Re-Assessment cannot be based on “Reason to Suspect”: ITAT

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The Mumbai bench of the Income Tax Appellate Tribunal ( ITAT ) held that the re-assessment under sections 147/148 of the Income Tax Act, 1961 shall be based on “reason to believe” not on “reason to suspect.”

The Assessing Officer initiated the re-assessment proceedings against the assessee, Shri Rajnish C. Bhartibased on information received from the office of the DGIT(Inv.) regarding assessee’s bogus claim of expenses to the tune of Rs.6,16,79,235/- from various parties. after concluding the proceedings, the AO recorded in the assessment order that assessee/AR was furnished with the “reason for reopening” along with transaction regarding data of Hawala Purchases received from DGIT (Inv.), Mumbai, viz Copy of AIR (ITS) data and the AO noted that he confronted the assessee with the adverse material and asked him to explain about the adverse information with supporting evidence if any. However, according to AO, the assessee failed to satisfactorily explain reply to his query/adverse material.

Shri Aby T. Varkey, JM and Shri Amarjit Singh, AM found that the AO stated in the second line of the reasons recorded that he had “reason to believe that income chargeable to tax of Rs.6,16,79,235/- for AY. 2009-10 has escaped assessment’’.

“From the aforesaid reason to re-open the assessment, we note that the AO only had foundation based on information which was not sufficient to invoke jurisdiction for re-opening the assessment. In this case, nextessential condition is found to be absent i.e, the believe based on reason is absent. [At the cost of repetition it should be kept in mind that as per section 147 of the Act, the AO is empowered to reopen the assessment if he has “reasons to believe escapement of income”. “Reasons to believe” postulates foundation based on information and belief based on reason. Even if there is foundation based on information, there still must be some reason warrant holding a belief that income chargeable to tax has escaped assessment.] Further, it is settled that adverse information may trigger “reason to suspect”, then the AO to make reasonable inquiry and collect material which would make him believe that there is in fact escapement of income,” ITAT said.

Quashing the re-assessment, the Two-Member ITAT held that “the fine distinction between “right to suspect” and “right to believe” has to be kept in mind while examining the condition precedent for reopening an assessment as stipulated u/s 147 of the Act for the relevant year under consideration (AY. 2009-10). Here in this case, the DGIT (Inv.) had passed on an information regarding the assessee’s claim of expenses to the tune of Rs. 6,16,79,235/- to be bogus, which assessee has supposed to have incurred while purchasing goods from certain parties. Having received such an information from the DGIT(Inv.), it should have at best triggered “reason to suspect”, then AO should have made reasonable inquiry and collected material which would make him form a belief that there was in fact escapement of income; but in this case, we note that the reason recorded (supra) by the AO before re-opening the assessment does not satisfy the requisite requirement as necessary u/s 147 of the Act to validly reopen the assessment.”To Read the full text of the Order CLICK HERE

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Shri Rajnish C. Bharti vs ITO

Counsel for Appellant:   Shri C. V. Jain

Counsel for Respondent:   Ms. Mahita Nair


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