2016 (7) TMI 1621 - AT - Income Tax

Reopening of assessment u/s 147 - non independent application of mind - receiving information from the Investigation Wing, New Delhi that assessee is one of the beneficiaries of the bogus accommodation entries initiated reopening of assessment - whether AO can initiate proceedings u/s 147/148 of the Act on the basis of certain communication received from his superior revenue authorities, namely, Addl. Director of Income-tax (Inv.), Unit-1, New Delhi? - HELD THAT - As decided in CHHUGAMAL RAJPAL 1971 (1) TMI 9 - SUPREME COURT it was not satisfied that the ITO had any material before him which could satisfy the requirements under Section 147 and therefore could not have issued notice under Section 148. Similar issue has cropped up before the ITAT, Delhi Bench H in M/s. USG Buildwell Pvt. Ltd. 2021 (3) TMI 518 - ITAT DELHI wherein addition was made by the AO on the basis of similar intimation sent by ACIT, Central Circle 19, New Delhi on the basis of survey operation conducted in S.K. Gupta Group cases on 20.11.2007 and the coordinate Bench came to the conclusion that the AO has not applied his mind on the information received form ACIT as required u/s 147 of the Act and as such, assessment framed u/s 147 read with section 143(3) is not sustainable - Decided in favour of assessee.

Issues Involved:
1. Jurisdiction and legality of the reassessment proceedings.
2. Validity of the notice issued under Section 148 of the Income Tax Act.
3. Application of mind by the Assessing Officer (AO) in reopening the assessment.
4. Compliance with statutory requirements under Sections 147 to 153 of the Income Tax Act.
5. Violation of principles of natural justice.
6. Onus of proof and illegal additions made by the AO.
7. Non-reply to objections raised by the assessee.
8. Legality of additions under Section 68 of the Income Tax Act.
9. Non-compliance with binding decisions of courts and tribunals.
10. Legality of interest and penalties imposed.

Issue-wise Detailed Analysis:

1. Jurisdiction and legality of the reassessment proceedings:
The Tribunal found that the AO did not independently apply his mind to the information received from the Investigation Wing, New Delhi. The AO merely acted upon the information without forming an independent belief that the income had escaped assessment. This lack of independent application of mind rendered the reassessment proceedings void ab initio.

2. Validity of the notice issued under Section 148 of the Income Tax Act:
The Tribunal noted that the notice under Section 148 was issued without proper application of mind by the AO. The AO relied on the information provided by the Investigation Wing without verifying its authenticity or forming a prima facie opinion. This procedural lapse invalidated the notice issued under Section 148.

3. Application of mind by the AO in reopening the assessment:
The Tribunal emphasized that the AO is required to reach an independent conclusion by applying his mind to the material facts before reopening an assessment. In this case, the AO failed to do so and merely reproduced the statements of entry operators recorded by the Investigation Wing. This failure to apply independent judgment invalidated the reopening of the assessment.

4. Compliance with statutory requirements under Sections 147 to 153 of the Income Tax Act:
The Tribunal observed that the AO did not comply with the statutory requirements under Sections 147 to 153. The AO did not record detailed reasons for reopening the assessment, nor did he examine the credibility of the information provided by the Investigation Wing. This non-compliance with statutory provisions rendered the reassessment proceedings invalid.

5. Violation of principles of natural justice:
The Tribunal found that the reassessment proceedings were conducted in violation of the principles of natural justice. The assessee was not given an opportunity to cross-examine the persons whose statements were relied upon by the AO. Additionally, the AO did not provide the assessee with the information or statements on which the reassessment was based, thus denying the assessee a fair opportunity to rebut the allegations.

6. Onus of proof and illegal additions made by the AO:
The Tribunal held that the AO failed to discharge the onus of proof required to justify the additions made under Section 68. The AO did not produce any evidence to substantiate the claim that the assessee had received bogus accommodation entries. The additions were made without any basis, and the AO did not provide any opportunity for the assessee to furnish explanations or evidence.

7. Non-reply to objections raised by the assessee:
The Tribunal noted that the AO did not respond to the specific objections raised by the assessee during the reassessment proceedings. The AO failed to pass a speaking order addressing the objections, which further vitiated the reassessment proceedings.

8. Legality of additions under Section 68 of the Income Tax Act:
The Tribunal found that the additions made under Section 68 were illegal. The AO treated the sale proceeds of stock/shares as unexplained income without any basis. The assessee had provided necessary documents, such as ITR, PAN, balance sheet, and confirmation, which were ignored by the AO. The Tribunal held that the additions were not justified and should be deleted.

9. Non-compliance with binding decisions of courts and tribunals:
The Tribunal observed that the authorities below did not follow the binding decisions of courts and tribunals relied upon by the assessee. The AO and CIT (A) ignored precedents that required independent application of mind and proper recording of reasons for reopening assessments. This non-compliance with judicial precedents further invalidated the reassessment proceedings.

10. Legality of interest and penalties imposed:
The Tribunal held that the interest and penalties imposed by the AO were illegal. Since the reassessment proceedings and the consequent additions were found to be invalid, the interest and penalties based on those additions were also unsustainable.

Conclusion:
The Tribunal quashed the reassessment order and allowed the appeal filed by the assessee. The reassessment proceedings were found to be invalid due to lack of independent application of mind by the AO, non-compliance with statutory requirements, violation of principles of natural justice, and illegal additions made under Section 68. The Tribunal emphasized the need for the AO to independently verify information and record detailed reasons before reopening an assessment.

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