2020 (11) TMI 1007 - AT - Income Tax

Reopening of assessment u/s 147 - Accommodation entries obtained by the assessee from the entry operator - HELD THAT - AO referred to six years of records of the entry operator but does not mention how he proposes to reopen the impugned assessment for AY 2008-09. There is no reference that how the report of investigation wing as well his own assessment gives him belief that, AY 2008- 09 is required to be reassessed. Further there is no reference as what nature of accommodation entries has been obtained by the assessee, through which companies and on which dates, though which medium. May be in assessment order complete details are mentioned, and they are in fact exhaustively mentioned, however the reasons recorded are devoid of the same. Therefore we do not have any hesitation in quashing reopening of assessment - Decided in favour of assessee.

Summary

Issues Involved:
1. Initiation, continuation, and conclusion of reassessment proceedings.
2. Assumption of jurisdiction for reassessment proceedings.
3. Application of mind in recording reasons for initiating reassessment.
4. Addition of ?20,00,000 without providing cross-examination of the person whose statement was relied upon.
5. Addition of ?20,00,000 without proper investigation.
6. Addition under Section 68 amounting to ?20,00,000.
7. Addition of unexplained expenditure (commission payment in cash) amounting to ?3,600.

Detailed Analysis:

1. Initiation, Continuation, and Conclusion of Reassessment Proceedings:
The assessee challenged the initiation, continuation, and conclusion of reassessment proceedings amounting to ?20,66,770/- on facts and law. The return was processed under Section 143(1) on 12/5/2009. Subsequently, information was received from the Director of Income Tax (Investigation) indicating that the assessee obtained an accommodation entry of ?20 lakhs. The Assessing Officer (AO) recorded reasons on 9 March 2015 and issued a notice under Section 148 on 19 March 2015 after obtaining approval from the Joint Commissioner of Income Tax. The AO found that the assessee obtained accommodation entries from two companies amounting to ?20 lakhs and made an addition under Section 68 along with ?36,000 towards commission payment.

2. Assumption of Jurisdiction for Reassessment Proceedings:
The assessee contended that the assumption of jurisdiction for reassessment proceedings was flawed due to misapplication of jurisdiction sanction. The AO assumed jurisdiction based on information from the investigation wing and recorded reasons for reopening the assessment. The CIT (A) upheld the AO’s action, confirming the addition of ?20 lakhs and ?36,000 as commission.

3. Application of Mind in Recording Reasons for Initiating Reassessment:
The assessee argued that the AO did not apply his mind independently while recording reasons for reassessment and merely relied on the investigation report. The reasons recorded were vague and lacked tangible material. The AO's reasons did not specify the year for which the accommodation entry belonged, details of companies providing the entry, dates, amounts, or the nature of the transactions. The Tribunal found that the reasons recorded by the AO were devoid of necessary details and quashed the reopening of the assessment.

4. Addition of ?20,00,000 Without Providing Cross-Examination:
The assessee challenged the addition of ?20,00,000 as it was made without providing the opportunity for cross-examination of the person whose statement was relied upon. The Tribunal did not specifically address this issue as the reopening of the assessment was quashed.

5. Addition of ?20,00,000 Without Proper Investigation:
The assessee contended that the addition was made without proper investigation from the other party, despite providing all relevant documents. The Tribunal did not delve into this issue in detail as the reopening of the assessment was quashed.

6. Addition Under Section 68 Amounting to ?20,00,000:
The AO made an addition of ?20,00,000 under Section 68, considering it as unexplained cash credit. The CIT (A) confirmed this addition. However, the Tribunal quashed the reopening of the assessment, rendering this addition void.

7. Addition of Unexplained Expenditure (Commission Payment in Cash) Amounting to ?3,600:
The AO also made an addition of ?3,600 towards commission payment for obtaining the accommodation entry. The CIT (A) upheld this addition. The Tribunal did not specifically address this issue as the reopening of the assessment was quashed.

Conclusion:
The Tribunal allowed the appeal partly by quashing the reopening of the assessment due to the AO’s failure to record adequate reasons. Consequently, ground numbers 2 and 3 were allowed, and ground numbers 1, 4 to 7 were dismissed. The appeal of the assessee was partly allowed.