2021 (8) TMI 1365 - AT - Income Tax

Validity of reassessment proceedings u/s 147 - Addition u/s 68 - Independent application of mind v/s borrowed satisfaction - argument submitted that the reassessment proceedings in the instant case is based on borrowed satisfaction based on the conclusion drawn by Investigation Wing - HELD THAT - When there is non-application of mind by the AO to the report of the Investigation Wing, such reassessment proceedings are not in accordance with law and such reopening proceedings have been quashed. Since, in the instant case, the AO has not applied his mind as there is non-identification of the deponents, non-mentioning of middleman if any, absence of details in the form of instrument number through which the cheques/RTGS was accepted by the assessee company, name of the bank from which the accommodation entries were provided, the name of the bank in which the accommodation entries were credited and the date of transaction etc. therefore, we are of the considered opinion that there is complete nonapplication of mind by the AO to the information received from the Investigation Wing. Therefore, in view of the decision of Meenkashi Overseas Pvt. Ltd. ( 2017 (5) TMI 1428 - DELHI HIGH COURT the reassessment proceedings are not in accordance with law. We further find in the case of Sh Rajiv Agarwal 2016 (3) TMI 972 - DELHI HIGH COURT has held that even in cases where the AO comes across certain unverified information, it is necessary for him to take further steps, make inquiries and garner further material and if such material indicates that income of an Assessee has escaped assessment, form a belief that income of the Assessee has escaped assessment. There is non-application of mind by the AO could not be said to have reason to believe as to justify reopening of assessment. We further find in the instant case, the assessee in response to notice u/s 148 stated that return of income filed u/s 139 of the Act be treated as return of income filed in response to notice u/s 148 and also requested for supply of the copy of reasons. We find the AO after more than four months directed the assessee to e-file the return of income which was done on 13.10.2018. We find the AO thereafter issued notice dated 16.10.2018 u/s 143(2)/142(1) of the Act and supplied reasons recorded on 22.10.2018 against which the assessee submitted objection to assumption to jurisdiction on 05.11.2018 and same were disposed of by AO on 09.11.2018. From the above facts, it is evident that the AO assumed jurisdiction to make assessment by issuing notice u/s 143(2) of the Act on 16.10.2018 before supplying reason which means that the AO assumed jurisdiction before allowing assessee to file objection to assumption to jurisdiction. We are of the considered opinion that reassessment proceeding initiated by the AO in the instant case and upheld by the learned CIT(A) is not in accordance with law. Therefore, we quash the reassessment proceeding - Decided in favour of assessee.

Summary

Issues Involved:
1. Validity of reassessment proceedings under Section 147/148 of the Income Tax Act.
2. Application of Section 153C versus Section 147.
3. Adequacy of reasons recorded for reopening the assessment.
4. Mechanical approval by the Principal Commissioner of Income Tax (Pr. CIT).
5. Additions under Section 68 of the Income Tax Act for unexplained cash credits.
6. Compliance with principles of natural justice.

Detailed Analysis:

1. Validity of Reassessment Proceedings under Section 147/148:
The assessee challenged the reassessment proceedings on the grounds that the Assessing Officer (AO) did not apply an independent mind and relied solely on the report from the Investigation Wing. The Tribunal found that the AO reproduced the information from the Investigation Wing without demonstrating how it led to the belief of income escapement. The Tribunal cited the Hon'ble Delhi High Court's decision in Pr. CIT vs. Meenakshi Overseas Pvt. Ltd., which emphasized that reasons for reopening must show a clear link between the tangible material and the formation of the belief. The Tribunal concluded that the reasons recorded were vague and lacked specific details, such as the identity of the deponents and the mode of accommodation entries, leading to the conclusion that there was non-application of mind by the AO.

2. Application of Section 153C versus Section 147:
The assessee initially argued that Section 153C should apply instead of Section 147. However, this ground was not pressed during the hearing, and the Tribunal dismissed it as not pressed.

3. Adequacy of Reasons Recorded for Reopening the Assessment:
The Tribunal found that the reasons recorded by the AO were incomplete and incoherent. The AO failed to identify specific seized materials, the mode of accommodation entries, and other critical details. This lack of specificity indicated non-application of mind, making the reassessment proceedings invalid. The Tribunal referenced multiple decisions, including Pr. CIT vs. Meenakshi Overseas Pvt. Ltd. and Sabh Infrastructure vs. ACIT, to support this conclusion.

4. Mechanical Approval by the Principal Commissioner of Income Tax (Pr. CIT):
The assessee argued that the Pr. CIT's approval for reopening the assessment was mechanical and lacked due application of mind. The Tribunal agreed, noting that the approval simply stated, "Yes, it is a fit case of issue of notice u/s 148 r.w.s. 147 of the Act, 1961," without any detailed reasoning. This mechanical approval contributed to the invalidation of the reassessment proceedings.

5. Additions under Section 68 for Unexplained Cash Credits:
The AO made additions under Section 68, citing unexplained cash credits from various entities. The assessee provided confirmations, bank statements, and other documents to substantiate the transactions. However, the AO rejected these explanations, primarily because the directors of the lending companies did not appear for deposition. The Tribunal found that the AO's action was unjustified, especially since the assessee had repaid the loans with interest and deducted TDS. The Tribunal emphasized that mere non-production of directors should not lead to adverse conclusions if the assessee has otherwise substantiated the transactions.

6. Compliance with Principles of Natural Justice:
The assessee argued that the AO did not provide an opportunity to cross-examine the individuals whose statements formed the basis for reopening the assessment. The Tribunal noted that the AO's failure to provide such an opportunity violated the principles of natural justice.

Conclusion:
The Tribunal concluded that the reassessment proceedings were invalid due to non-application of mind by the AO, mechanical approval by the Pr. CIT, and lack of specific details in the reasons recorded. Consequently, the reassessment proceedings were quashed, and the appeal filed by the assessee was allowed. The Tribunal did not adjudicate other arguments challenging the reassessment proceedings and the merits of the case, as the assessee succeeded on the primary legal ground.