2015 (7) TMI 1284 - AT - Income Tax

Reopening of assessment - assessee as accommodation entry beneficiary - Held that - As decided in Signature Hotels P. Ltd. vs. Income Tax Officer 2011 (7) TMI 361 - DELHI HIGH COURT case according to the information, the amount received from a company, was nothing but an accommodation entry and the assessee was the beneficiary. The reasons did not satisfy the requirements of Section 147 of the Act. There was no reference to any document or statement, except the annexure. The annexure could not be regarded as a material or evidence that prima facie showed or established nexus or link which disclosed escapement of income. The annexure was not a pointer and did not indicate escapement of income. Further, the Assessing Officer did not apply his own mind to the information and examine the basis and material of the information. There was no dispute that the company, had a paid-up capital of ₹ 90 lakhs and was incorporated on January 4, 1989, and was also allotted a permanent account number in September, 2001. Thus, it could not be held to be a fictitious person. The reassessment proceedings were not valid and were lliable to be quashed. - Decided in favour of assessee

Summary

Issues Involved:
1. Legality of the assessment order under section 143(3)/147 of the Income Tax Act.
2. Validity of the initiation of proceedings under section 147 of the Income Tax Act.
3. Justification for the addition of Rs. 5,78,365 as unexplained cash credit under section 68 of the Income Tax Act.

Issue-wise Detailed Analysis:

1. Legality of the Assessment Order under Section 143(3)/147 of the Income Tax Act:
The assessee contested the assessment order, which assessed an income of Rs. 5,85,260 against the returned income of Rs. 5,450. The return was initially processed under section 143(1)(a) on 27.2.2003. Information from the Investigation Wing indicated that the assessee had taken accommodation entries amounting to Rs. 5,78,365. Consequently, a notice under section 148 was issued to reopen the assessment. The assessee argued that the Department did not possess any information that provided a foundation for the belief that income had escaped assessment. The Tribunal found that the reasons recorded by the AO for issuing the notice under section 148 were not acceptable to the law, as there was no independent application of mind and the notice was issued mechanically based on information received from the DIT(Inv.)-I, New Delhi.

2. Validity of the Initiation of Proceedings under Section 147 of the Income Tax Act:
The assessee argued that the initiation of proceedings under section 147 was mechanical and without independent application of mind. The Tribunal noted that the AO issued the notice under section 148 in the absence of tenable evidence or material regarding any undisclosed income and without recording requisite satisfaction. The Tribunal emphasized that the AO failed to provide the assessee with the opportunity to cross-examine the persons whose statements were recorded and used against the assessee. The Tribunal relied on several judicial precedents, including the decision of the Hon'ble Delhi High Court in the case of Signature Hotels P. Ltd. vs. ITO, which held that reassessment proceedings initiated solely based on information from the Investigation Wing without independent application of mind were invalid.

3. Justification for the Addition of Rs. 5,78,365 as Unexplained Cash Credit under Section 68 of the Income Tax Act:
The assessee contended that the addition of Rs. 5,78,365, comprising amounts received from three parties, was unsustainable as the amounts were received against the repayment of loans and advances given in earlier assessment years. The assessee had provided detailed explanations and evidence during the assessment proceedings, which were arbitrarily brushed aside by the AO. The Tribunal found that the AO did not conduct any enquiry or investigation and did not even mention the documents provided by the assessee in his order. The Tribunal concluded that the addition was made without proper justification and was unsustainable.

Conclusion:
The Tribunal quashed the reassessment proceedings under section 148 of the Income Tax Act, holding that the reasons recorded for issuing the notice were not acceptable and lacked independent application of mind. The Tribunal allowed the appeal filed by the assessee, rendering the other issues academic in nature. The order was pronounced in the open court on 27/7/2015.