“Reason to Believe” Must Rest on Correct Facts: ITAT invalidates Reopening Based on Wrong Assumptions [Read Order]

The Bench of the Income Tax Appellate Tribunal (ITAT), Chandigarh, held that a reassessment initiated on the basis of incorrect facts and without application of mind is invalid in law. The Tribunal dismissed the Revenue’s appeal, thereby upholding the order of the Commissioner of Income Tax (Appeals) [CIT(A)] that had quashed the reassessment proceedings against the taxpayer.

The appeal was filed by the Income Tax Officer, Mohali, against Taj Land Developers and Promoters Pvt. Ltd., Mohali, for the Assessment Year 2011-12. The assessee had filed its return of income electronically on October 1, 2011, declaring an income of ₹44,940.

However, the Assessing Officer (AO) issued a notice under Section 148 of the Income Tax Act, 1961, on March 26, 2018, reopening the assessment on the ground that the assessee had not filed a return and had made an unexplained investment of ₹4.40 crore in immovable property.

The AO completed the reassessment under Sections 143(3) read with 147, determining the taxable income at ₹5.65 crore. On appeal, the CIT(A) quashed the reopening, observing that the reasons recorded for initiation of proceedings were based on incorrect facts since the AO had himself acknowledged the filing of return in the assessment order.

Represented by Kusum Bansal, the Revenue contended that since no scrutiny assessment had been carried out and the return was only processed under Section 143(1), the AO was within his rights to reopen the case. It was argued that the CIT(A) erred in holding the reopening invalid and in quashing the assessment order.

Represented by Sudhir Sehgal, argued that the reopening was bad in law as it was based on factually incorrect assumptions that no return had been filed. The AO had failed to verify the records and had proceeded mechanically on information received through the Annual Information Return (AIR) without applying his own mind. It was submitted that the approval obtained under Section 151 from the Principal Commissioner was also mechanical, further invalidating the proceedings.

The Bench comprising Rajpal Yadav, Vice President and Manoj Kumar Aggarwal, Accountant Member upheld the CIT(A)’s decision, holding that the reopening of assessment was based on wrong facts and showed no application of mind. The Tribunal noted that the AO had incorrectly recorded that the assessee had not filed its return, despite having the information on record.

It observed that the reopening was mechanically approved by the superior authority and that the AO treated the AIR information as conclusive without independent verification. Citing the rulings of the Bombay High Court including Ankita A. Choksey(2019), the Bench reiterated that even in cases processed under Section 143(1), reopening must be based on correct facts and a genuine “reason to believe.”

Since the formation of belief was based on erroneous assumptions, the Tribunal held that the entire reassessment was invalid and upheld the CIT(A)’s order quashing it.

Consequently, ITAT dismissed the Revenue’s appeal.

Accordingly, confirmed that reassessment proceedings initiated on incorrect and unverified facts are void ab initio under Section 147 of the Income Tax Act, 1961.

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