2016 (5) TMI 718 - AT - Income Tax

Reopening of assessment - receipt of accommodation entries - Held that - In the instant case, the AO received information that the assessee has received accommodation entries in the nature of share capital/capital gains. He has not verified the same before issuing the notice. The assessee has not received any amount by way of share capital or by way of capital gains. As already explained the assessee has carried out share trading transactions during the year and received the payment thereof by cheques. Such profit has been duly accounted, disclosed and assessed. Therefore the AO could not form a belief at the time of issue of notice that income to that extent has escaped assessment. Therefore the reassessment notice is invalid and void ab initio. - Decided in favour of assessee

Issues Involved:
1. Addition of Rs. 1,06,06,355/- on account of income from undisclosed sources.
2. Validity of reassessment under sections 147/148.
3. Initiation of reassessment proceedings beyond four years.
4. Formation of belief by AO regarding income escapement.
5. Alleged reassessment based on a change of opinion.
6. Double addition of the same income.
7. Proof of identity, genuineness, and creditworthiness of transactions.

Detailed Analysis:

1. Addition of Rs. 1,06,06,355/- on account of income from undisclosed sources:
The assessee contended that the income of Rs. 1,06,06,355/- was already disclosed in the Profit & Loss Account under the head 'Profit on sale purchase of shares.' The AO had previously accepted these details during the original assessment under section 143(3). The CIT(A) confirmed the addition, stating that the assessee failed to prove the identity, genuineness, and creditworthiness of the transactions.

2. Validity of reassessment under sections 147/148:
The reassessment proceedings were initiated based on information from the Investigation Wing that the assessee received bogus accommodation entries. The Tribunal found that the AO did not independently verify this information and relied solely on the Investigation Wing's report. The Tribunal held that the AO must independently apply his mind to the information received and form a belief that income had escaped assessment, which was not done in this case.

3. Initiation of reassessment proceedings beyond four years:
The reassessment notice was issued on 30.03.2011, beyond four years from the end of the relevant assessment year 2004-05. The Tribunal noted that the reassessment proceedings were invalid as the assessee had disclosed all material facts necessary for the assessment during the original proceedings, and there was no failure on the part of the assessee to disclose fully and truly all material facts.

4. Formation of belief by AO regarding income escapement:
The Tribunal observed that the AO did not have a valid reason to believe that income had escaped assessment. The AO acted on borrowed satisfaction from the Investigation Wing without independent verification. The Tribunal emphasized that the AO must independently form a belief of income escapement, which was not evident in this case.

5. Alleged reassessment based on a change of opinion:
The Tribunal held that the reassessment was based on a mere change of opinion. The AO had already examined and accepted the details of the share trading transactions during the original assessment proceedings. The Supreme Court in the case of Kelvinator of India held that reassessment on mere change of opinion is not permissible. The Tribunal found that the reassessment was initiated on a change of opinion, making it invalid.

6. Double addition of the same income:
The assessee argued that the alleged undisclosed income was already offered as income, and the addition amounted to double taxation. The Tribunal noted that the assessee had disclosed the income in its Profit & Loss Account, and thus, the addition of the same income twice was erroneous.

7. Proof of identity, genuineness, and creditworthiness of transactions:
The CIT(A) held that the assessee failed to prove the identity, genuineness, and creditworthiness of the transactions. However, the Tribunal found that the assessee had provided all necessary details during the original assessment, and the AO had accepted these details. The Tribunal concluded that the assessee had discharged its onus of proving the transactions.

Conclusion:
The Tribunal quashed the reassessment proceedings initiated by the AO, holding them to be invalid and void ab initio. The appeal filed by the assessee was allowed, and the reassessment notice dated 31.03.2011 was quashed. The Tribunal emphasized the importance of independent application of mind by the AO and the necessity of having valid reasons to believe that income had escaped assessment. The reassessment based on a change of opinion and without proper verification was deemed invalid.

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