2016 (5) TMI 1223 - AT - Income Tax

Reopening of assessment - accommodation entries receipt - Held that - No addition has been made in respect of the accommodation entry from M/s. Zigma Telecom Private Limited and the additions made are in respect of the parties, which are not mentioned in reasons recorded by the Assessing Officer. Thus, respectfully following the ratio of the judgment of the Hon ble Delhi High Court in the case of Ranbaxy Laboratories Ltd (2011 (6) TMI 4 - DELHI HIGH COURT ), we are of the opinion that the reassessment proceedings are invalid in law, therefore, we the quash the reassessment proceedings in the case of the assessee initiated by the Assessing Officer. - Decided in favour of assessee.

Summary

Issues Involved:
1. Jurisdiction and validity of the reassessment proceedings initiated by the Assessing Officer (AO) under section 148 of the Income Tax Act.
2. Merits of the additions made by the AO in the reassessment order.

Detailed Analysis:

Jurisdiction and Validity of Reassessment Proceedings:

1. Grounds for Appeal: The assessee challenged the jurisdiction of the AO in reopening the assessment, arguing that the notice under section 148 was not received, the reasons recorded contained duplicate entries, and the AO did not apply his mind while recording reasons. Additionally, the assessee contended that the reassessment was based on entries from Zigma Telecom Private Limited, but the final assessment order mentioned different parties, thus invalidating the reassessment proceedings.

2. AO’s Reasoning for Reassessment: The AO reopened the assessment based on information from the Investigation Wing, New Delhi, indicating that the assessee received bogus accommodation entries totaling ?7.5 lakh. The AO recorded reasons to believe that income had escaped assessment and issued a notice under section 148.

3. Tribunal’s Findings: The Tribunal noted that the reasons recorded by the AO for reopening the assessment mentioned accommodation entries from Zigma Telecom Private Limited. However, the final assessment order did not include this party but mentioned different entities. The Tribunal referenced the judgment in the case of Ranbaxy Laboratories Ltd. versus Commissioner of Income Tax, which held that if no addition is made in respect of the reasons recorded for reopening, then no other additions could be made in the reassessment proceedings.

4. Conclusion on Jurisdiction: The Tribunal found that the AO did not make any addition based on the reasons recorded for reopening the assessment. Therefore, following the precedent set by the Hon’ble Delhi High Court in Ranbaxy Laboratories Ltd., the Tribunal quashed the reassessment proceedings as invalid in law.

Merits of the Additions:

1. Assessee’s Argument: On the merits of the addition, the assessee argued that the entry in question pertained to the sale of stocks and not any credit or investment, and thus could not be assessed under section 68 of the Income Tax Act. The assessee had already declared the same as sales in the profit and loss account and had provided all necessary documents to substantiate the claim.

2. Department’s Stand: The Departmental Representative (DR) argued that the assessee received accommodation entries from a known entry provider, and the AO had verified the information before reopening the assessment. The DR contended that the sufficiency of reasons could not be examined at the stage of recording reasons and that a prima facie satisfaction of income escaping assessment was sufficient.

3. Tribunal’s Decision: Since the Tribunal quashed the reassessment proceedings on jurisdictional grounds, it did not adjudicate on the merits of the addition.

Final Judgment:
The Tribunal allowed the appeal of the assessee, quashing the reassessment proceedings initiated by the AO. The decision was pronounced in the open court on 25th April 2016.