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2020 (2) TMI 1336 - AT - Income TaxReopening of assessment u/s 147 - Misusing Client Code Modification facility - fictitious profit or loss entries received - information from the Asstt. Director of Income Tax (Investigation) (Unit)1(3) Ahmedabad through CD - HELD THAT - AO has blindly relied upon the Investigation Wing which itself is not based on any material against the assessee. The mere recording of reasons on the basis of information from Investigation Wing and issuing notice for initiation of reassessment proceedings does not constitute application of mind much less independent application of mind. Therefore the proceeding is without jurisdiction. It is noted that AO has not investigated the matter himself and has not made any enquiry to corroborate the Information of the Investigation Wing on which basis the case of the assessee has been reopened meaning thereby the AO has not applied his mind and only issued notice u/s. 148 of the Act. Thus the AO has acted mechanically and without any independent application of mind. Initiation of proceedings is based on non application of mind much less independent application of mind but is a case of borrowed satisfaction. Nothing is independently examined or considered by the AO which can demonstrate application of mind by him. See RMG POLYVINYL (I) LTD. 2017 (7) TMI 371 - DELHI HIGH COURT and DHARIYA CONSTRUCTION CO. 2010 (2) TMI 612 - SC ORDER Hon ble Bombay High Court in the case of Coronation Agro Industries Ltd. 2017 (1) TMI 904 - BOMBAY HIGH COURT has held that mere client code modification by broker does not mean that any income has escaped assessment. 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 and needs to be quashed. Reasons recorded and its approval wherein the ITO has recorded the reasons undated and Ld. Pr. CIT Delhi-1 has granted the approval by mentioning that I am satisfied which shows that Ld. Pr. CIT-1 New Delhi has not recorded proper satisfaction and without application of mind gave the approval in a mechanical manner - no application of mind by the Addl. CIT before granting the approval. - Decided in favour of assessee.
Issues Involved:
1. Validity of the order passed under Section 250 of the Income Tax Act. 2. Sustaining additions on account of fictitious profit or loss entries due to misuse of Client Code Modification (CCM) facility. 3. Validity of the reassessment proceedings initiated under Section 147 read with Section 143(3) of the Income Tax Act. Issue-wise Detailed Analysis: 1. Validity of the Order Passed Under Section 250: The assessee contended that the order passed by the CIT(A) was bad in law and on the facts and circumstances of the case. The Tribunal's analysis focused on whether the CIT(A) had jurisdiction and whether the reassessment proceedings were validly initiated. 2. Sustaining Additions on Account of Fictitious Profit or Loss Entries: The CIT(A) upheld the AO's order, which included additions amounting to ?2,18,73,416/- for fictitious profit or loss entries. The Tribunal examined whether there was sufficient material on record to support these additions. The assessee argued that the AO had relied solely on information from the Investigation Wing without conducting an independent inquiry or applying his mind. The Tribunal noted that the AO had acted mechanically based on the information received and had not independently verified the details. 3. Validity of the Reassessment Proceedings: The assessee challenged the reassessment proceedings initiated under Section 147 read with Section 143(3), arguing that the notice under Section 148 was issued without proper application of mind. The Tribunal scrutinized the reasons recorded by the AO for reopening the assessment and the approval granted by the Pr. CIT. The Tribunal found that the AO had not conducted an independent inquiry and had relied entirely on the Investigation Wing's information. The approval by the Pr. CIT was deemed mechanical, as it merely stated "I am satisfied" without proper satisfaction or application of mind. Tribunal's Findings: - Mechanical Reopening: The Tribunal concluded that the AO had initiated reassessment proceedings mechanically based on information from the Investigation Wing without independent verification, constituting a lack of application of mind. - Borrowed Satisfaction: The Tribunal emphasized that the reasons for reopening were based on borrowed satisfaction from the Investigation Wing's report, which is not sufficient for a valid reassessment. - Invalid Approval: The approval by the Pr. CIT was found to be mechanical and without proper application of mind, rendering the reassessment proceedings invalid. Supporting Case Laws: The Tribunal cited several precedents to support its findings: - ACIT vs. Dhariya Construction Co.: The Supreme Court held that the opinion of the District Valuation Officer (DVO) per se is not information for reopening an assessment; the AO must apply his mind to the information. - Pr. CIT vs. RMG Polyvinyls (I) Ltd.: The Delhi High Court observed that the AO must independently apply his mind and not merely reproduce conclusions from an investigation report. - United Electrical Company (P) Ltd. vs. CIT: The Delhi High Court held that the CIT must apply his mind to the proposal for approval, which cannot be done casually or mechanically. - CIT vs. S. Goyanka Lime & Chemical Ltd.: The Supreme Court upheld the High Court's decision that mechanical satisfaction by the Joint Commissioner invalidates the reopening of assessment. Conclusion: The Tribunal quashed the reassessment proceedings initiated under Section 147 read with Section 143(3) due to lack of jurisdiction, mechanical approval, and absence of independent application of mind by the AO. Consequently, the appeal filed by the assessee was allowed, and the additions made by the AO were set aside. The other grounds raised by the assessee became academic and were not adjudicated. Order: The appeal filed by the assessee was allowed, and the order was pronounced on 27-02-2020.
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