ITAT Strikes Down Reassessment Based on Anonymous TEP, Says AO Must Independently Verify Allegations Before Invoking Section 148:

The Income Tax Appellate Tribunal (ITAT), Delhi Bench, has allowed the appeal filed by Urvara Agro Private Limited for Assessment Year 2018-19 and set aside the reassessment proceedings initiated against the company.

The case was based on an assessment order passed by the National Faceless Assessment Center in which the Assessing Officer had made an addition of Rs 42.62 lakh as unexplained investment under Section 69B of the Income Tax Act. The first appellate authority has then confirmed the addition.

The reassessment proceedings were initiated following a Tax Evasion Petition (TEP) received by the tax department alleging that some immovable properties have allegedly been transferred in the name of the company as benami properties.

Before the ITAT, the company's counsel argued that the reopening of the assessment itself was invalid because it was based primarily on an anonymous and unverified TEP, without sufficient independent material to establish that income had escaped assessment.

The Tribunal examined the notice issued under Section 148A(b) and the order passed under Section 148A(d). It observed that the material supplied by the department did not even clearly mention the nature, location, valuation, date or mode of acquisition of the alleged properties, or the alleged source of investment.

The ITAT noted that the Assessing Officer had stated that the company had failed to explain the source of investment, but the underlying material did not provide sufficient details to establish what asset or investment was actually being questioned.

The Tribunal held that such information could not by itself establish the necessary “live link” between the information received and the alleged escapement of income. According to the Tribunal, when reassessment is initiated on the basis of an anonymous and unverified tax evasion complaint, the Assessing Officer must carry out some independent verification and gather supporting material.

The Tribunal also noted that Section 69B is a deeming provision dealing with investments or expenditure allegedly exceeding the amounts recorded in the books. Therefore, there should be material indicating that the assessee had actually invested or spent an amount higher than what was recorded.

wherein the court had held that a Tax Evasion Petition with only bald allegations, without supporting documents or material, could not itself justify reopening of an assessment.

The Tribunal also referred to the decision of the Delhi High Court in Pradyot K. Misra v. ACIT, wherein it was held that reassessment which is substantially based on a TEP, without giving the underlying material to the assessee and a meaningful opportunity to respond, cannot be sustained.

Having regard to these principles, the ITAT held that the statutory conditions for reopening the assessment were not satisfied. It held that reassessment cannot be based merely on vague, unverified or borrowed information and that the Assessing Officer must independently apply his mind to tangible and credible material suggesting escapement of income.

Accordingly, the ITAT allowed Urvara Agro Private Limited's appeal and quashed the impugned reassessment order.