2019 (5) TMI 1903 - AT - Income Tax

Reopening of assessment u/s 147 - eligibility of reasons to believe - Unexplained cash credit u/s. 68 - Sham share transactions - addition of the entire amount of share application money received - HELD THAT - In the instant case, the non-application of mind to the information is apparent from the fact that the total amount involved was ₹ 3,19,00,000/- and the amount of ₹ 74,00,000/- was advanced by the promoters of the developer company through account payee cheque out of his saving bank account with PNB, which was raised as loan by the assessee. This aspect did not strike to the assessee while making addition of the entire amount of share application money received, whereas the information was received with respect to investment in properties. This fact itself goes to substantiate the non-application of mind for reopening the case. As gone through the reasons recorded, which eloquently speak that the formation of belief has been made only and only on the basis of information received without making any enquiry or pointing out any tangible material in the said reasons recorded. The basis of belief is self explanatory from the reasons recorded, where the AO has mentioned that in view of the additional information/documents received from the office of Addl. Commissioner of Income Tax Range-5, Firozabad, have reason to belief that the assessee has willfully and knowing concealed its particulars of income to avoid tax and that income chargeable to tax has escaped assessment . This itself goes to show that the AO was mechanically persuaded by the report of Addl. CIT, Range-5, Firozabad and hence, such a reassessment, in our considered opinion, cannot be sustained being void in law In the instant case, the reassessment proceedings were initiated by the Assessing Officer for making fishing enquiries, which is not permissible at all by resorting to the proceedings u/s. 147 of the Act. In Bir Bahadur Singh Sijwali 2015 (2) TMI 60 - ITAT DELHI it was held that Reassessment proceedings cannot be resorted only to examine facts of the case, no matter how desirable that be, unless there is a reason to believe, rather than suspect, that income has escaped assessment. In rendered in the cases cited above, in the light of reasons recorded in the instant case, we are of the considered opinion that the ld. Authorities below were not justified to sustain the validity of reassessment proceedings being invalid. In the peculiar facts of the present case, do not render any help to the Revenue being distinguishable on facts. The decisions relied by Ld. DR mostly pertain to the merits of the additions made u/s 68. - Decided in favour of assessee.

Summary

Issues Involved:
1. Validity of reopening proceedings under sections 147/148/151 of the Income Tax Act.
2. Addition of ?3,39,38,525 on account of unexplained cash credit under section 68 of the Income Tax Act.
3. Charging of interest under section 234B of the Income Tax Act.

Issue-wise Detailed Analysis:

1. Validity of Reopening Proceedings:

The assessee challenged the reopening of assessment on the grounds that it was based on borrowed satisfaction from the Additional Commissioner of Income Tax, Range-5, Firozabad, without independent application of mind by the Assessing Officer (AO). The AO received information about the assessee’s investment in property and issued a notice under section 148 to reopen the case. The reasons recorded for reopening were based solely on the information received, without any further tangible material or independent enquiry by the AO. The tribunal noted that the AO mechanically acted on the information received and did not apply his own mind, which is a prerequisite for valid reopening of assessment. The tribunal cited various judicial pronouncements, including decisions from the Hon’ble Supreme Court and Delhi High Court, which emphasize that the AO must independently apply his mind to the information received and form a belief that income has escaped assessment. The tribunal concluded that the reopening proceedings were invalid due to non-application of mind and lack of independent enquiry by the AO.

2. Addition on Account of Unexplained Cash Credit:

The AO made an addition of ?3,39,38,525 under section 68, treating the share application money received by the assessee as unexplained cash credits. The assessee argued that it had provided all necessary documents to prove the identity, creditworthiness, and genuineness of the share applicants, including PAN cards, bank statements, and confirmations. The assessee also requested the AO to issue notices under sections 131 or 133(6) to the share applicants for further verification. However, the AO did not make any further enquiries and simply concluded that the transactions were sham. The tribunal noted that the assessee had discharged its initial burden of proof by providing requisite documents and that the AO failed to bring any adverse material on record to disprove the assessee’s claim. The tribunal also distinguished the facts of the present case from the Supreme Court’s decision in the case of M/s NRA Iron and Steel Private Limited, where the assessee had failed to provide sufficient evidence to prove the genuineness of transactions. In the present case, the assessee had provided substantial evidence, and the AO’s addition was based on mere suspicion rather than concrete findings.

3. Charging of Interest under Section 234B:

The assessee challenged the charging of interest under section 234B, arguing that it was unjustified and excessive. However, the tribunal did not delve into the merits of this issue, as the appeal was allowed on the legal grounds of invalid reopening proceedings.

Conclusion:

The tribunal allowed the appeal of the assessee, quashing the reopening proceedings and setting aside the additions made by the AO. The tribunal emphasized the importance of independent application of mind by the AO in reopening assessments and held that the AO’s mechanical reliance on information received from another authority was insufficient to justify the reopening. The tribunal also noted that the assessee had provided sufficient evidence to discharge its burden of proof regarding the share application money, and the AO’s addition was based on mere suspicion without any concrete findings.