2016 (6) TMI 84 - AT - Income Tax

Reopening of assessment - Addition u/s 68 - bogus cash credit being the cash paid as commission for obtaining accommodation entries - Held that - After going through the reasons recorded by the Assessing Officer/ITO-4(2), New Delhi, we are of the view that AO has not applied his mind so as to come to an independent conclusion that he has reason to believe that income has escaped during the year. In our view the reasons are vague and are not based on any tangible material as well as are not acceptable in the eyes of law. The AO has mechanically issued notice u/s. 148 of the Act, on the basis of information allegedly received by him from the Directorate of Income Tax (Investigation), New Delhi. Keeping in view of the facts and circumstances of the present case and the case law applicable in the case of the assessee, we are of the considered view that the reopening in the case of the assessee for the asstt. Year in dispute is bad in law and deserves to be quashed - Decided in favour of assessee.

Summary

Issues Involved:
1. Validity of assessment and additions made by AO
2. Legal issue of reopening of assessment

Issue 1: Validity of assessment and additions made by AO
The case involved an appeal by the Department and cross objection by the Assessee against the Order of the Ld. CIT(A) pertaining to assessment year 2003-04. The Department challenged the deletion of additions made by the AO under section 68 of the I.T. Act, while the Assessee raised concerns about the validity of the assessment order. The AO had treated money received as share application and commission as undisclosed income, leading to additions totaling ?1,40,36,000. The Ld. CIT(A) partly allowed the Assessee's appeal and deleted the disputed addition. The Assessee contended that the AO failed to discharge the initial onus of proving the creditworthiness of the creditors and genuineness of the transactions. The Revenue appealed against the deletion of additions, and the Assessee filed a Cross Objection challenging the legal issue of reopening of assessment.

Issue 2: Legal issue of reopening of assessment
The Assessee's Cross Objection primarily focused on challenging the validity of the reopening of assessment under section 147 of the I.T. Act. The Assessee argued that the AO's action was illegal as proper reasons were not recorded, and there was no nexus between the materials relied upon and the belief formed for escapement of income. The Assessee cited a High Court decision supporting their stance. On the other hand, the Ld. DR defended the AO's actions, stating that the notice was issued based on material found against the Assessee. The Tribunal examined the reasons recorded by the AO for reopening the case and concluded that the AO had not applied his mind to form an independent belief that income had escaped assessment. The Tribunal found the reasons vague and lacking tangible material, leading to the quashing of the reopening of assessment. Citing a relevant High Court decision, the Tribunal decided in favor of the Assessee, holding the reopening as bad in law and beyond jurisdiction. Consequently, the Cross Objection filed by the Assessee was allowed, and the Revenue's appeal was dismissed.

This detailed analysis of the judgment from the Appellate Tribunal ITAT DELHI highlights the legal issues, arguments presented by both parties, and the Tribunal's decision on each issue involved in the case.