2018 (1) TMI 1360 - AT - Income Tax

Revision u/s 263 - validity of reopening under section 147 by the assessee, on the ground that the proceedings should have been initiated under section 153C - no application of mind by AO while recording the reasons for initiating the proceedings u/s. 148 - addition u/s 68 - Held that - We do not find any quarrel to the proposition that the validity of assessment or reassessment cannot be challenged in the revisionary proceedings u/s 263. What has been found, is the regular entries in the books of account of the concerns of S.K. Jain group, in which name of the assessee is appearing. Such entries in the cash books depicting the details of cheques issued in favour of the assessee as well as cash deposit through intermediates on various dates cannot be reckoned as document or books of account of the assessee. This fact has been noted by the Pr. CIT in the impugned order, wherein the entries pertains to the assessee for a sum of ₹ 25 lacs. Thus, the contention raised by the ld. counsel on this point is out rightly rejected that the proceedings under section 153C of the Act should have been initiated instead of under section 147 of the Act. As regards the contention that material or information found during the course of search in the case of S.K. Jain group cannot be held to be a tangible material pertaining to the assessee, we are unable to accept such a contention for the reason that, firstly, there was a categorical information and material coming on record, that assessee was one of the beneficiaries of accommodation entries provided by one of the group concern of S.K. Jain and not only that, a specific amount (of ₹ 25 lacs ) has been mentioned which prima-facie pertained to the assessee. This definitely constitutes a tangible and definite material having live-link nexus with the income chargeable to tax escaping assessment. As seen from the records that the assessee had raised similar objections after the receipt of reasons recorded before the Assessing Officer during the course of re-assessment proceedings, which have been amply dealt with and discussed by the Assessing Officer inn detail vide his separate order, copy of which has been placed in the paper book. Against the said order, assessee has not sought for any remedy nor has it challenged this issue in appeal after the passing of the assessment order. In any case, we have already held Assessing Officer has rightly acquired jurisdiction under section 147 of the Act based on the information/material referred to in the reasons recorded . Accordingly, this contention raised by the ld. Counsel of the assessee is also rejected. Lastly on merits, Pr. CIT has amply demonstrated in his impugned order that this issue was neither enquired into nor was verified by the Assessing Officer once the information and the material in hard copy and in form of CD was made available to him. AO should have verified the genuineness of the transaction and also should have carried out adequate enquiry to come to a logical conclusion that either there is no accommodation entry and the contents found qua the assessee being one of the beneficiary of the accommodation entry in the books of account of the concerns of S.K. Jain group are false or bogus; or assessee had amply demonstrated and substantiated before the AO regarding the genuineness of the transaction of the accommodation entry. In absence of such a mandate which was cast upon the AO, we are of the opinion that the assessment order is not only erroneous but also prejudicial to the interest of revenue, as this matter definitely requires proper enquiry and verification by the AO. - decided against assessee

Issues Involved:

1. Validity of reopening under Section 148 versus Section 153C.
2. Reference to seized documents in the show cause notice.
3. Application of mind by the Assessing Officer (AO) while recording reasons for reopening.
4. Grounds of revision not forming part of the show cause notice.
5. Consideration of assessee's replies by the CIT.
6. Adequacy of the enquiry by the CIT.
7. Confrontation of the assessee with the statement of S.K. Jain.
8. Passing of nil orders in the cases of companies from whom share capital was obtained.

Issue-wise Detailed Analysis:

1. Validity of Reopening under Section 148 versus Section 153C:
The assessee argued that the reopening under Section 148 was invalid since the year under consideration falls under Section 153C. The Tribunal noted that no document or material belonging to the assessee was found during the search of S.K. Jain Group. The entries in the books of S.K. Jain Group indicating accommodation entries did not constitute documents belonging to the assessee. Therefore, the proceedings under Section 147 were valid, and the argument for Section 153C was rejected.

2. Reference to Seized Documents in the Show Cause Notice:
The assessee contended that the show cause notice referred to seized documents not mentioned in the reasons recorded for reopening. The Tribunal found that the Principal Commissioner of Income Tax (Pr. CIT) had noted the failure of the AO to examine relevant seized material indicating accommodation entries. The Pr. CIT had provided copies of the seized material to the assessee during the proceedings under Section 263, thus addressing the issue adequately.

3. Application of Mind by AO while Recording Reasons for Reopening:
The assessee claimed that there was no application of mind by the AO in recording reasons for reopening. The Tribunal observed that the AO had not examined the seized material despite having access to it. This failure justified the Pr. CIT’s invocation of Section 263, as the AO's order was deemed erroneous and prejudicial to the interest of the Revenue.

4. Grounds of Revision Not Forming Part of the Show Cause Notice:
The assessee argued that the Pr. CIT’s order was based on grounds not included in the show cause notice. The Tribunal found that the Pr. CIT had specifically brought out the AO's failure to consider relevant seized material, which was central to the revision proceedings. Thus, the grounds were sufficiently covered within the scope of the notice.

5. Consideration of Assessee's Replies by the CIT:
The assessee claimed that the Pr. CIT did not consider its replies. The Tribunal noted that the Pr. CIT had considered the assessee's submissions but found them insufficient to counter the lack of enquiry by the AO into the seized material. Therefore, the Pr. CIT’s order was upheld.

6. Adequacy of the Enquiry by the CIT:
The assessee argued that the Pr. CIT had merely set aside the matter without making due enquiries. The Tribunal held that the AO had failed to make proper verification regarding the genuineness of the transactions. The Pr. CIT’s direction to the AO to examine the seized material and confront the assessee was deemed appropriate.

7. Confrontation of the Assessee with the Statement of S.K. Jain:
The assessee contended that it was not confronted with S.K. Jain’s statement. The Tribunal found that the AO had not examined the seized material or confronted the assessee with it. The Pr. CIT’s order directed the AO to do so, ensuring adherence to the principles of natural justice.

8. Passing of Nil Orders in the Cases of Companies from Whom Share Capital was Obtained:
The assessee argued that nil orders were passed for companies from whom share capital was obtained. The Tribunal noted that the AO had not examined the seized material indicating accommodation entries. The Pr. CIT’s direction to re-examine the matter was justified to ensure proper verification.

Conclusion:
The Tribunal upheld the Pr. CIT’s order under Section 263, finding that the AO had not made proper verification or enquiries into the seized material indicating accommodation entries. The reassessment order was set aside, and the AO was directed to examine the seized material and confront the assessee accordingly. The appeal of the assessee was dismissed.

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