Re-Assessment cannot be made on the basis of Mere Presumptions: ITAT Mumbai [Read Order]

In a recent ruling, the Mumbai bench of the Income Tax Appellate Tribunal held that re-assessment under s. 147 of the Income Tax Act cannot made in the light of mere presumptions or on verification of some basic facts. While quashing the order, the Tribunal emphasized that an assessment must be re-opened with the aid of some tangible material which would be sufficient to substantiate that the assessee has escaped income during the year under consideration.

In the instant case, re-assessment proceedings under s. 147 were initiated against the assessee. On receipt of the reply filed by the assessee, the Assessing Officer was satisfied with their objections and, therefore, he did not make any addition in the re-assessment order in respect of the income alleged to have been escaped in the Reasons recorded. But the Assessing Officer did not accept the request of the assessee for dropping the proceedings and completed assessment making additions on other issues which were not raised in the reasons recorded. Before the first appellate authority, the AO admitted that the impugned income has been included by the assessee in the return of income for the year 2006-07 but the re-assessment proceedings were initiated because he was not able to make out from the perusal of return filed by the assessee whether impugned income has been included in the return or not.

Before the Appellate Tribunal, the assessee contended that the order is illegal and therefore, is liable to be quashed.

The Tribunal noted that the AO has no power to proceed with the re-assessment since he was satisfied with the objections with regard to the reasons for the assessment.

“There were no bases with the AO to allege that too with the support of any cogent material that impugned income was not included by the assessee in its income offered to tax. Reopening of an assessment is not permitted merely on the basis of some notions or presumptions. Nor it is allowed merely for making verification of some basic facts. There must be existence of some tangible material indicating escapement of income. Then only, an AO is permitted to resort to provisions of reopening contained in sections 147 to 151 of the Act. Because, once an assessment is reopened on valid basis, entire pandara’s box is open before the AO. Therefore the AO may then bring to tax not only income escaped from tax which was mentioned in the Reasons recorded, but also any other escaped income that may come to his notice during the course of reassessment proceedings. Reopening of an assessment attacks and pierces the concept of finality of litigation. Therefore, an invalid reopening done in the casual manner and without following parameters of law may cause undue hardship to the taxpayers.” Accordingly, the impugned orders were quashed.

Read the full text of the order below.