2019 (2) TMI 1846 - AT - Income Tax

Validity of Reopening of assessment u/s 147 - non- application of mind by all the authorities involved in the process of recording reasons and providing satisfaction u/s 151 - addition u/s. 68 on account of unexplained cash credit - HELD THAT - Conditions laid down in proviso to section 147 need be strictly full filled as this power is an exceptional power and in the absence of strict compliance of conditions of proviso, the exercise of power held to be unsustainable in law. The order is bad in law because the reason recorded are vague and without application of mind and are based on the information of the Enforcement Directorate with no incriminating material which is coming to the possession of the AO for the first time and which was not there with him at the time of original proceedings. In the reasons recorded in instant case the AO has not referred to any specific adversarial material (statement etc.) and also has not described exact nature of transaction in the reasons and has used share application / share capital / unsecured loans etc. In the reasons and has miserably failed to bring during entire reopening proceedings any specific tangible material which established assessee is beneficiary of accommodation entries, which all are sufficient to nullify the extant reopening action. Even there is no annexure/enclosure to reasons to corroborate the same. No reference and details of investigation wing information is available. There is no live nexus / rational connection between Investigation Wing information and belief that assessee's certain income has escaped assessment. The date of recording reason is also not mention and also the date of sanction u/s 151 and these material facts indicate that the sanction provided by the authorities is mechanical as recording of reason. approval granted by the competent authority is a mechanical approval and action has been taken mechanically because on perusing the reasons recorded, it demonstrates that Pr. CIT has written Yes, it is a fit case for the issue of notice u/s. 148. which establishes that the competent authority has not recorded proper satisfaction / approval, before issue of notice u/s. 148 of the I.T. Act. Thereafter, the AO has mechanically issued notice u/s. 148 of the Act, on the basis of information allegedly received by him from the Directorate of Enforcement. We also note that the action of the AO has been taken mechanically on the basis of alleged report of Enforcement Department. The mere recording/ formulation of reasons on the basis of reproduction of information from Investigation Wing and, issuing notice for initiation of re-assessment proceedings does not constitute application of mind much less independent application of mind. Hence, the proceedings are without jurisdiction. Thus proceedings initiated by invoking the provisions of section 147 of the Act by the AO and upheld by the Ld. CIT(A) are nonest in law and without jurisdiction, hence, the re-assessment is quashed. - Decided in favour of assessee.

Summary

Issues Involved:
1. Validity and jurisdiction of the assessment under sections 147/148 of the Income Tax Act.
2. Admission of evidence during the appeal proceeding.
3. Opportunity for cross-examination of witnesses.
4. Admission of additional grounds regarding the period of limitation under section 153(1).
5. Rejection of the explanation for cash credit under section 68.
6. Correct amount of cash credit to be added under section 68.
7. Basis of the additions made by the Assessing Officer (AO).
8. Use of material collected without providing an opportunity to rebut.

Issue-wise Detailed Analysis:

1. Validity and Jurisdiction of the Assessment under Sections 147/148:
The assessee challenged the validity of the assessment on the grounds that it was completed without complying with the legal requirements of sections 147/148, rendering the assessment void ab initio. The Tribunal found that the reasons recorded by the AO for reopening the assessment were based on general perceptions and suspicions rather than specific new material or evidence. The AO did not have fresh tangible material to support the belief of income escapement, leading to the conclusion that the reopening was based on a change of opinion, which is not permissible. The Tribunal cited several judgments, including CIT vs. Eicher Ltd., CIT vs. Kelvinator of India Ltd., and others, to support the view that the reassessment was invalid.

2. Admission of Evidence During the Appeal Proceeding:
The Tribunal noted that the CIT(A) erred in not admitting vital evidence during the appeal proceedings, which was crucial for adjudicating the issue of unexplained cash credit under section 68. The Tribunal emphasized the importance of considering all relevant evidence to ensure a fair adjudication process.

3. Opportunity for Cross-examination of Witnesses:
The assessee contended that the CIT(A) acted against the principles of natural justice by not allowing the opportunity to cross-examine the witness whose testimony was relied upon by the AO. The Tribunal agreed, noting that the AO himself recorded that due to a paucity of time, the opportunity for cross-examination could not be provided. The Tribunal highlighted the importance of the rule of audi alteram partem (hear the other side) in quasi-judicial proceedings.

4. Admission of Additional Grounds Regarding the Period of Limitation under Section 153(1):
The Tribunal found that the CIT(A) erred in not admitting the additional ground challenging the legality of the assessment order on the basis of being passed beyond the prescribed period of limitation under section 153(1). The Tribunal emphasized that the assessment order must be completed and dispatched within the prescribed time frame.

5. Rejection of the Explanation for Cash Credit under Section 68:
The Tribunal observed that the CIT(A) upheld the AO's rejection of the explanation for cash credit of ?12,45,00,000, drawing adverse inferences against the assessee for non-production of the director of the investing company. The Tribunal noted that there was no adverse material against the investor companies regarding their actual existence, and the department did not raise any issues during the merger process before the High Court of Calcutta.

6. Correct Amount of Cash Credit to be Added under Section 68:
The assessee argued that the correct amount of fresh cash credit to be added under section 68 was ?9,85,00,000 instead of ?12,45,00,000. The Tribunal did not specifically address this issue, as it had already quashed the reassessment proceedings.

7. Basis of the Additions Made by the AO:
The Tribunal found that the additions made by the AO were based on surmises and conjectures without bringing any adverse material on record. The AO's action was deemed to be based on general perceptions and suspicions rather than specific evidence.

8. Use of Material Collected Without Providing an Opportunity to Rebut:
The Tribunal noted that the additions were made based on material collected at the back of the assessee without providing a copy of the same and an opportunity to rebut it. This was found to be against the principles of natural justice.

Conclusion:
The Tribunal quashed the reassessment proceedings, finding them to be invalid and without jurisdiction. Consequently, the other grounds became academic and were not adjudicated. The appeal filed by the assessee was allowed.