In this case The reasons for reopening the assessment have been set out in an office note which has been extracted in para 28 of the impugned order of the ITAT. This office note was apparently prepared by the AO at the time of finalizing the initial assessment. It reads as under:
The assessment is completed after detailed discussion with the Additional CIT, R-ll, New Delhi who guided me to make a reference to the F.T.D. Branch to ascertain the genuineness of these NRI gifts. Also make reference to the valuation cell to ascertain the correct value of the assets for Health Tax Purposes. It has been observed that the Assessee has received huge gifts from N RI’s last year relevant to the Asst. Year 1993-94, the gift received have been declared Rs. 6,75,000 and in this year he has shown at Rs. 5,65,000 investigations were made from the banks and it was found that during the year under consideration has received the following gifts either in the name of himself and or in the name of his family members.”
Below the office note, list of 16 donors has been set out. The office note states that in order to verify the genuineness of the gifts and to scrutinize the corresponding entries in their books of account in their respective countries, a detailed letter has been sent to the FTD Branch of the CBDT. It is, in that context, stated that “if anything achieve received from the FTD (Foreign Tax Division) Branch the assessment shall be reopened”. In other words, the reopening of the assessment was made contingent upon some material being received from the FTD. It is not denied by the Revenue that till date no such adverse material qua the Assessee has been received from the FTD.
In the absence of any material, as anticipated by the AO in the office note, it is difficult to appreciate on what basis the AO could form the “reasons to believe”, that for the AY in question any income has escaped assessment. What seems to have been overlooked by the CIT (A) as well as the ITAT is that the original assessment was framed after detailed questionnaires were sent to the Assessee and replies furnished by him thereto giving the details of all the donors as well as their affidavits. These were examined by the AO. The mere fact that the AO may not have mentioned in the assessment order that the above exercise was undertaken need not mean that he did not pay attention to the materials before him. There was no warrant for the ITAT to have drawn such presumption. In fact the affidavits of the donors coupled with the confirmation letters of the Bank, as noted hereinabove, were materials touching upon the aspects of genuineness of the identity of the donors. Unless there was material which controverted the said documents produced by the Assessee in the form of the report of the FTD, it could not be said that there was any adverse material which could justify the formation of ‘reasons of believe’ within the meaning of Section 147/148 of the Act for reopening the assessment.
This was a case where the original assessment was completed under Section 143 (3). In other words there was a complete scrutiny of the accounts and all the affidavits of the donors furnished by the Assessee pursuant to the questionnaires issued to him by the AO. In the absence of any adverse material, the reopening of the assessment was at best due to change of opinion of the AO that some income had escaped assessment. This was impermissible under Section 147 of the Act.
As noted by the decision of this court in CIT v. Multiplex Trading & Industrial Co. Ltd. (decision dated 22nd September 2015 in ITA 356/2013), “it would be impermissible for the AO to reopen the assessment unless the AO, on the basis of credible and tangible material, which was not in his possession during the initial assessment, believes that income of the Assessee has escaped assessment.” In Oriental Insurance Company v. CIT (decision dated 15th September 2015 in ITA 174/2013), it was observed:
“9. A bona fide reason to believe that income has escaped assessment is a necessary pre-condition that clothes the AO with the power to reopen the assessment, which has otherwise attained finality. The reasons to believe must have a ‘direct nexus’ and a ‘live link’ with the formation of an opinion by the AO that taxable income of an Assessee has escaped assessment.
12. It is well established that reasons to believe that income had escaped assessment is a necessary precondition for the AO to assume jurisdiction. Clearly, it would be difficult to sustain that this precondition is met if such reasons to believe that income of an Assessee has escaped assessment are based on palpably erroneous assumptions. The reason to believe must be predicated on tangible material or information. A reason to suspect cannot be a reason to believe; the belief must be rational and bear a direct nexus to the material on which such a belief is based.”
For all the aforesaid reasons, this Court finds that there was no justification for the ITAT to have upheld the action of the AO in the reopening of the assessment through Sections 147/148 of the Act.
The question framed is answered in the negative, i.e., in favour of the Assessee and against the Revenue. The impugned order of the ITAT and the corresponding orders of the CIT (A) as well as the AO are hereby set aside.