2018 (3) TMI 1795 - AT - Income Tax

Reopening of assessment u/s 147 - borrowed investigation - whether AO has not supplied any document / material to substantiate his (AO s) satisfaction, ownership / operation of the said bank account to prove the alleged receipt of US 62,000? - HELD THAT - The opening and maintenance of these accounts have been confirmed by the Jordan National Bank. On 5.3.2001, an amount of US 62,000 was credited to the account no.123459 of Sh. Andaleeb Sehgal and out of this, a sum of US 60,000 was subsequently transferred perhaps as bribe to account no.5003202 of the Iraqi Regime in Jordan National Bank, Jordan. Thus, it becomes clear from these documents and statements obtained and recorded by the Enforcement Directorate that Sh. Andaleeb Sehgal received a sum of US 62,000 on 5.3.2001 on account of commission for sale of Iraqi oil to Masefield AG. However, no such documents have seen the light of the day. Those documents might be perused by the AO/CIT (A) but neither those documents were referred in the impugned order nor given to the assessee nor brought before the Bench to substantiate the findings returned by AO as well as CIT (A). If any such documents have been perused by Enforcement Directorate, it was the duty of the AO to collect those documents during his own investigation or the ld. CIT (A) should have brought on record the set of those documents during appellate proceedings but both have proceeded merely on the basis of reference sent by Enforcement Directorate and based their findings merely on assumptions. The next contention raised byassessee that the adjudication proceedings before Enforcement Directorate are still pending and AO has not conducted independent enquiry but based his findings on the material collected by the Enforcement Directorate only. When no such document has been placed before the Bench, it is proved that the AO has not made any independent enquiry by collecting necessary documents but merely based his findings on the basis of letter received from Enforcement Directorate. AO on the basis of surmises even stated that, it is understandable because the facts suggest that in the instant case, only the name of Hamdaan Exports was used by Sh. Andleeb Sehgal but the money was actually pocketed by him. Further more, it is seen that Sh. Andaleeb Sehgal paid a sum of US 60,000 from his account to the Iraqi Regime. These findings go to prove that without an iota of evidence, addition has been made by the AO and confirmed by ld. CIT (A). Hon ble High Court of Delhi in case cited as Pr. CIT-6 vs. Meenakshi Overseas Pvt. Ltd. 2017 (5) TMI 1428 - DELHI HIGH COURT held that when reopening of the assessment is merely on the basis of information received from DIT (Inv.) and AO has jumped to the conclusion that the said tabulated instrument are in the nature of accommodation entry, it means that AO being quasi judicial has not applied his mind. We are of the considered view that the entire case is based upon borrowed investigation stated to have been conducted by Enforcement Directorate and no evidence has been brought on record to connect assessee with the amount of US 62,000, rather it is a case of zero investigation. - Decided in favour of assessee.

Summary

Issues:
1. Validity of notice issued under Section 148 of the Income tax Act, 1961.
2. Addition of US $ 62,000 equivalent to ?28,86,720 made by the Assessing Officer.
3. Charging of interest under Section 234A and 234B of the Income-tax Act, 1961.

Analysis:
Issue 1: The appellant challenged the validity of the notice issued under Section 148 of the Income tax Act, 1961. The Assessing Officer based the notice on a reference from the Investigation Wing regarding an amount of US $ 62,000 paid to the assessee. The appellant raised objections stating lack of evidence and non-supply of relevant documents. The Tribunal noted the absence of concrete evidence linking the assessee to the alleged amount, emphasizing the lack of independent inquiry by the Assessing Officer. Citing legal precedents, the Tribunal concluded that the reopening of assessment was based on borrowed investigation without substantial evidence, leading to the quashing of the addition.

Issue 2: The second issue pertained to the addition of US $ 62,000 as business income in the hands of the assessee. The Tribunal found that the Assessing Officer's decision was solely based on assumptions derived from the Enforcement Directorate's report, without presenting any concrete documentation to support the claim. The Tribunal highlighted the failure to provide essential documents during the appellate proceedings, emphasizing the lack of a valid basis for the addition. Referring to legal judgments, the Tribunal ruled that the addition was unsustainable in the eyes of the law due to the flawed reopening of the assessment, leading to the allowance of the assessee's appeal.

Issue 3: The final issue involved the charging of interest under Section 234A and 234B of the Income-tax Act, 1961. As this issue was deemed consequential, no specific findings were provided, and the appeal of the assessee was allowed. The Tribunal pronounced the order in favor of the assessee on March 9, 2018, quashing the addition and upholding the appeal based on the lack of substantial evidence and procedural flaws in the assessment process.