2016 (2) TMI 1242 - AT - Income Tax

Addition u/s 68 - Addition to share application money as unexplained cash credits - Addition of commission paid from undisclosed sources - HELD THAT - We are of the view that AO has not applied his mind so as to come to an independent conclusion that he has reason to believe that income has escaped during the year. In our view the reasons are vague and are not based on any tangible material as well as are not acceptable in the eyes of law. AO has mechanically issued notice u/s. 148 on the basis of information allegedly received by him from the Directorate of Income Tax (Investigation), New Delhi. Keeping in view of the facts and circumstances of the present case and the case law applicable in the case of the assessee, we are of the considered view that the reopening in the case of the assessee for the asstt. Year in dispute is bad in law and deserves to be quashed. Similar and identical to the issue involved in the present appeal and is squarely covered by the aforesaid decisions in the case of G G Pharma 2015 (10) TMI 754 - DELHI HIGH COURT . Legal issue in dispute in favor of the Assessee and against the Revenue and accordingly quash the reassessment proceedings. Since we have quashed the reassessment proceedings, as aforesaid, the other issues are not being dealt with. - Appeal filed by the Revenue stand dismissed.

Summary

Issues Involved:
1. Deletion of addition of Rs. 5,00,000 under Section 68 of the Income Tax Act as unexplained cash credits and Rs. 5,000 as commission from undisclosed sources.
2. Deletion of addition of Rs. 27,00,000 on account of unexplained share premium.
3. Validity of reopening of assessment under Section 148 of the Income Tax Act.

Detailed Analysis:

1. Deletion of addition of Rs. 5,00,000 under Section 68 and Rs. 5,000 as commission:

The Revenue contended that the Assessing Officer (AO) had made an addition of Rs. 5,00,000 under Section 68 of the Income Tax Act, treating it as unexplained cash credits, and Rs. 5,000 as commission paid from undisclosed sources. The AO based this on information from the Investigation Wing, which indicated that the assessee received a bogus entry of Rs. 5,00,000 from M/s IG Properties (P) Ltd., a company involved in providing bogus entries. The AO issued a notice under Section 148 after recording reasons in writing, believing that income chargeable to tax had escaped assessment.

2. Deletion of addition of Rs. 27,00,000 on account of unexplained share premium:

The Revenue argued that the assessee failed to explain how the share premium of Rs. 27,00,000 was determined. The assessee also did not produce the Director of M/s IG Properties (P) Ltd. to verify the genuineness of the transaction and establish the identity of the party. The CIT(A) deleted the addition, which led to the Revenue's appeal.

3. Validity of reopening of assessment under Section 148:

The assessee challenged the reopening of the assessment, arguing that it was illegal. The Tribunal examined the reasons recorded by the AO for reopening the assessment. The AO cited information from the Investigation Wing about bogus entries and concluded that the assessee's income had escaped assessment. However, the Tribunal found that the AO did not independently apply his mind to the information received and did not form a prima facie opinion based on tangible material. The reasons recorded were deemed vague and not acceptable in law.

Judgment:

The Tribunal held that the AO had mechanically issued the notice under Section 148 based on information from the Investigation Wing without applying his mind to form an independent conclusion. The Tribunal referred to the Delhi High Court's decision in Pr. CIT vs. G&G Pharma India Ltd., which emphasized that the AO must apply his mind to the materials and form a reason to believe that income had escaped assessment. The Tribunal found that this basic jurisdictional requirement was not satisfied in the present case.

Consequently, the Tribunal quashed the reassessment proceedings, deeming them bad in law. As the reassessment proceedings were quashed, the Tribunal did not address the other issues raised by the Revenue.

Conclusion:

The Tribunal dismissed the Revenue's appeal, upholding the CIT(A)'s order that deleted the additions and quashed the reassessment proceedings. The decision emphasized the necessity for the AO to independently apply his mind and form a reason to believe that income had escaped assessment before issuing a notice under Section 148.