2016 (8) TMI 1144 - AT - Income Tax

Validity of reopening of assessment - information received from the Directorate of Income Tax (Investigation) - 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 my 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 - Decided in favour of assessee.

Summary

Issues:
1. Jurisdiction of AO in reopening the assessment.
2. Validity of reasons recorded for reopening the assessment.
3. Addition of share application money and commission without cross-examination.

Jurisdiction of AO in Reopening the Assessment:
The appellant challenged the reopening of the assessment for AY 2009-10, contending that the AO did not comply with mandatory conditions under sections 147 to 151 of the I.T. Act, 1961. The appellant argued that the reasons recorded for reopening were invalid and lacked satisfaction as per law. The AO relied on information from the Directorate of Income Tax (Investigation), New Delhi, without establishing a direct nexus between the materials and the belief of income escapement. The tribunal found that the AO did not apply his mind independently and issued the notice mechanically. Citing the judgment in Pr. CIT vs. G&G Pharma India Ltd., the tribunal quashed the reopening, ruling in favor of the appellant.

Validity of Reasons Recorded for Reopening the Assessment:
The AO's reasons for reopening the assessment were based on information from a search operation involving accommodation entries provided by certain entities. However, the tribunal found the reasons vague, lacking tangible material, and not in compliance with the law. The AO failed to form a prima facie opinion based on the materials, as required by law. Referring to the judgment in Pr. CIT vs. G&G Pharma India Ltd., the tribunal emphasized the necessity for the AO to apply his mind to the materials before concluding income escapement. The tribunal held that the reopening order was inherently defective and quashed the reassessment proceedings.

Addition of Share Application Money and Commission without Cross-Examination:
The appellant contested the addition of share application money and commission without cross-examination. The CIT(A) confirmed the additions, leading to the appeal before the tribunal. The tribunal, however, primarily focused on the jurisdictional issue of reopening the assessment and found in favor of the appellant, thereby not delving into the substantive issue of additions. As the reopening was deemed invalid, the tribunal allowed the appeal without addressing the specific grounds related to the additions.

In conclusion, the ITAT Delhi ruled in favor of the appellant, quashing the reassessment proceedings due to the invalid reopening of the assessment by the AO. The tribunal emphasized the importance of the AO applying his mind independently before concluding income escapement, as per legal requirements. The issues related to the additions of share application money and commission were not addressed substantively, as the primary focus was on the jurisdictional aspect of the case.