2019 (3) TMI 1948 - AT - Income Tax

Reopening of assessment u/s 147 - Reliance on information of investigation wing - addition u/s 68 - entry providers during the proceedings u/s 132 have admitted that the assessee company had taken accommodation entries - notice after expiry of four years from the relevant assessment year - HELD THAT - AO has acted mechanically on the information of investigation wing about the alleged accommodation entries and has drawn his conclusions without applying his mind or making any enquiry in the matter before forming the belief of escapement. In the case of CIT vs. Meenakshi Overseas Pvt. Ltd. 2017 (5) TMI 1428 - DELHI HIGH COURT in the identical facts, similar reasons were recorded by the AO on the basis of information of Investigation Wing where there was no independent application of mind to any tangible material which formed the basis of belief of escapement. In that case also, the information received contained (i) the names of beneficiaries (ii) bank name branch of beneficiaries banks and entry giving banks, (iii) value of entries taken (iv) name of account holder of entry giving account and the Assessing Officer after going through the said information straightway derived its conclusion without application of his mind. In the instant case also, similar reasons along with similar wordings have been recorded and the AO while concluding the accommodation entries in the garb of share capital, has failed to apply its mind in support of its belief. Here in this case, the reasons recorded do not refer any evidence or any confession /statements of entry operator, cash payment by assessee, payment of commission etc. so as to support its belief that the assessee was beneficiary of the entry operating racket. There is also no whisper in the reassessment order against the contention of the assessee that the Income-tax authorities themselves have assessed the alleged entry operator u/s. 153C of the Act and the Income-tax Return filed by these group companies have been accepted in March, 2013. Assessee has submitted copies of assessment orders in the case of Mani Malal Delhi Properties (P) Ltd. for the assessment year 2007-08 u/s. 153C/153A where the ITR filed by this company stands accepted by ITO Central Circle 23 New Delhi resulting into no addition. Similar is the position with respect to other companies M/s. Hill Ridge Investment Ltd. and M/s. Mega Top Promoters (P) Ltd. Thus in view the fact that there was reference in the notice of any satisfaction of competent authority as contemplated u/s. 151 even after issuance of notice after four years from the end of assessment year; that there is no reference of any evidence such as statement or confession of the alleged entry operator against the assessee; that there is absence of any particular fact which the assessee failed to disclose fully and truly regarding the share capital at the time of original assessment; that the satisfaction note of the Assessing Officer is solely based on information of investigation Wing; and that in the assessments of alleged entry operator group u/s. 153C, the returns filed by them stood accepted by the department itself and after considering various Authorities cited by the ld. AR and the ld. CIT(A), we find no infirmity in the decision of the ld. CIT(A) while holding the reopening proceedings as void and illegal. - Decided in favour of assessee.

Summary

Issues Involved:

1. Validity of reassessment proceedings under Section 148 of the Income Tax Act.
2. Deletion of addition of ?4,00,00,000/- made under Section 68 of the IT Act.
3. Deletion of addition of ?10,00,000/- on account of commission paid to entry operators.
4. Initiation of penalty under Section 271(1)(c) of the IT Act.

Issue-wise Detailed Analysis:

1. Validity of Reassessment Proceedings:

The primary issue was whether the reassessment proceedings initiated under Section 148 were valid. The original assessment was completed under Section 143(3), and the reassessment was initiated based on information from the Investigation Wing regarding accommodation entries. The CIT(A) quashed the reassessment proceedings, holding that the reopening was not in accordance with the law. The Tribunal upheld this decision, noting several deficiencies in the Assessing Officer's (AO) approach:
- The AO did not independently verify the information received from the Investigation Wing.
- The reasons recorded for reopening did not indicate any specific evidence or confession linking the assessee to the alleged accommodation entries.
- There was no application of mind by the AO, as evidenced by the duplication of entries in the satisfaction note.
- The AO failed to mention any undisclosed material fact by the assessee that warranted reopening after four years, as required by the proviso to Section 147.
- The absence of the competent authority's sanction under Section 151 before issuing the notice under Section 148.

2. Deletion of Addition of ?4,00,00,000/- Under Section 68:

The AO had added ?4,00,00,000/- to the assessee's income as unexplained share capital under Section 68. The CIT(A) deleted this addition, and the Tribunal agreed, noting:
- The AO primarily based the addition on the non-appearance of directors of the investing companies, without any substantive evidence.
- The assessee provided sufficient documents to establish the identity, creditworthiness, and genuineness of the transactions.
- The investing companies were assessed under Section 153C, and their returns were accepted by the Income Tax Department, indicating no adverse findings against them.
- The AO did not confront the assessee with any evidence or statements from the alleged entry operators.
- The Tribunal emphasized that the AO's approach was premeditated and lacked proper verification.

3. Deletion of Addition of ?10,00,000/- on Account of Commission Paid:

The AO had estimated a commission of ?10,00,000/- paid to entry operators at a rate of 2.5%. The CIT(A) deleted this addition, and the Tribunal upheld this decision, stating:
- The AO had no evidence to support the estimation of the commission rate or the recipient of the commission.
- The addition was directly linked to the main addition under Section 68, which was already deleted.

4. Initiation of Penalty Under Section 271(1)(c):

The AO had suggested initiating penalty proceedings under Section 271(1)(c) for concealment of income. However, since the reassessment proceedings and the additions made were quashed, the Tribunal found no basis for initiating penalty proceedings.

Conclusion:

The Tribunal dismissed the Revenue's appeal, upholding the CIT(A)'s decision to quash the reassessment proceedings and delete the additions made by the AO. The Tribunal emphasized the need for proper application of mind and independent verification by the AO before forming a belief of income escapement.