2016 (1) TMI 450 - AT - Income Tax

Reopening of assessment - information received from the investigation wing - accommodation entries - Held that - AO proceeded to issue notices for reassessment on the basis of information received from the investigation wing of the Department about the existence of accommodation entries providers. It is a settled legal position that at the stage of issue of notice u/s 148, the merits of the matter are not relevant and the AO at that stage is required to form only a prima facie belief or opinion that income chargeable to tax has escaped assessment. However, once that stage is crossed and the reassessment proceedings are set in motion, the material on the basis of which the requisite belief was formed by the AO has to be appraised and examined. It is seen that the reassessment proceedings were initiated entirely on the basis of specific information received from the investigation wing and it was during the course of inquires from the bank by the investigation wing that it was revealed that the assessee was a beneficiary of some accommodation entries. As per the reasons recorded, it is evident that the AO did not corroborate or examine the information received from the investigation wing before recording his own satisfaction of escaped income and initiating the reassessment proceedings. In light of the aforesaid discussion, we are inclined to hold that in the instant case, the AO proceeded to initiate proceedings u/s 147 of the Act and to issue notice u/s 148 of the Act only on the basis of information received from the investigation wing of the Department. There is no material on record to show that the AO had applied an independent mind in forming a belief which may result in the required reason to believe as per the provisions of Section 147 and 148 of the Act - Decided in favour of assessee

Summary

Issues:
Assumption of jurisdiction u/s 147 of the Income Tax Act, 1961.

Analysis:
1. The appeals were filed against a common order by Ld. CIT (A) for Assessment Years 1999-2000 and 2000-01, addressing similar issues. The survey under section 133A revealed concerns providing accommodation entries, leading to unexplained income additions under section 68 for both years.

2. The Ld. CIT (A) dismissed the appeals due to insufficient evidence on creditworthiness of investors and lack of investor cooperation. The assessee challenged jurisdiction under section 147 for the first time before the ITAT, citing Supreme Court precedents allowing new grounds based on existing facts.

3. The ITAT admitted the additional ground and analyzed two limbs of the issue. The notice was challenged for being in the wrong name, but since the assessee cooperated throughout reassessment, this objection was dismissed. The second limb questioned the validity of reasons recorded for reopening, citing lack of independent assessment by the AO.

4. The ITAT reviewed the initiation of reassessment proceedings based solely on information from the investigation wing, without the AO's independent verification. Citing legal precedents, the ITAT held the reassessment invalid for both years, as the AO failed to form a genuine belief of escaped income, rendering the reopening unlawful.

5. Relying on various Delhi High Court judgments, the ITAT concluded that the reassessment lacked a valid basis and quashed the proceedings. Consequently, the appeals of the assessee were allowed, and the reassessment was deemed invalid for both years.

This detailed analysis highlights the procedural and legal intricacies surrounding the assumption of jurisdiction under section 147 of the Income Tax Act, leading to the ITAT's decision to invalidate the reassessment for the relevant years.