2016 (4) TMI 1142 - AT - Income Tax

Reopening of assessment - reasons to believe - Held that - AO has not applied his mind so as to come to an independent conclusion that he has reason to believe that income has escaped during the year. In our view the reasons are vague and are not based on any tangible material as well as are not acceptable in the eyes of law. The AO has mechanically issued notice u/s. 148 of the Act, on the basis of information allegedly received by him from the Directorate of Income Tax (Investigation), New Delhi. Keeping in view of the facts and circumstances of the present case and the case law applicable in the case of the assessee, we are of the considered view that the reopening in the case of the assessee for the asstt. Year in dispute is bad in law and deserves to be quashed. Even otherwise, a perusal of the above demonstrates that the Addl. CIT has written Approved which establishes that he has not recorded proper satisfaction / approval, before issue of notice u/s. 148 of the I.T. Act. Thereafter, the AO has mechanically issued notice u/s. 148 of the Act, on the basis of information allegedly received by him from the Directorate of Income Tax (Investigation), New Delhi. Keeping in view of the facts and circumstances of the present case and the case law applicable in the case of the assessee, we are of the considered view that the reopening in the case of the assessee for the asstt. Year in dispute is bad in law and deserves to be quashed. - Decided in favour of assessee

Issues Involved:
1. Validity of notice issued under Section 148 of the Income Tax Act.
2. Legality of the assessment order based on the notice under Section 148.
3. Treatment of ?3,50,00,000/- as unexplained credit.
4. Rejection of the assessee's submissions regarding the genuineness of the loan transactions.
5. Denial of cross-examination opportunity to the assessee.
6. Responsibility of the Assessing Officer (AO) to gather information about loan creditors.
7. Application of interest under Sections 234 A, 234 B, and 234 D of the Income Tax Act.
8. Factual inaccuracies in the CIT(A)'s order regarding the nature of the funds received.
9. Failure to call for a remand report by the CIT(A).
10. General errors in law and facts by the CIT(A) and AO.

Detailed Analysis:

1. Validity of Notice Issued Under Section 148:
The Tribunal examined whether the notice issued under Section 148 was valid. The assessee argued that the notice was issued without proper reasons, lacked a nexus between the material relied upon and the belief formed, and was issued without due application of mind. The Tribunal found that the Assessing Officer (AO) did not apply his mind independently and issued the notice based on vague information from the Directorate of Income Tax (Investigation). The Tribunal concluded that the reopening of the assessment was bad in law, citing the case of G&G Pharma India Limited vs. ITO, where similar issues were adjudicated.

2. Legality of the Assessment Order Based on the Notice Under Section 148:
The Tribunal noted that the AO's reasons for reopening the assessment were vague and not based on tangible material. The approval for issuing the notice was given mechanically by the Additional Commissioner without proper satisfaction. The Tribunal quashed the reassessment proceedings, rendering the assessment order invalid.

3. Treatment of ?3,50,00,000/- as Unexplained Credit:
The AO treated ?3,50,00,000/- as unexplained credit based on information from the Investigation Wing, which identified the assessee as a beneficiary of accommodation entries. The Tribunal did not address this issue in detail as the reassessment proceedings were quashed on legal grounds.

4. Rejection of Assessee's Submissions Regarding the Genuineness of the Loan Transactions:
The assessee contended that the loans were received through proper banking channels and that the loan creditors did not deny granting the loans. The Tribunal did not delve into this issue due to the quashing of the reassessment proceedings.

5. Denial of Cross-Examination Opportunity to the Assessee:
The assessee argued that he was not given the opportunity to cross-examine Shri Tarun Goyal and other directors whose statements were relied upon by the Investigation Wing. This issue was not specifically addressed by the Tribunal due to the quashing of the reassessment proceedings.

6. Responsibility of the AO to Gather Information About Loan Creditors:
The assessee claimed that the AO failed to gather information about the loan creditors, which was available with the Investigation Wing. The Tribunal did not address this issue in detail as the reassessment proceedings were quashed on legal grounds.

7. Application of Interest Under Sections 234 A, 234 B, and 234 D:
The assessee challenged the application of interest under Sections 234 A, 234 B, and 234 D. The Tribunal did not address this issue due to the quashing of the reassessment proceedings.

8. Factual Inaccuracies in the CIT(A)'s Order:
The assessee pointed out factual inaccuracies in the CIT(A)'s order, particularly the statement that the funds were received through private placement rather than as loans. The Tribunal did not address this issue due to the quashing of the reassessment proceedings.

9. Failure to Call for a Remand Report by the CIT(A):
The assessee argued that the CIT(A) did not call for a remand report, which was necessary to verify the loans. The Tribunal did not address this issue due to the quashing of the reassessment proceedings.

10. General Errors in Law and Facts by the CIT(A) and AO:
The assessee contended that the CIT(A) and AO made several errors in law and facts. The Tribunal quashed the reassessment proceedings, thereby addressing the primary legal issue raised by the assessee.

Conclusion:
The Tribunal quashed the reassessment proceedings initiated under Section 148 of the Income Tax Act on the grounds that the notice was issued without proper reasons and due application of mind. The approval for reopening the assessment was given mechanically, rendering the reassessment invalid. Consequently, the Tribunal did not address the other issues raised by the assessee, as they became academic in nature. The appeal filed by the assessee was allowed.

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