ITAT holds re-assessment without inquiry as invalid

ITAT holds re-assessment without inquiry as invalid

The bench said it was mandatory that the conclusion should not be based merely on information

The Delhi Bench of the Income Tax Appellate Authority (ITAT) has held that the re-assessment could not be held valid in the absence of an independent inquiry by the assessing officer (AO) under the Income Tax Act, 1961. This is in case the AO concludes the proceedings by merely relying on the information received from the Investigation Wing.

On receiving the information from the office of the ADIT (Investigation), Faridabad, the AO had maintained that Neelkanth Steel, Faridabad, had made bogus sales amounting to Rs.25 lakhs, which escaped tax in the hands of the assessee. The reason qua concealment of income was recorded by the AO. He re-opened the case, by issuing a notice in March 2017 under the IT Act.

The bench comprising Judicial Member NK Choudhry and Accountant Member RK Panda observed that the link between the tangible material and the formation of the reasons to believe that income had escaped assessment was necessary for re-opening the case. The information received from the Investigation Wing could not be considered tangible unless the AO conducted a further inquiry.

ITAT ruled, "The conclusion of the AO, based on the investigation report indeed is a borrowed satisfaction. The High Court also held that it is an established principle of law that if a particular authority has been designated to record his/her satisfaction on a particular issue, then it is that authority alone who should apply his/her independent mind to record his/her satisfaction and the further mandatory condition is that the satisfaction recorded should be 'independent' and not 'borrowed' or 'dictated' by someone."

The bench quashed the order, stating, "The AO while recording the reasons for the selection of the case, neither made any enquiry of the ADIT, Investigation, Faridabad nor made any effort to find out the veracity and authenticity of the information and any corroborative evidence/material. He acted on the information while forming a belief qua escapement of the income and initiation of proceedings under the IT Act, without connecting tangible material and the formation of the reasons to believe the escapement of income."