INCOME TAX ACT, 1961

Section 147

Reassessment - Validity - Assessee alleged to be beneficiary in derivative transactions - Reopening of assessment based on incorrect facts

Assessee challenged reopening of assessment under section 147 contending that perusal of reasons recorded, revealed non-application of mind by AO to material received by him. According to assessee, contrary to AO's allegation, assessee did not enter into any derivative transaction during relevant year. Assessee further contended that approval was received by AO from Pr. CIT on 1-4-2016 and whereas notice under section 148 was issued on 30-3-2016, i.e., prior to the receipt of the approval of Pr. CIT. Assessee contended that reopening was made prior to mandatory approval and therefore, it was bad in law. Held: Reasons recorded by AO that assessee was beneficiary in derivative transactions was factually incorrect. It showed non-application of mind by AO to information received by AO from investigation wing. The law requires that AO prima facie applies his mind to the information received, prior to forming a reasonable belief, that income subject to tax has escaped assessment and thereafter record reasons. When reasons are based on wrong facts, which were not verified, then it was a clear case of non-application of mind by the AO to the material received. There was no direct nexus between the tangible material received and the formation of belief that income had escaped assessment and thus, reopening of assessment was bad in law. Further on merits of case, letter from NSE stated facts, which were not controverted by AO. When NSE stated that assessee did not earn income from derivative transactions, question of making addition on that ground did not arise.

REFERRED :

FAVOUR : In assessee's favour.

A.Y. : 2009-10

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