The assessee is a FUND and a resident of Denmark. Along with its return of income, in India, the assessee had submitted ‘Tax Residency Certificate’ issued by the Danish Authorities in order to claim the benefit of Article 14 of India-Denmark DTAA. From the plain reading of the ‘reasons recorded’, it is seen that the Assessing Officer is first of all, is not clear whether the assessee is tax resident of Denmark or not, and secondly, whether AOP-Trust is taxable unit in Denmark or not. This is evident from the reasons where he observes that, there is a possibility that AOP is not a taxable unit under the tax laws of Denmark and because of this, there is possibility of loss of revenue. The relevant observations made in the ‘reasons recorded’ by the A.O. to this effect, which reads as under:-
“In case, the Fund is not taxable unit under the taxation law in force in Denmark (as many countries do not recognize the “AOP” (trust) as a taxable unit for exempt the tax law of Luxumberg). Then the assessee is taxable in India in respect of the capital gain earned in India during the previous year relevant assessment year 2006-07.
The possibility of AOP is not a taxable unit under the tax law of Denmark may not be ruled out. Accordingly possibility of loss of revenue of Rs.462/4/44 (//.2% of 4//890769) may also not be ruled out.”
It is a trite law that for assuming the jurisdiction to reopen the case u/s 147, the A.O. must have ‘reasons to believe’ that any income chargeable to tax has escaped assessment. The words ‘reasons to believe’ are stronger than the words ‘satisfied’ as held by the Hon’ble Supreme Court in the case of Ganga Saran and Sons Pvt. Ltd. v. ITO [(1981) 130 ITR 1 (SC)]. The belief entertained by the Assessing Officer must not be irrational or hypothetical but must be held in good faith and not merely as a pretence.
The formation of belief must have rational connection with or relevant bearing from the material on record having live link nexus with income escaping assessment. The reasons recorded by the A.O. clearly shows that the reopening has been done merely on some kind of a possibility for which he himself is not sure. There is even no reference to any material that assessee’s claim for benefit under Article 14 of DTAA is false or incorrect. He is even not sure whether assessee is a tax resident when TRC was there in the return of income. It appears that the reopening is merely pretence to examine, whether the assessee is a taxable unit or not and whether there could be possibility of loss of revenue. Once the Tax Residency Certificate was there in the record, Then there could not have been any ground for presumption that the assessee is not a taxable entity in Denmark. He has not referred to any other information or material that the assessee is not a tax resident of Denmark and there was loss of revenue because the assessee has falsely claimed the benefit under Article 14 of the DTAA. The reasons as recorded by the A.O. falls in the realm of surmises and presumption de hors any material fact having live link nexus with the formation of ‘reasons to believe’ that income chargeable to tax has escaped assessment. Thus, we are of the opinion that on the face of the “reasons recorded”, the Assessing Officer cannot assume jurisdiction to reopen the case in the case of the assessee.
Thus, the entire proceedings initiated vide notice u/s 148 is bad in law and deserves to be quashed. Thus, the entire proceedings u/s 147 are held as null and void, as reasons recorded by the A.O. do not give him jurisdiction to reopen the case u/s 148. Accordingly on this preliminary ground alone, we quash the assessment order and the appeal of the assessee is treated as allowed. In view of the aforesaid finding, there is no need for giving finding onmerits, as the reopening of assessment itself is held to be invalid.