2020 (12) TMI 1378 - AT - Income Tax

Validity of Reopening of assessment u/s 147 - Addition u/s 68 - reasons to believe - Allegation of non independent application of mind and unwarranted and in a mechanical manner and is not sustainable in the eyes of law - HELD THAT - We find that initiation of assessment are on Wrong and non-existing facts, because it mentions that M/s. Binary Semantics Ltd. is shown to have received following entries . Thereafter 07 entries have been given for which re-asstt. proceedings have been initiated. The initiation has been done for Rs. 2,47,50,000/- from 07 parties against correctly received only Rs. 1,10,00,000/- from 03 parties. In the reasons, M/s. Binary Semantics Ltd. has been shown as beneficiary. Assessee has got no connection with this company. Hence, it is a wrong reason/wrong basis of initiation. Further, Chart of Co s from whom amount has been received has been given in reasons that first 04 parties (1,37,50,000/-) are wrongly mentioned. No amount has been received from them. In this case initiation of reopening proceedings is mechanical and Non-application of Mind and Borrowed satisfaction because the initiation is on the basis of report of Inv. wing only; No prime facie enquiry done by A.O. before initiating proceedings; Hence, it is a case of initiation on wrong facts and on borrowed satisfaction without application of mind which makes the proceedings un-sustainable. Our view is fortified by the decision of Sarthak Securities Co. (P) Ltd. 2010 (10) TMI 92 - DELHI HIGH COURT wherein it has been held that no independent application of mind by the AO by acting under information from Inv. Wing. Notice u/s. 147 to be quashed. Limitation Period - As we have perused the documentary evidences filed by the assessee especially the notice u/s. 148 of the Act prepared by the AO and sent to post office and delivered to the assessee as stated by the Ld. Counsel for the assessee. As in the case of Kanubahi M. Patel (HUF) vs. Hiren Bhattr 2010 (7) TMI 704 - GUJARAT HIGH COURT the assessment is barred by limitation and hence, null and void. Thus reopening of assessment orders quashed - Decided in favour of assessee.

Summary

Issues:
1. Jurisdiction of proceedings u/s. 147/148
2. Validity of approval u/s. 151
3. Addition u/s. 68 of the I.T. Act for share capital and share premium
4. Addition of unexplained expenditure u/s. 69C
5. Limitation issue regarding notice u/s. 148

Jurisdiction of proceedings u/s. 147/148:
The appeal challenged the initiation of proceedings u/s. 147/148 as being without jurisdiction, mechanical, and unsustainable. The Assessee argued that the proceedings lacked proper application of mind and were unwarranted. The Counsel contended that the notice u/s. 148 was issued after the limitation period, rendering the assessment null and void. Citing the case of GKN Driveshafts, the Assessee claimed that the AO failed to address objections against the reopening proceedings adequately. The Assessee further argued that the approval u/s. 151 was defective and without proper consideration, making the entire proceedings illegal.

Validity of approval u/s. 151:
The Assessee contended that the approval u/s. 151 was mechanically granted without due application of mind, rendering the proceedings without jurisdiction. The Counsel emphasized that the approval process was flawed, leading to the conclusion that the entire proceedings were illegal and unwarranted.

Addition u/s. 68 of the I.T. Act for share capital and share premium:
The issue revolved around the addition of Rs. 1,10,00,000 under section 68 of the I.T. Act for share capital and share premium received from specific companies. The Assessee argued that the lower authorities erred in law and on merits in making and sustaining this addition. The Counsel highlighted the lack of proper opportunity for cross-examination and violation of principles of natural justice, leading to the impugned assessment being unsustainable in law.

Addition of unexplained expenditure u/s. 69C:
The appeal contested the addition of Rs. 2,75,000 as unexplained expenditure under section 69C for alleged commission expenses. The Assessee argued that there was no legal justification for this addition, both in law and on merits, emphasizing the lack of substantiation for the claim.

Limitation issue regarding notice u/s. 148:
The Tribunal found that the initiation of assessment was based on wrong and non-existing facts, leading to the conclusion that the proceedings were unsustainable. Citing the case law, the Tribunal held that the initiation was on the wrong basis, vitiating the entire reassessment proceedings. It was observed that the initiation lacked independent application of mind and was based on borrowed satisfaction, making it unsustainable. The Tribunal further ruled that the assessment was barred by limitation, as per the judgment cited, and consequently quashed the reopening of the assessment.

In conclusion, the appeal was partly allowed, with the Tribunal setting aside the orders of the authorities below and quashing the reopening of the assessment due to jurisdictional and limitation issues.