reasons for re-opening were vague and indicated 'borrowed satisfaction' without independent application of mind. Additionally, the assessment order was found to be time-barred as it was dispatched after the limitation period expired. Both the re-opening notice and the assessment were quashed.
Key Issues
Whether the assessment re-opening was based on valid 'reasons to believe' and independently formed satisfaction by the AO, and if the assessment order was passed within the prescribed limitation period.
Sections Cited
147, 148, 143(2), 142(1), 133A
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Income Tax Appellate Tribunal, “D” BENCH, KOLKATA
Before: SHRI RAJESH KUMAR, AM & SHRI PRADIP KUMAR CHOUBEY, JM
O R D E R Per Rajesh Kumar, AM:
The appeal of the Revenue and CO of the assessee are preferred against the order of the Commissioner of Income-tax (Appeals),
At the outset, we observe from the appeal folder that there is a delay of 110 days in filing the appeal by the department in support of which a condonation petition was filed by the revenue. It was stated in the condonation petition that the delay has occurred due to obtaining the administrative approvals from the competent authorities, which took quite a long time and accordingly, the delay may be condoned for being beyond the control of the appellant. The ld. AR, on the other hand, did not oppose the condonation of delay. Considering the reasons cited before us, we are inclined to condone the delay and admit the appeal for hearing.
The assessee has pressed two legal issues at the time of hearing ( Ground No. 2 and 4 as raised in the cross objection which is extracted below:-
“2. For that the learned. CIT(A) incorrectly concluded that AO had looked into the information and that condition u/s 147 of the Act was satisfied ignoring that the re- assessment was initiated mechanically solely on the basis of a communication from the investigation wing without any independent inquiry or application of mind by the AO rendering the proceedings void ab initio. 4.For that the ld. CIT (A) failed to appreciate the factual evidence that the physical assessment order was dispatched by the ld. AO only on 02.04.2022, i.e.., after the limitation period expired on 31.03.2022. An order is “passed” only when it leaves the control of the AO, which in this case happened beyond the statutory time limit.” 3.1. In the ground no. 2 the assessee has raised the issue of wrong re-opening of assessment by the AO which is done mechanically done and without application of mind. The assessee submitted that the AO has not applied his mind to the information received from the investigation wing. The learned assessee submitted that the AO has 3.2. After hearing both the sides and perusing the materials on records we find that the AO re-opened the assessment after receipt of information from the investigation wing. The facts in brief are that the assessee filed the return of income on 08.08.2016, declaring total income of ₹6,100/-. A survey u/s 133A of the Act was carried out on Saroj Group of cases on 11.08.2014, in which it was revealed that M/s Inspiration Commotrade Pvt. ltd., M/s NiralaTradecom Pvt. ltd., M/s Sunsar Tradelink Pvt. ltd. and M/s Annex Tie-up Pvt. Ltd. have merged with the assessee company in F.Y. 2014-15 vide decision of Hon'ble Court dated 02.04.2015. The information gathered during the course of survey revealed that post-merger, the assessee being transferee entity, had bogus investments to the extent of ₹12,06,20,605/- as on 31.03.2016. The said money was received from various entities from sale of bogus investments held under the head non-current investments. Accordingly, the case of the assessee was reopened u/s 147 of the Act by issuing notice u/s 148 of the Act on 17.03.2021, after obtaining the approval from the competent authority. Thereafter, the assessee filed their return of income on 31.03.2021. The assessee was issued notice u/s 143(2) and 142(1) of the Act along with questionnaire, which were duly replied by the assessee. Finally, the ld. AO made an addition of ₹12,03,48,105/- as unexplained cash credit in the order framed u/s 147 of the Act dated 31.03.2022.
“M/s Vedanta Resources Pvt. Ltd. (hereinafter "the assessee") filed its return of income for the assessment year 2016-17 electronically on 08.08.2016 declaring income bf-R6, 6,100/ This office was in receipt of survey report in the case of SARAOGI GROUP (DOS 11.04.2018) from ADIT(Inv.), Unit-1(1), Kolkata vide their letter No. ADIT(Inv.)/U-1(1)/S.S./201819/4707 dated 22.10.2018 wherein it has been mentioned that said assessee was in receipt of money under the nomenclature of advance paid under the head Investment' to the tune of Rs. 120348105/- during the F.Y. 2015-16 from the entities who are non-existent and lack creditworthiness. In view of the above, the assessment for the assessment year 2016-17 in the case of the assessee is required to be reopened by service of notice u/s 148 of the Act.” 3.4. A perusal of the above reasons revealed that the ld. AO has recorded very cryptic reasons which are vague, scanty and at best can be considered as borrowed satisfaction of the ld. AO as AO has not recorded any satisfaction on the information received. Therefore, there is no live link between the information and the formation of belief by the ld. AO. Therefore, on this ground also, the re-opening of assessment and notice issued u/s 148 of the Act based on the said borrowed satisfaction is bad in law and so is the assessment framed consequently. The case of the assessee find support from the Hon'ble Delhi High Court in case of Principal Commissioner of Income-tax-6 vs. Meenakshi Overseas (P.) Ltd. [2017] 395 ITR 677 (Delhi)[26-05- 2017], has held that reopening made on the basis of borrowed satisfaction cannot be sustained where the reasons failed to demonstrate live link between the tangible material and formation of “26. The first part of Section 147 (1) of the Act requires the AO to have "reasons to believe" that any income chargeable to tax has escaped assessment. It is thus formation of reason to believe that is subject matter of examination. The AO being a quasi judicial authority is expected to arrive at a subjective satisfaction independently on an objective criteria. While the report of the Investigation Wing might constitute the material on the basis of which he forms the reasons to believe the process of arriving at such satisfaction cannot be a mere repetition of the report of investigation. The recording of reasons to believe and not reasons to suspect is the pre- condition to the assumption of jurisdiction under Section 147 of the Act. The reasons to believe must demonstrate link between the tangible material and the formation of the belief or the reason to believe that income has escaped assessment. ……………… 36. In the present case, as already noticed, the reasons to believe contain not he reasons but the conclusions of the AO one after the other. There is no independent application of mind by the AO to the tangible material which forms the basis of the reasons to believe that income has escaped assessment. The conclusions of the AO are at best a reproduction of the conclusion in the investigation report. Indeed it is a 'borrowed satisfaction'. The reasons fail to demonstrate the link between the tangible material and the formation of the reason to believe that income has escaped assessment.” 3.5. Similarly, the Hon'ble Bombay High Court in case of Principal Commissioner of Income-tax-5 vs. Shodiman Investments (P.) Ltd. [2020] 422 ITR 337 (Bombay)[16-04-2018], has held as under:-
“13. In this case, the reasons as made available to the Respondent- Assessee as produced before the Tribunal merely indicates information received from the DIT (Investigation) about a particular entity, entering into suspicious transactions. However, that material is not further linked by any reason to come to the conclusion that the Respondent-Assessee has indulged in any activity which could give rise to reason to believe on the part of the Assessing Officer that income chargeable to tax has escaped Assessment. It is for this reason that the recorded reasons even does not indicate the amount which according to the Assessing Officer, has escaped Assessment. This is an evidence of a fishing enquiry and not a reasonable belief that income chargeable to tax has escaped assessment.
Further, the reasons clearly shows that the Assessing Officer has not applied his mind to the information received by him from the DDIT (Inv.). The
By virtue of ground no. 4 above , the assessee has challenged the assessment framed u/s 147 of the Act dated 31.03.2022 as barred by limitation as the same was served beyond the limitation period as prescribed as under the income tax Act.
4.1. After hearing the rival contentions and perusing the materials available on record, we find that the assessment was framed by the ACIT Central Circle 1(2), Kolkata on 31.03.2022, which was served upon the assessee on 04.04.2022. We note that the said assessment order was dispatched by the Department on 02.04.2022 as is apparent from the speed post tracking which is available on page no. 102 of the paper book.
4.2. In our opinion the assessment order has to leave control of the AO within the limitation period which is in the present case was 31.3.2022. The learned CIT(A) has conveniently overlooked the issue though specifically raised before him. Therefore, the assessment
Since, we have allowed the cross objection of the assessee on two legal issues ,therefore, the appeal of the Revenue filed against the deletion of addition on merit becomes infructuous and is accordingly dismissed.
In the result, the Cross Objection of the assessee is allowed and appeal of the Revenue is dismissed.
Order pronounced in the open court on 13.01.2026.