2015 (11) TMI 1801 - AT - Income Tax

Reopening of assessment u/s 147 - information received from the Director of Income Tax, (Inv.), New Delhi that the assessee had received accommodation entries - Non independent application of mind - HELD THAT - After perusing the reasons records we find that the reopening is based entirely by making a reference to the information received from the investigation wing. The reasons are at best vague and the satisfaction of the AO is not based on any tangible material. The AO has mechanically issued notices u/s 148 on the basis of information received by him from the investigation wing of the Income Tax Department. Therefore, we are of the considered view that the AO has not applied his mind so as to give an independent conclusion that he had reason to believe that income had escaped assessment during the year under consideration. Unless the basic jurisdictional requirement is satisfied, a post mortem exercise of analysing materials produced subsequent to the reopening will not rescue an inherently defective reopening order from invalidity. In the circumstances and respectfully following the judgment of the Hon ble High Court of Delhi in the case of Pr. Commissioner of Income Tax-4 vs. G G Pharma India Ltd. 2015 (10) TMI 754 - DELHI HIGH COURT we hold that the reopening of the case of the assessee for the assessment year is bad in law and we accordingly quash the reassessment proceedings. - Decided in favour of assessee.

Issues Involved:
1. Assumption of jurisdiction under Section 147 of the Income Tax Act, 1961.
2. Deletion of addition of Rs. 36,00,000 by the CIT(A).

Issue-wise Detailed Analysis:

1. Assumption of Jurisdiction under Section 147 of the Income Tax Act, 1961:

The primary issue in this case is the assumption of jurisdiction under Section 147 of the Income Tax Act, 1961. The Revenue received information from the Director of Income Tax (Investigation) that the assessee had received accommodation entries amounting to Rs. 92,00,000 from various parties. The Assessing Officer (AO) recorded reasons for issuing a notice under Section 148 of the Act, stating that the assessee did not disclose fully and truly all material facts necessary for its assessment, leading to an income of Rs. 92,00,000 escaping assessment.

The assessee challenged this assumption of jurisdiction, arguing that the AO mechanically issued the notice under Section 148 based on information from the investigation wing without independently analyzing or applying his mind to the nature of the transactions. The assessee contended that the AO's reasons were vague and lacked tangible material, indicating a lack of independent conclusion that income had escaped assessment.

The Revenue, on the other hand, argued that the AO reopened the case based on various documentary evidences and after due application of mind.

Upon review, the Tribunal found that the AO's reopening was based entirely on information from the investigation wing without applying his mind to the materials before him. The Tribunal referred to the judgment of the Hon'ble High Court of Delhi in the case of Pr. Commissioner of Income Tax -4 vs. G&G Pharma India Ltd., which emphasized that the AO must apply his mind to the information and form a belief based on tangible material. The Tribunal concluded that the AO's reopening of the assessment was invalid due to the lack of independent application of mind and quashed the reassessment proceedings.

2. Deletion of Addition of Rs. 36,00,000 by the CIT(A):

The second issue pertains to the deletion of the addition of Rs. 36,00,000 by the CIT(A). The AO had added Rs. 36,00,000 to the income of the assessee as accommodation entries, as the assessee did not produce the parties for cross-examination despite providing confirmatory letters, Income Tax Returns (ITRs), and balance sheets of the various parties.

The CIT(A) decided the appeal in favor of the assessee, holding that the assessee had provided proof of identity and creditworthiness of the parties, making the addition legally unsustainable.

Given the Tribunal's finding that the reopening of the case was invalid, the appeal filed by the revenue challenging the deletion of the addition became moot. Consequently, the Tribunal dismissed the revenue's appeal.

Conclusion:

In conclusion, the Tribunal allowed the assessee's Cross Objection (CO) and quashed the reassessment proceedings due to the invalid assumption of jurisdiction under Section 147. Consequently, the revenue's appeal against the deletion of the addition of Rs. 36,00,000 was dismissed. The order was pronounced in the open court on 27th November, 2015.

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