2011 (10) TMI 624 - AT - Income Tax

Reopening of assessment - Held that - The first sentence in the reasons is about information regarding receipt of two manager s cheques by the assessee and second sentence holds these cheques received from shri Harish Pawar to be accommodation entries. The basis for holding the amount of ₹ 10 lacs as accommodation entry is nowhere evident from these recorded reasons not there is any material that the amount was escaped income. Not even a whisper has been made in the reasons regarding basis or material for mentioning the amount of aforesaid two manager s cheques as accommodation entries. The aforesaid reasons recorded are not at all self-explanatory and keep any reasonable person guessing as to how the receipt of two cheques become accommodation entries. Therefore, it appears from the reasons that the AO without applying his mind properly, issued notice u/s 148 of the Act. The very basis for reopening of assessment is mere assumption of the AO and the reopening cannot be sustained on the assumptions and surmises and he never cared to verify the factual position correctly. The reopening of assessment made by the AO is invalid and liable to be quashed.

Issues Involved:
1. Validity of the reassessment proceedings initiated under Section 147 of the Income-tax Act, 1961.
2. Non-supply of reasons for initiation of proceedings within the prescribed statutory time limit.
3. Addition of Rs. 17,00,000 on account of unexplained gifts.
4. Addition of Rs. 34,000 on account of alleged commission paid.
5. Reliance on evidence gathered at the back of the appellant without affording any opportunity of cross-examination.

Analysis of Judgment:

1. Validity of Reassessment Proceedings:
The appellant challenged the validity of the reassessment proceedings initiated under Section 147 of the Income-tax Act, 1961, arguing that the notice under Section 148 was issued without proper jurisdiction and was not based on any material in the possession of the Assessing Officer (AO). The Tribunal noted that the reasons recorded by the AO for reopening the assessment were not self-explanatory and lacked a clear basis or material indicating that the amount in question was escaped income. The Tribunal emphasized that the reasons for reopening must be based on specific, definite, and reliable material. The Tribunal concluded that the reopening of the assessment was invalid and quashed the reassessment proceedings.

2. Non-supply of Reasons for Initiation of Proceedings:
The appellant contended that the authorities failed to supply the reasons for the initiation of proceedings within the prescribed statutory time limit. The Tribunal observed that the AO did not deal with the objections of the appellant before completing the reassessment, which amounted to procedural irregularities. However, the Tribunal held that such irregularities did not render the reassessment order void but irregular, as per the Madras High Court's judgment in Areva T&D India Ltd. vs. ACIT.

3. Addition of Rs. 17,00,000 on Account of Unexplained Gifts:
The AO had added Rs. 17,00,000 to the appellant's income, treating it as unexplained gifts received from certain individuals. The appellant submitted gift deeds and affidavits but failed to produce the donors before the AO. The Tribunal noted that the AO's reasons for treating the amounts as accommodation entries were not substantiated with specific, definite, or reliable material. Given the quashing of the reassessment proceedings, this ground became infructuous and did not require further adjudication.

4. Addition of Rs. 34,000 on Account of Alleged Commission Paid:
The AO had also added Rs. 34,000 to the appellant's income, alleging it was commission paid for obtaining accommodation entries. The Tribunal noted that the reasons for reopening the assessment were invalid, and thus, this ground also became infructuous and did not require further adjudication.

5. Reliance on Evidence Gathered at the Back of the Appellant:
The appellant argued that the authorities relied on evidence gathered at the back of the appellant without providing an opportunity for cross-examination. The Tribunal did not specifically address this issue separately, as the primary ground of invalid reassessment proceedings rendered the other grounds infructuous.

Conclusion:
The Tribunal allowed the appeal, quashing the reassessment proceedings initiated under Section 147 of the Income-tax Act, 1961, due to the lack of valid reasons and material for reopening the assessment. Consequently, the additions of Rs. 17,00,000 and Rs. 34,000 were treated as infructuous, and the appeal was allowed in favor of the appellant.

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