2017 (7) TMI 1145 - AT - Income Tax

Validity of reopening of assessment - unexplained cash credit u/s 68 - information obtained from the investigation wing - non independent application of mind by AO - Held that - As relying upon the judgement of Hon ble Delhi High Court in the case of Pr.CIT vs. G&G Pharma 2015 (10) TMI 754 - DELHI HIGH COURT it is held that AO has not applied his mind and not come to an independent conclusion that he has reason to believe that the income of the Assessee has escaped assessment - thus proceedings u/s 148 is quashed - Decided against the revenue.

Summary

Issues Involved:
1. Validity of reopening of assessment under Section 148 of the Income Tax Act, 1961.
2. Addition of Rs. 11,25,000/- as unexplained cash credit under Section 68 of the Income Tax Act, 1961.

Detailed Analysis:

Issue 1: Validity of Reopening of Assessment under Section 148
The primary contention was whether the Assessing Officer (AO) had valid grounds to reopen the assessment under Section 148. The AO initiated proceedings based on information from the Directorate of Investigation, which indicated that the assessee had received accommodation entries/bogus share application money. The AO believed that the assessee failed to disclose all material facts necessary for assessment, leading to income escapement.

The assessee argued that the AO did not independently apply his mind and relied solely on the information from the Investigation Wing. Citing the Delhi High Court decisions in Principal CIT vs G&G Pharma India Limited and Signature Hotels P. Ltd. vs ITO, the assessee contended that reopening based on mere information without independent verification by the AO is invalid.

The Tribunal agreed with the assessee, noting that the AO did not demonstrate an independent application of mind. The Tribunal referenced the G&G Pharma India Limited case, emphasizing that the AO must form a prima facie opinion based on the material before him. The Tribunal found that the AO's reasons were vague and lacked substantive evidence of independent assessment.

Issue 2: Addition of Rs. 11,25,000/- as Unexplained Cash Credit
The AO added Rs. 11,25,000/- to the assessee's income under Section 68, citing unexplained cash credit. The assessee had received share application money from M/s Tulip Engineering Private Limited and provided confirmation, ITR, and balance sheet of the said company. However, the AO was not satisfied due to the non-production of the company's director and the inability to verify the genuineness of the transaction.

The CIT(A) upheld the AO's addition, stating that the assessee failed to prove the identity, creditworthiness, and genuineness of the share applicant. The CIT(A) noted suspicious banking transactions of M/s Tulip Engineering Private Limited, indicative of entry operations.

The Tribunal, however, did not adjudicate on the merits of this issue, as the appeal succeeded on the primary ground of invalid reopening under Section 148. The Tribunal set aside the CIT(A)'s order on the validity of the notice under Section 148, rendering the additions academic.

Conclusion:
The Tribunal allowed the appeal, ruling that the reopening of assessment under Section 148 was invalid due to the lack of independent application of mind by the AO. Consequently, the Tribunal did not address the merits of the addition under Section 68, as the primary issue's resolution rendered it moot.