2016 (10) TMI 1279 - AT - Income Tax

Reopening of assessment u/s 147 - addition u/s 68 - eligibility of reasons to believe - HELD THAT - AO has not even mentioned the letter number and date of the letter of Director of Income-tax (Investigation), which constituted the information on the basis of which, he reopened the assessment. Assessing Officer has not mentioned name of persons who gave statement that the assessee was engaged in providing accommodation entry Assessing Officer has not verified that the assessee had already filed return of income for the year under consideration and was not sure of the amount of income escaped and thus he has not even mentioned amount of income escaped , which is evident from the sentence in the reasons recorded that escaped income on account of accommodation entry was likely to exceed ₹ 1 lakh . He not even mentioned the nature of income escaped i.e loans or share application money or share capital etc. AO has not applied his mind to the information and he has recorded the reasons in a mechanical manner, which are vague and non-specific. It is settled law that the action of reopening has to be judged only on the basis of the reasons recorded and no extraneous material can be supplemented to see the validity of the reopening. AO has to apply his mind to the material to conclude that he has reason to believe that income of the assessee escaped assessment and unless the basic jurisdictional requirement is not satisfied, a post-mortem exercise of analysing material produced subsequent to the reopening will not rescue an inherently defective reopening orders from invalidity. - Decided in favour of assessee.

Summary

Issues Involved:
1. Validity of the reassessment proceedings under sections 147 to 151 of the Income Tax Act, 1961.
2. Non-disposal of objections against the reasons recorded for reopening the assessment.
3. Lack of satisfaction recorded by the Joint Commissioner of Income Tax before issuing notice under section 148.
4. Addition of ?2,80,000/- as unexplained credit under section 68.
5. Addition of ?62,018/- on account of commission income.
6. Denial of opportunity for cross-examination of persons whose statements were used against the assessee.

Issue-wise Detailed Analysis:

1. Validity of the reassessment proceedings under sections 147 to 151 of the Income Tax Act, 1961:
The Tribunal examined whether the Assessing Officer (AO) had valid reasons to believe that income had escaped assessment, which is a prerequisite for reopening an assessment under section 147. The Tribunal found that the AO's reasons were vague and non-specific. The AO did not mention the letter number or date from the Director of Income-tax (Investigation), nor did he verify whether the assessee had filed a return for the year in question. The AO also did not specify the amount or nature of the escaped income. Consequently, the Tribunal concluded that the AO had not applied his mind to the information and had recorded the reasons in a mechanical manner, rendering the reassessment proceedings invalid.

2. Non-disposal of objections against the reasons recorded for reopening the assessment:
The assessee argued that the AO did not dispose of their objections to the reasons for reopening the assessment. The Tribunal observed that the AO failed to address the objections, which is a procedural lapse. However, since the reassessment proceedings were already deemed invalid due to the lack of specific reasons, this issue became academic.

3. Lack of satisfaction recorded by the Joint Commissioner of Income Tax before issuing notice under section 148:
The assessee contended that the assessment order was passed without the satisfaction of the Joint Commissioner of Income Tax before issuing the notice under section 148. The Tribunal noted that this procedural requirement was not met, further supporting the invalidity of the reassessment proceedings.

4. Addition of ?2,80,000/- as unexplained credit under section 68:
The AO treated ?2,80,000/- received as share application money from eight individuals as unexplained credit under section 68. However, since the reassessment proceedings were deemed invalid, the Tribunal did not need to adjudicate on this specific addition.

5. Addition of ?62,018/- on account of commission income:
The AO estimated a commission income of ?62,018/- at a rate of 2% on the total credit balance of ?31,00,899/-. Again, due to the invalidity of the reassessment proceedings, the Tribunal did not address this specific addition.

6. Denial of opportunity for cross-examination of persons whose statements were used against the assessee:
The assessee argued that they were not given an opportunity to cross-examine the individuals whose statements were used by the AO. The Tribunal acknowledged this procedural lapse but did not need to rule on it separately due to the overall invalidity of the reassessment proceedings.

Conclusion:
The Tribunal held that the reassessment proceedings were invalid due to the AO's failure to apply his mind and record specific reasons for reopening the assessment. Consequently, the other grounds of appeal became academic. Both appeals of the assessee were allowed, and the reassessment proceedings for the assessment years 1999-2000 and 2001-02 were declared invalid. The decision was pronounced in the open court on 19th October 2016.