2016 (7) TMI 1450 - AT - Income Tax

Validity of the reassessment proceedings u/s 147 - unaccounted share application money received - accommodation entries - information received from Investigation Wing - non independent application of mind - Held that - The reopening was done by the AO only on the basis of the information received from Investigation Wing - the person from whom assessee received share application money was entry operator - however, in the assessment of the said company i.e. M/s Singhal Securities Pvt. Ltd., no such findings has given neither any addition was made while framing the assessment u/s 153C/153A - Keeping in view the ratio laid down in M/s Dhanuka Agritech Ltd. Vs ACIT 2016 (6) TMI 214 - ITAT DELHI are of the view that are of the view that the reopening done by the AO u/s 147 was not valid and accordingly void-ab-initio and therefore the same is quashed. - Decided in favour of assessee.

Issues Involved:
1. Validity of initiation of proceedings under Section 147 of the Income Tax Act.
2. Addition of ?14,00,000 as unexplained cash credit under Section 68.
3. Non-admission of additional evidence.
4. Violation of principles of natural justice.
5. Addition of ?28,000 as unexplained expenditure under Section 69C.
6. Levy of interest under Sections 234AB and 234B.

Detailed Analysis:

1. Validity of initiation of proceedings under Section 147 of the Income Tax Act:
The main grievance of the assessee was the confirmation of the initiation of proceedings under Section 147. The assessee originally filed its return declaring a loss, which was processed under Section 143(1). The AO reopened the assessment based on information from the Investigation Wing that the assessee received accommodation entries from M/s Singhal Securities Pvt. Ltd. The AO issued a notice under Section 148 after recording the reason to believe that an income of ?14,28,000 had escaped assessment. The assessee objected to the reopening, arguing that the reasons recorded were vague and lacked material evidence. The CIT(A) upheld the AO's decision, stating that the AO had specific details and there was no legal infirmity in the reopening process. However, the Tribunal found that the AO had no material other than the information from the Investigation Wing and did not apply his own mind, making the reopening invalid.

2. Addition of ?14,00,000 as unexplained cash credit under Section 68:
The AO made an addition of ?14,00,000, considering it as unexplained cash credit under Section 68, as the assessee failed to produce the director of M/s Singhal Securities Pvt. Ltd. and the identity and creditworthiness of the party were unverifiable. The CIT(A) confirmed the addition, but the Tribunal noted that the assessment of M/s Singhal Securities Pvt. Ltd. was framed at the same figure of loss declared by them, and there was no material evidence to support the AO's claim. Thus, the addition was not justified.

3. Non-admission of additional evidence:
The CIT(A) did not admit additional evidence filed by the assessee, including audited balance sheets and affidavits. The Tribunal did not specifically address this issue, as the primary focus was on the validity of the reopening and the addition under Section 68.

4. Violation of principles of natural justice:
The assessee argued that the authorities did not grant sufficient opportunity, violating the principles of natural justice. The Tribunal's decision to quash the reassessment implicitly addressed this concern, as the reopening itself was found to be invalid.

5. Addition of ?28,000 as unexplained expenditure under Section 69C:
The AO made an additional ?28,000 addition, considering it as a commission paid for obtaining accommodation entries. The CIT(A) upheld this addition, but the Tribunal's decision to quash the reassessment rendered this addition void.

6. Levy of interest under Sections 234AB and 234B:
The CIT(A) upheld the levy of interest under Sections 234AB and 234B. However, with the reassessment being quashed, the interest levied under these sections was also rendered invalid.

Conclusion:
The Tribunal quashed the reassessment, holding that the reopening under Section 147 was invalid as it was based solely on information from the Investigation Wing without the AO applying his own mind. Consequently, all additions and interest levied were rendered void. The appeal of the assessee was allowed.

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