2014 (11) TMI 593 - AT - Income Tax

Reopening of assessment Contravention of section 151 or not - Whether the approval given by CIT(A) would meet the requirements prescribed u/s 151 - Held that - In Amarlal Bajaj Versus Assistant Commissioner of Income-tax 2014 (1) TMI 1280 - ITAT MUMBAI it has been rightly held that Sections 147 and 148 are charter to the Revenue to reopen earlier assessments and also protected by safeguards against unnecessary harassment of the assessee - They are sword for the Revenue and shield for the assessee - Section 151 guards that the sword of Sec. 147 may not be used unless a superior officer is satisfied that the AO has good and adequate reasons to invoke the provisions of Sec. 147 - The superior authority has to examine the reasons, material or grounds and to judge whether they are sufficient and adequate to the formation of the necessary belief on the part of the assessing officer - the Commissioner has simply put approved and signed the report thereby giving sanction to the AO - Nowhere the Commissioner has recorded a satisfaction note not even in brief - it cannot be said that the Commissioner has accorded sanction after applying his mind and after recording his satisfaction - the reopening is bad in law for the reason that the Ld.CIT-V, Delhi has not recorded his satisfaction as contemplated u/s 151 of the Act. Addition u/s 68 Unexplained credits Held that - The assessee has furnished the following documents in support of transactions entered into by him CIT(A) rightly was of the view that the transaction regarding share application money and loan received by it were genuine transactions and the it were not accommodation entries there was no evidence collected by the AO which could prove otherwise - Accordingly, the AO was not justified in treating the amount of share application money and loan received by the appellant as its undisclosed income - there is no enquiry whatsoever by the AO and as the additions are not based on any material or evidence Decided against revenue.

Summary

Issues Involved:
1. Reopening of Assessment under Section 148.
2. Addition of Share Application Money and Loan under Section 68.
3. Commission Paid for Accommodation Entries.
4. Compliance with Section 151 for Reopening Assessment.

Issue-wise Detailed Analysis:

1. Reopening of Assessment under Section 148:
The assessee originally filed a return declaring a loss, which was accepted. Subsequently, the assessment was reopened under Section 148 based on information from the Investigation Wing, indicating the assessee received accommodation entries from entry operators. The assessee challenged the reopening, arguing that more than four years had passed since the original assessment, and there was no failure to disclose material facts. The Tribunal found that the reasons recorded for reopening were based on a report from the Investigation Wing without independent verification by the Assessing Officer (AO). The Tribunal held that the reopening was invalid as the Commissioner merely wrote "approved" without recording satisfaction as required under Section 151.

2. Addition of Share Application Money and Loan under Section 68:
The AO made additions of Rs. 1 crore for share application money and Rs. 35 lakhs for loans, citing lack of identity, creditworthiness, and genuineness of the transactions. The CIT(A) deleted these additions, noting that the assessee had provided substantial evidence, including confirmations, bank statements, and tax returns of the creditors and shareholders. The Tribunal upheld the CIT(A)'s decision, emphasizing that the AO did not conduct any independent investigation and relied solely on the Investigation Wing's report. The Tribunal referenced the Delhi High Court's rulings, which distinguished between cases where the AO conducted proper inquiries and those where the AO made additions based on presumptions without sufficient inquiry.

3. Commission Paid for Accommodation Entries:
The AO also added Rs. 2,70,000 as commission paid for obtaining accommodation entries. The CIT(A) deleted this addition, and the Tribunal upheld the deletion, as it was a consequential addition based on the primary additions under Section 68, which were already deleted.

4. Compliance with Section 151 for Reopening Assessment:
The Tribunal scrutinized the compliance with Section 151, which mandates satisfaction of the Commissioner for reopening assessments beyond four years. The Tribunal found that the Commissioner merely approved the reopening without recording any satisfaction, rendering the reopening invalid. The Tribunal referenced the Mumbai ITAT's decision in Amarlal Bajaj, which emphasized the necessity of the Commissioner applying his mind and recording satisfaction before approving reopening.

Conclusion:
The Tribunal dismissed the Revenue's appeal, upholding the CIT(A)'s deletion of additions under Section 68 and the consequential commission addition. The Tribunal also allowed the assessee's cross-objection, declaring the reopening of the assessment invalid due to non-compliance with Section 151. The judgment emphasizes the necessity of proper inquiry and adherence to procedural safeguards in reopening assessments.