2018 (4) TMI 1558 - AT - Income Tax

Reopening of assessment - bogus accommodation entries - Held that - Investigation Wing had not analyzed the transaction of the accommodation entries prior to the Asstt. Year 2005-06 whereas the present case pertains to the Assessment Year 2004-05. Even the order of the learned AO does not reveal that he had undertaken any such exercise before the recording of the reasons. The reasons recorded do not specify the other party who either received or provided the accommodation entries and they also do not establish the involvement of the assessee in the information unearthed by the Income-tax Department in respect of the huge money laundering mechanism. All these things according to us do not inspire any confidence in our mind to hold that the learned AO has reached any conscious decision that any income of the assessee has escaped assessment and the modus operandi thereof. While respectfully following the decision of the coordinate bench of the Tribunal in MRY Auto Components Ltd. (2017 (9) TMI 966 - ITAT DELHI) hold that the satisfaction of the learned AO is not based on any sound reasoning and on that ground we hold that the reopening of assessment is bad. Allow the appeal of the assessee.

Issues:

1. Reopening of assessment based on information from the Investigation Wing.
2. Application of mind by the Assessing Officer in forming the basis for reopening.
3. Discrepancy in the amount considered for addition in the assessment.
4. Compliance with legal remedies and opportunity for the assessee.
5. Sufficiency of material for reopening proceedings.
6. Analysis of reasons recorded by the Assessing Officer.
7. Lack of specific details in the reasons recorded.
8. Involvement of the assessee in the money laundering mechanism.

1. Reopening of assessment based on information from the Investigation Wing:
The case involved the Assessing Officer (AO) reopening the assessment based on information from the Investigation Wing regarding money laundering through accommodation entries. The AO proposed to reopen the proceedings, suspecting an income of ?15 lacs had escaped assessment during the relevant year.

2. Application of mind by the Assessing Officer in forming the basis for reopening:
The appellant argued that the AO did not independently apply his mind to the information from the Investigation Wing. The AO proceeded to make an addition of ?2.15 crores, which was significantly higher than the initial amount mentioned in the reasons for reopening.

3. Discrepancy in the amount considered for addition in the assessment:
The appellant contended that the AO's decision to add ?2.15 crores instead of the initial ?15 lacs indicated a lack of proper application of mind. This discrepancy raised concerns about the validity of the assessment.

4. Compliance with legal remedies and opportunity for the assessee:
The appellant highlighted the need for the AO to allow reasonable opportunity for the assessee to pursue legal remedies after objections were rejected. The failure to grant such time was considered a flaw in the assessment process.

5. Sufficiency of material for reopening proceedings:
The Departmental Representative argued that the information from the Investigation Wing was a valid source and did not require the sufficiency of material to justify reopening proceedings. The genuineness of transactions and parties involved needed further examination.

6. Analysis of reasons recorded by the Assessing Officer:
The Tribunal analyzed the reasons recorded by the AO, which indicated the receipt of accommodation entries by the assessee. However, the lack of specific details regarding the parties involved raised doubts about the AO's decision-making process.

7. Lack of specific details in the reasons recorded:
The Tribunal noted that the reasons recorded did not specify whether the assessee received or provided the accommodation entries. This lack of clarity regarding the assessee's involvement in the money laundering mechanism undermined the validity of the reopening.

8. Involvement of the assessee in the money laundering mechanism:
The Tribunal concluded that the AO did not reach a conscious decision regarding the assessee's involvement in the money laundering scheme. The lack of sound reasoning in the AO's satisfaction led to the decision that the reopening of the assessment was legally flawed.

In conclusion, the Tribunal allowed the appeal of the assessee, determining that the reopening proceedings were not based on sound reasoning and lacked a clear basis for assessing the income. The assessment order was deemed not legal or binding, leading to the appeal's success.

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