2016 (5) TMI 1415 - AT - Income Tax

Validity of re opening of assessment u/s 147 - escapement of assessment pertains to share transactions made through Gold Star Finvest Securities Ltd. - Held that - Assessee in her letter dated 7th November 2012, while objecting to the re opening of assessment had specifically brought to the notice of the Assessing Officer that she has not indulged in any share transactions through Gold Star Finvest Securities Ltd. However, the Assessing Officer while completing the assessment has not referred to any share transactions through Gold Star Finvest Securities Ltd. but has referred to share transactions made through Mahasagar Securities Pvt. Ltd., which according to the Assessing Officer is an accommodation entry. If the reasons recorded are juxtaposed to the facts stated in the assessment order, it becomes clear that subject matter of re opening as per reasons recorded and as per assessment are at variance. While in the reasons recorded for re opening the assessment, the Assessing Officer has referred to accommodation entries provided by Gold Star Finvest Securities Ltd. in the assessment order, the Assessing Officer has referred to accommodation entries provided by Mahasagar Securities Pvt. Ltd. Therefore, in our view, the impugned assessment order has no nexus to the reasons recorded for re opening the assessment - Decided in favour of assessee.

Summary

Issues Involved:
1. Violation of principles of Natural Justice.
2. Reopening is bad in law.
3. Addition under section 69 of ? 36,45,853/- on alleged Accommodation Entries.

Detailed Analysis:

1. Violation of principles of Natural Justice:
The assessee argued that the CIT(A) failed to address the grounds related to the violation of natural justice, specifically that evidence was used against the assessee without providing a copy. The CIT(A) confirmed the Assessing Officer's decision without addressing the assessee's request for cross-examination of Mr. Mukesh Choksi, whose statements were the basis for reopening the assessment.

2. Reopening is bad in law:
The assessee challenged the validity of the reopening of the assessment under section 147 of the Income Tax Act, 1961. The original return was accepted under section 143(1) on 26/10/2006, and the reopening was based on alleged new information from a third party's statement during a search and seizure action. The assessee contended that the reopening was based on a change of opinion rather than new material facts. The Tribunal noted that the reasons for reopening, as communicated by the Assessing Officer, mentioned accommodation entries from Gold Star Finvest Securities Ltd., but the assessment order referred to transactions with Mahasagar Securities Pvt. Ltd. This discrepancy indicated a lack of nexus between the reasons for reopening and the actual assessment, rendering the reopening invalid.

3. Addition under section 69 of ? 36,45,853/- on alleged Accommodation Entries:
The CIT(A) confirmed the addition of ? 36,45,853 as unexplained investment under section 69, based on the Assessing Officer's finding that the transactions were accommodation entries. The assessee argued that the transactions were only ? 1,44,463 and were supported by evidence. The Tribunal found that the reasons recorded for reopening did not match the details in the assessment order, and the assessee had not engaged in transactions with Gold Star Finvest Securities Ltd. The Tribunal concluded that the assessment lacked a live link or nexus with the reasons for reopening, making the addition unsustainable.

Conclusion:
The Tribunal held that the reopening of the assessment under section 147 was legally invalid due to the lack of nexus between the reasons recorded and the actual assessment. Consequently, the assessment order was quashed. Since the issue of reopening was decided in favor of the assessee, other grounds were deemed academic and not addressed. The appeal was allowed.