2016 (6) TMI 449 - AT - Income Tax

Reopening of assessment - whether the AO can initiate proceedings u/s 147/148 on the basis of certain communication received from his superior revenue authorities showing that the assessee has been provided with accommodation entry to the tune of ₹ 15,00,000/- by a shell company/concern floated by S.K. Gupta? - Held that - Basic requirement that the AO must apply his mind to the materials in order to have reasons to believe that the income of the Assessee escaped assessment is missing in the present case. See PR. Commissioner of Income Tax-4 Versus G & G Pharma India Ltd. 2015 (10) TMI 754 - DELHI HIGH COURT - Decided in favour of assesee

Summary

Issues Involved:
1. Validity of the assessment order made by the Assessing Officer (AO).
2. Legality of the assumption of jurisdiction under Section 147 by the AO.
3. Confirmation of the addition of ?15,00,000 under Section 68 of the Income Tax Act, 1961.

Detailed Analysis:

1. Validity of the Assessment Order:
The assessee contended that the assessment order made by the AO was bad in law and void ab initio. The Tribunal examined whether the AO applied his mind independently to believe that the income had escaped assessment. It was observed that the AO acted merely on information provided by the ACIT, Central Circle 19, New Delhi, without conducting an independent investigation. The Tribunal referenced the Supreme Court's decision in Chhugamal Rajpal vs. S.P. Chaliha, emphasizing that the AO must have reasons to believe based on his own satisfaction, not merely on external information. The Tribunal concluded that the AO's action was mechanical and lacked independent application of mind, thereby invalidating the assessment order.

2. Legality of the Assumption of Jurisdiction under Section 147:
The Tribunal scrutinized the AO's reasons for reopening the assessment under Section 147. The AO's basis for reopening was information received from the ACIT regarding accommodation entries provided by S.K. Gupta's shell companies. The Tribunal highlighted that the AO did not conduct any independent verification or investigation to substantiate the claim that the income had escaped assessment. Citing the jurisdictional High Court's decision in G & G Pharma India Ltd., the Tribunal reiterated that the AO must apply his mind to the materials to form a prima facie opinion. The lack of such independent application of mind rendered the assumption of jurisdiction under Section 147 illegal.

3. Confirmation of the Addition of ?15,00,000 under Section 68:
The AO had added ?15,00,000 to the assessee's income under Section 68, treating it as undisclosed income. The assessee argued that this amount was received as sale proceeds of investments, not as unexplained cash credits. The Tribunal noted that since the initiation of proceedings under Section 147 was itself deemed invalid, the consequent assessment and the addition under Section 68 were also unsustainable. Therefore, the addition of ?15,00,000 was rendered infructuous and was set aside.

Conclusion:
The Tribunal allowed the appeal filed by the assessee, setting aside the assessment order and the addition of ?15,00,000 under Section 68. The Tribunal emphasized the necessity for the AO to independently apply his mind and verify the information before reopening assessments under Section 147. The order pronounced on 17th May 2016 concluded that the proceedings initiated under Section 147 and the subsequent assessment were not sustainable in law.