2017 (1) TMI 1517 - AT - Income Tax

Revision u/s 263 - receipt of accommodation entries - assessments were reopened u/s. 147 - Held that - There is absolutely no dispute that the AO has not made any enquiry regarding the accommodation entry pertaining to the assessee specifically which was found during the course of search and investigation in SK Jain Group as highlighted by the Pr. CIT. Once adequate or proper enquiry has not been done, then in terms of Explanation 2 inserted in section 263 of the Act by the Finance Act, 2015, w.e.f. 1.6.2015, the assessement order is deemed to be erroneous in so far as it is prejudicial to the interest of Revenue. Hence, the present case is squarely covered by the decision of Surya Jyoti Software Pvt. Ltd. vd. Pr. CIT, 2017 (11) TMI 1588 - ITAT DELHI wherein the order u/s. 263 of the Act has been passed by the Ld. Pr. CIT-8, New Delhi; information was received from Investigation Wing that the assessee has received accommodation entries from Sh. SK Jain; assessments were reopened u/s. 147 of the Income Tax Act, 1961 on the basis of above information and assessment completed without making any addition on account of accommodation entry taken and the Ld. Pr. CIT s order u/s. 263 of the Act on account of the fact that the AO had not taken into consideration the material seized during search in the case of Sh. SK Jain. We further find that the present is also covered by the decision of the Hon ble Supreme Court of India in the case of Deniel Merchants Pvt. Ltd. vs. ITO (2017 (12) TMI 476 - SUPREME COURT) wherein the Hon ble Supreme Court of India has dismissed the SLPs in cases where AO did not make any proper inquiry while making the assessment and accepting the explanation of the assessee(s) insofar as receipt of share application money is concerned. On that basis the Commissioner of Income Tax had, after setting aside the order of the AO, simply directed the AO to carry thorough and detailed inquiry. - Decided against assessee.

Issues Involved:
1. Validity of reopening under Section 148 versus Section 153C.
2. Adequacy and validity of reasons recorded for reopening.
3. Application of mind by the Assessing Officer (AO) in recording reasons.
4. Grounds forming part of the Show Cause Notice.
5. Consideration of assessee's replies by CIT.
6. Due enquiries by CIT before passing the revision order.
7. Confrontation and cross-examination of statements.
8. Consideration of nil orders in related cases.

Issue-wise Analysis:

1. Validity of Reopening under Section 148 versus Section 153C:
The assessee argued that the reopening under Section 148 was invalid as the period fell under Section 153C. The Tribunal held that the reopening under Section 148 was valid as the material found during the search did not belong to the assessee but was merely information indicating the assessee as a beneficiary of accommodation entries. Therefore, Section 153C was not applicable.

2. Adequacy and Validity of Reasons Recorded for Reopening:
The assessee contended that the reasons recorded for reopening did not reference the seized documents. The Tribunal noted that the reasons for reopening were based on specific information and material indicating the assessee as a beneficiary of accommodation entries, which constituted a tangible material sufficient to form a 'reason to believe' that income had escaped assessment.

3. Application of Mind by the Assessing Officer (AO) in Recording Reasons:
The assessee argued that there was no application of mind by the AO while recording the reasons for reopening. The Tribunal found that the AO had recorded detailed reasons based on information received from the Investigation Wing, which was sufficient to initiate proceedings under Section 148.

4. Grounds Forming Part of the Show Cause Notice:
The assessee claimed that the impugned order was based on grounds not forming part of the Show Cause Notice. The Tribunal observed that the relevant seized material was provided to the assessee along with the Show Cause Notice and was also confronted during the proceedings under Section 263.

5. Consideration of Assessee's Replies by CIT:
The assessee argued that their replies dated 24.01.2017 and 02.02.2017 were not considered. The Tribunal found that the Principal CIT had considered the entire facts, material on record, and submissions made by the assessee before passing the revision order.

6. Due Enquiries by CIT Before Passing the Revision Order:
The assessee contended that the CIT did not make due enquiries before passing the revision order. The Tribunal held that the Principal CIT had rightly set aside the re-assessment order on the ground that the AO had not made proper verification/enquiries regarding the seized material.

7. Confrontation and Cross-examination of Statements:
The assessee argued that the revision order was passed without confronting them with the statement of S.K. Jain or allowing cross-examination. The Tribunal noted that the seized material was confronted to the assessee during the proceedings under Section 263, and the AO had failed to make adequate enquiries regarding the genuineness of the transactions.

8. Consideration of Nil Orders in Related Cases:
The assessee claimed that nil orders were passed in the cases of companies from whom share capital was obtained. The Tribunal did not find this argument sufficient to invalidate the revision proceedings, as the issue was the lack of proper enquiry by the AO into the seized material.

Conclusion:
The Tribunal upheld the Principal CIT's order under Section 263, setting aside the re-assessment order due to the AO's failure to examine the relevant seized material and make proper enquiries. The appeal of the assessee was dismissed.

← Previous Next →