2018 (3) TMI 1767 - AT - Income Tax

Reopening of assessment u/s 147 - Cash paid for admission in the course of MBBS - whether action has been taken mechanically on the basis of information received from investigation wing and not on an independent application of mind? - HELD THAT - It is apparent from the fact that according to the AO Investigation Wing has informed that assessee has paid cash of 21, 00, 000/- for admission in the course of MBBS to Santosh Medical College Ghaziabad. It has been further noted that the assessee has not filed return of income for the relevant assessment year i.e. Assessment year 2007-08 and AO has invoked section 148 of the Act to verify the source of cash paid of 21, 00, 000/-. Thus the AO has acted mechanically and without any independent application of mind While alleging cash payment of 21 lacs it is not even known or stated on which date and on what basis such sums was allegedly paid by assessee; the reasons recorded are therefore vague highly non specific and reflect complete non-application of mind. That reasons recorded are reason to suspect and is a mere attempt to carry out fishing and roving expedition. In the absence of specific and incriminating material much less tangible and relevant material to form even prime facie belief that there was alleged payment of 21, 00, 000/- is also apparent from the fact that the alleged document found and seized during the course of search/survey action u/s 132/133A of the Act does not reflect any figure of 21 lacs and in the absence of any independent enquiry or examination of facts on record or noticing the content of alleged documents in the reasons recorded and reasons being silent as to the specific facts the vague allegation shows that action has been taken mechanically on the basis of alleged report of investigation wing and not on independent application of mind and therefore on this ground too the proceedings are without jurisdiction. There is no live link or direct nexus between alleged material and inference. It is a case of investigation in the garb of action u/s 148 of the Act on the basis that proceedings have been initiated on the basis of no material much less any tangible and relevant material and as such reasons record do not constitute valid reason to believe for initiating proceedings u/s 147 of the Act. See M/S. KELVINATOR OF INDIA LIMITED 2010 (1) TMI 11 - SUPREME COURT - Thus proceedings initiated by invoking the provisions of section 147 of the Act by the AO and upheld by the Ld. CIT(A) are nonest in law and without jurisdiction - Decided in favour of assessee.

Summary

Issues Involved:
1. Validity of initiation of proceedings and assessment framed under Sections 147/143(3) of the Income Tax Act.
2. Legality of the notice issued under Section 148.
3. Addition of ?21,00,000/- representing alleged donation for MBBS admission.
4. Levy of interest under Sections 234A and 234B.

Issue-wise Detailed Analysis:

1. Validity of Initiation of Proceedings and Assessment under Sections 147/143(3):
The assessee contested the initiation of proceedings and the subsequent assessment under Sections 147/143(3) of the Income Tax Act, arguing that both were jurisdictionally flawed and deserved to be quashed. The Commissioner of Income Tax (Appeals) upheld the initiation and assessment, but the assessee argued that the reasons recorded were mechanical and without application of mind, thus invalid. The Tribunal found that the Assessing Officer (AO) acted mechanically based on information from the Investigation Wing without independent application of mind. The Tribunal noted that the reasons recorded were vague, non-specific, and reflected complete non-application of mind, thereby rendering the proceedings without jurisdiction. The Tribunal cited various judicial precedents, including CIT vs. Kelvinator of India Ltd. and Pr. CIT vs. G&G Pharma India Ltd., to support its conclusion that the initiation of proceedings was invalid.

2. Legality of Notice Issued under Section 148:
The assessee argued that the notice issued under Section 148 was illegal and unsustainable as the assessee was a minor during the relevant year, and no income could have escaped assessment. The Tribunal found that the AO's reasons for reopening the case were based on information received from the Investigation Wing without independent verification or application of mind. The Tribunal held that the reasons recorded did not constitute valid reasons to believe that income had escaped assessment. The Tribunal emphasized that the AO's action was based on borrowed satisfaction and lacked the necessary live link or direct nexus between the alleged material and the inference drawn. Consequently, the Tribunal quashed the assessment, rendering the notice under Section 148 invalid.

3. Addition of ?21,00,000/- Representing Alleged Donation for MBBS Admission:
The assessee challenged the addition of ?21,00,000/- made on the grounds of alleged donation paid by the father for MBBS admission, arguing that the addition was based on arbitrary assumptions and without cross-examination. The Tribunal noted that the AO had made the addition on a protective basis, as the substantive addition had already been made in the hands of the assessee's father. The Tribunal found that the AO's action was based on vague and non-specific information, and there was no tangible material to support the addition. The Tribunal held that the addition was made without proper inquiry or examination of facts and was thus unsustainable. Since the assessment was quashed, the issue of addition became academic and was not adjudicated further.

4. Levy of Interest under Sections 234A and 234B:
The assessee contested the levy of interest under Sections 234A and 234B, arguing that it was not leviable based on the facts and circumstances of the case. The Tribunal did not specifically address this issue in detail as the primary assessment itself was quashed. Consequently, the issue of interest levy became academic and was not adjudicated further.

Conclusion:
The Tribunal quashed the assessment initiated under Section 147 and upheld by the CIT(A) as being without jurisdiction and invalid. The other grounds raised by the assessee became academic due to the quashing of the assessment. The stay application filed by the assessee was dismissed as infructuous. The appeal filed by the assessee was allowed.

Order Pronounced on 16-03-2018.