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Facts
The assessee's assessment for AY 2011-12 was reopened based on information from the Investigation Wing indicating a Rs. 50 lac benefit from a shell company, leading to an addition of Rs. 1.35 crore under Section 68 for unexplained share application money. The assessee challenged the validity of this reopening, arguing that the Assessing Officer had not applied independent mind.
Held
The Tribunal ruled that the Assessing Officer had merely reproduced information from the Investigation Wing without recording independent reasons to believe that income had escaped assessment. This 'borrowed satisfaction' without proper application of mind rendered the reopening under Section 147/148 and the subsequent assessment invalid.
Key Issues
Validity of assessment reopening under Section 147/148 based on 'borrowed satisfaction' from an investigation report, without independent application of mind by the Assessing Officer, and whether such reopening is legally sustainable.
Sections Cited
148, 147, 143(3), 143(1), 68
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, Guwahati BENCH, Guwahati
This is an appeal preferred by the assessee against the order of the Commissioner of Income-tax (Appeals), Dibrugarh (hereinafter referred to as the “Ld. CIT(A)”] dated 26.04.2019 for the AY 2011-12.
The issue raised in ground no.1 is against the validity of notice issued u/s 148 of the Act and assessment framed u/s 147 read with section 143(3) of the Act by the ld. AO which are otherwise bad in law.
2.1. The facts in brief are that the assessee filed the return of income on 26.08.2011, declaring total loss of ₹1,803/-, which was processed u/s 143(1) of the Act on 10.01.2012. Thereafter, the ld. AO received information from the office of DDIT (Inv) Unit-1(1), Kolkata, though the assessee is a beneficiary of ₹50 lacs from M/s Hector Dealers Pvt.
2.2. After hearing the rival contentions and perusing the materials available on record, we find that the case of the assessee was reopened u/s 147 of the Act by issuing notice u/s 148 of the Act on 26.03.2018 after recording reasons to believe which are extracted below:-
"Investigation was made in the case of M/s Hector Dealers Pvt Ltd by Investigation wing, Kolkata wherein it was discovered that the company M/s Hector Dealers Pvt Ltd which is a shell company and its Director Shri Chandresh. Kumar Jain being a dummy Director. The said shell company had transferred a sum of Rs 50 Lakh to beneficiary company M/s Belong Tracom Pvt Ltd for the purpose of layering which is required to verify.” 2.1. A perusal of the above reason reveals that the ld. AO has simply extracted the information received from the investigation wing and has not recorded his own reasons to believe or objective satisfaction to reopen the assessment. In our view there is no satisfaction recorded by the ld. AO that the income has escaped assessment. Consequently, the reopening made u/s 147 of the Act based on the just borrowed satisfaction and without application of mind by the ld. AO is not sustainable in the eyes of law. The case of the assessee is squarely covered by the decision of Hon'ble Delhi High Court in case of Principal Commissioner of Income-tax-6 vs. Meenakshi Overseas “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 the 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.” 2.2. The case of the assessee also covered by the decision of Hon'ble Kolkata High Court in case of PCIT Vs. Krishna Nirman Pvt. Ltd. in ITAT/126/2025 IA No. GA/2/2025, wherein the Hon'ble Court had held as under:-
“The short issue which falls for consideration is whether the reopening of the assessment was bad in law on account of the fact that the Assessing Officer did not independently apply his mind to the information provided by the Investigation Wing As could be seen from the assessment order this objection appears to have not been raised by the assessee but nonetheless the Assessing Officer though referred to the information received from the Investigation department, while completing the assessment under section 147 read with section 143(3) has clearly abandoned those reasons and proceeded on a different footing. Before the first appellate Authority, the assessee specifically raised the issue that the notice which was issued for reopening is merely based on information from the Investigation Wing and there is no
The issues raised in ground nos.2 to 4, is left open to be decided at a later stage if need arises for the same.
In the result, the appeal of the assessee is allowed.
Order pronounced in the open court on 18.12.2025.