Jaydeep Construction Vs ITO (ITAT Mumbai)
No “reason to believe” without new material – Mumbai ITAT quashes reopening based on mere reappraisal of old records
In a significant ruling, the Mumbai ITAT quashed reassessment proceedings initiated u/s 147 after holding that the AO had reopened the completed scrutiny assessment merely on the basis of a reappraisal of existing records, without any new or tangible material coming into possession after completion of original assessment.
The assessee, a construction firm following the Project Completion Method, had originally undergone scrutiny assessment u/s 143(3) wherein income was assessed at Nil. Subsequently, the AO reopened the assessment alleging that the assessee had borrowed huge interest-bearing funds while simultaneously granting interest-free loans and advances of about ₹3.93 crore, resulting in alleged escapement of proportionate interest expenditure of ₹52.52 lakh u/s 36(1)(iii).
Before the Tribunal, the assessee contended that the reopening was entirely based on the very same balance sheet, profit & loss account, and details already furnished during original scrutiny proceedings. It was argued that there was absolutely no fresh information, new material, or external input available with the AO to justify reopening.
Accepting the contention, the ITAT observed that the reasons recorded for reopening themselves clearly revealed that the AO had formed the belief of escapement solely from perusal of documents already available on record during the original assessment. The Tribunal specifically noted absence of even a “whisper” of any new or tangible material in the recorded reasons.
The Bench reiterated that existence of a valid “reason to believe” is a mandatory jurisdictional condition for invoking section 147 and such belief must be founded upon some fresh tangible material having live nexus with escapement of income. Mere review or reappraisal of existing records cannot justify reassessment proceedings.
FULL TEXT OF THE ORDER OF ITAT MUMBAI
