The ITAT dismissed the revenue’s petition, finding that the AO failed to establish a clear link between the tangible material and the conclusion of escaped income.
In a significant ruling, in case of Surender Dalai vs ITO [I.T.A No.7714/Del/2029], the Delhi Income Tax Appellate Tribunal (ITAT) has quashed a reassessment order under sections 143(3) and 147 of the Income Tax Act, 1961. The decision came as the ITAT found the reassessment to be legally flawed, citing a lack of demonstrated link between tangible material and the alleged escaped income.
The bench, consisting of G.S. Pannu (Vice President) and Challa Nagendra Prasad (Judicial Member), emphasized the absence of independent scrutiny by the Assessing Officer (AO) on the tangible materials and reasons provided. They highlighted that the AO failed to establish a clear connection between the tangible material and the basis for concluding that income had escaped assessment.
The ITAT bench stated, “The AO has not provided any details in the recorded reasons on how the income exceeding 15 crores escaped assessment. The reasons do not specify the methodology used to arrive at this figure, lacking a live link between the recorded reasons and the available materials.”
The case originated from the reopening of an assessment on the grounds that the taxpayer had not filed an income return for the relevant year, despite the taxpayer having indeed furnished the return. The reassessment was initiated based on information obtained from the Directorate of Investigation, indicating an investment of over 15 crores in house construction by the taxpayer.
The bench noted that the assertion of the taxpayer not filing an income return was factually incorrect, as the taxpayer had submitted the return with declared taxable income.
Referring to a Delhi High Court decision in the case of Pr. CIT vs. RMG Polyvinyl (I) Ltd., the bench emphasized that information from the Investigation Wing cannot be considered tangible material without further inquiry by the AO. The AO, by proceeding on the false premise that the taxpayer had not filed a return, deprived himself of the opportunity for proper investigation.
Quoting a decision of the Gujarat High Court in Vijay Harishchandra Patel vs. ITO, the bench highlighted the impermissibility of the AO changing the grounds for reassessment when the original reason no longer applied.
The ITAT also pointed out that the basis for the 15 crores figure was not established in the recorded reasons, merely stating that the income had escaped assessment without providing details from the DDIT report.
Consequently, the ITAT dismissed the revenue’s petition, finding that the AO failed to establish a clear link between the tangible material and the conclusion of escaped income.
This ruling underscores the importance of a thorough and reasoned approach in reassessment proceedings under Section 148 of the Income Tax Act.
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