2016 (12) TMI 1816 - AT - Income Tax

Reopening of assessment - Addition u/s 68 - non independent application of mind - HELD THAT - AO had issued notice u/s 148 of the Act only on the basis of information received from CIT, Central-1, New Delhi and not on the basis of reasons recorded by him by applying his own mind. Therefore notice issued u/s 148 of the Act was not valid and the reassessment framed deserves to be quashed. As regards to the merit of the case is concerned, it is not in dispute that the assessee furnished the confirmation from the share applicants to whom shares were allotted, the amount was received by the assessee through banking channels. The addition was made simply on this basis that the notice issued u/s 133(6) were received back and the assessee was unable to produce principal officer/director of the investor companies. However, the explanation of the assessee that the shares earlier allotted to the companies M/s MARRASS Industries Pvt. Ltd. and M/s BSA Fincap Pvt. Ltd. were already sold to other parties and those companies were not the shareholders of the assessee at the time of date of inquiry, was brushed aside. In the instant case, the assessee furnished documentary evidences in support of the receipt of the share application money which was through banking channels from the companies and also stated that those corporate entities were duly assessed to tax. But the AO held that even when the share capital had been received through banking channels and from corporate entities who were duly assessed to tax was not enough to accept the claim of the assessee. However, it was not brought on record to substantiate that the share application money was in fact the money of the assessee which rotated through banking channels. Therefore, the addition made by the AO and sustained by the ld. CIT(A) was not justified. Accordingly, the same is deleted. In the result, the appeal filed by the assessee is allowed.

Summary

Issues Involved:
1. Validity of reassessment proceedings.
2. Addition of ?25,00,000 under Section 68 of the Income Tax Act as unexplained cash credit.
3. Charging of interest under Sections 234B and 234A of the Income Tax Act.

Detailed Analysis:

1. Validity of Reassessment Proceedings:
The appellant contended that the reassessment proceedings were invalid as the reasons recorded for reopening were vague and based on non-application of independent mind by the Assessing Officer (AO). The AO had issued the notice under Section 148 of the Income Tax Act based on information received from the Investigation Wing without independently verifying the material. The appellant cited several judicial precedents, including the Delhi High Court's decision in *G & G Pharma India Ltd.*, which emphasized that the AO must apply his mind to the material before forming a belief that income had escaped assessment. The tribunal found that the AO had acted mechanically on the information provided and did not apply his own mind, making the reassessment proceedings invalid.

2. Addition of ?25,00,000 under Section 68:
The AO had added ?25,00,000 to the appellant's income under Section 68, treating it as unexplained cash credit. The appellant argued that it had provided all necessary details, including names, addresses, PAN numbers, and confirmations from the share applicants. The AO issued notices under Section 133(6) to verify the genuineness and creditworthiness of the share applicants, but these notices were returned unserved. The AO concluded that the identity, creditworthiness, and genuineness of the transactions were not proved. The appellant contended that the AO did not provide an opportunity for cross-examination of the persons whose statements were used against it, violating principles of natural justice. The tribunal observed that the appellant had furnished sufficient documentary evidence, and the AO had not brought any contrary material on record. The tribunal held that the addition made by the AO was not justified and deleted the addition.

3. Charging of Interest under Sections 234B and 234A:
The appellant argued that the AO had erred in charging interest under Sections 234B and 234A of the Income Tax Act. However, since the primary grounds of appeal regarding the validity of reassessment and the addition under Section 68 were decided in favor of the appellant, the issue of interest became secondary. The tribunal did not specifically address this issue in detail, as the primary grounds were sufficient to dispose of the appeal.

Conclusion:
The tribunal allowed the appeal filed by the appellant, holding that the reassessment proceedings were invalid due to the AO's failure to apply his mind independently. The addition of ?25,00,000 under Section 68 was also deleted, as the appellant had provided sufficient evidence to prove the genuineness and creditworthiness of the share applicants. The issue of charging interest under Sections 234B and 234A was not specifically addressed, as the primary grounds of appeal were decided in favor of the appellant.