2010 (4) TMI 869 - AT - Income Tax

Summary

Issues Involved:
1. Validity of initiation of reassessment proceedings under section 147 of the Income-tax Act, 1961.
2. Validity of additions made by the Assessing Officer on account of accommodation entries and commission paid.

Detailed Analysis:

1. Validity of Initiation of Reassessment Proceedings under Section 147 of the Income-tax Act, 1961

Background:
The revenue filed an appeal against the order of the CIT(A) which deleted the additions made by the Assessing Officer under sections 144/147. The assessee cross-objected, challenging the validity of the reassessment proceedings under section 147.

Facts:
- The assessee filed a return on 28-11-2003, declaring an income of Rs. 18,19,740, which was processed under section 143(1).
- Information from DCIT, CC-VI, Kolkata indicated that the assessee was involved in receiving accommodation entries from dummy companies controlled by Mr. P.K. Ruia.
- Based on this information, the Assessing Officer recorded reasons to believe that the income had escaped assessment and issued a notice under section 148.

Contentions:
- The assessee contended that the reasons recorded were vague, unspecified, and based on no material, asserting that no loans or share capital were raised during the relevant year.
- The revenue argued that the return was processed under section 143(1), and no regular assessment under section 143(3) was made, giving the Assessing Officer jurisdiction to initiate proceedings under section 147 based on the information received.

Legal Findings:
- The Tribunal emphasized that the "reason to believe" must be based on relevant and material reasons, not arbitrary or irrational assumptions.
- The Tribunal found that the Assessing Officer's belief was based on non-existent grounds, as no loans or share capital were raised by the assessee in the relevant year. The addition made was actually on account of sales receipts, not loans or share capital.
- The Tribunal concluded that the proceedings were initiated on vague and unfounded grounds without proper application of mind, thus invalidating the reassessment proceedings.

Conclusion:
The initiation of proceedings under section 147 was found to be without jurisdiction, arbitrary, and based on irrelevant and non-existent material. The reassessment order was thus cancelled.

2. Validity of Additions Made by the Assessing Officer on Account of Accommodation Entries and Commission Paid

Background:
The Assessing Officer made additions of Rs. 10,52,62,889 for accommodation entries and Rs. 10,52,629 for commission paid, which were deleted by the CIT(A).

Facts:
- The CIT(A) concluded that the transactions related to the sale of cotton knitted fabrics and not bogus loans/share capital.
- The CIT(A) found no evidence to support the Assessing Officer's claim of accommodation entries and commission paid.

Contentions:
- The assessee argued that the additions were baseless as the transactions were genuine sales.
- The revenue contended that the additions were justified based on the information received from the investigation.

Legal Findings:
- The Tribunal noted that the CIT(A) had deleted the additions on merit, finding the transactions to be genuine sales.
- Since the reassessment proceedings were invalidated, the Tribunal did not find it necessary to delve into the merits of the additions.

Conclusion:
The appeal by the revenue was dismissed as infructuous, and the cross-objection by the assessee was allowed, confirming the deletion of the additions.

Final Decision:
The reassessment proceedings initiated under section 147 were declared invalid, and the assessment order was cancelled. Consequently, the appeal by the revenue was dismissed, and the cross-objection by the assessee was allowed.