2016 (10) TMI 808 - AT - Income Tax

Reopening of assessment - validity of notice u/s 148 - income escaped assessment based on investigation wing information - Held that - the reasons merely based on investigation wing information without surveillance of substantiation and without any statement being mentioned therein and without nature of transaction being narrated therein and without tangible material and further without application of mind on amount of income escaping assessment shows that the reopening is bad in law and needs to be quashed. - Decision in the case of Signature Hotels P. Ltd. vs. Income Tax Officer 2011 (7) TMI 361 - Delhi High Court followed. - Decided in favor of assessee.

Issues Involved:
1. Legality of the reassessment proceedings under Section 147/148 of the Income Tax Act, 1961.
2. Validity of the notice issued under Section 148.
3. Whether the reassessment order was passed without proper service of notice under Section 148.
4. Alleged violation of the principle of natural justice.
5. Addition of ?10,00,000 on account of share application money under Section 68.
6. Addition of ?2,36,026 on account of agricultural expenses.
7. Enhancement of addition to ?3,80,240 by CIT(A).
8. Power of enhancement under Section 251.

Detailed Analysis:

1. Legality of the reassessment proceedings under Section 147/148:
The Tribunal found that the Assessing Officer (AO) recorded reasons for the belief that income had escaped assessment based on information from the Investigation Wing. The information indicated that the assessee received ?10,00,000 as accommodation entry from M/s Taurus Iron & Steel Co. Pvt. Ltd., an entity managed by Sh. Tarun Goyal. The Tribunal noted that these reasons were based merely on the investigation wing's information without any independent application of mind by the AO. The Tribunal relied on the Delhi High Court's decision in the case of Signature Hotels Pvt. Ltd. vs. ITO, which held that reassessment proceedings initiated solely based on such information without independent verification are invalid. Consequently, the Tribunal quashed the reassessment proceedings.

2. Validity of the notice issued under Section 148:
The Tribunal observed that the notice under Section 148 was issued based on the information received from the Investigation Wing, which alleged that the assessee had received accommodation entries. However, the Tribunal found that the AO did not apply his own mind to this information. Citing the Delhi High Court's ruling in Signature Hotels Pvt. Ltd., the Tribunal held that the notice was invalid as it did not satisfy the requirements of Section 148.

3. Whether the reassessment order was passed without proper service of notice under Section 148:
The assessee contended that the reassessment order was passed without proper service of notice under Section 148. The Tribunal noted that the AO issued notices under Section 142(1) after the notice under Section 148, but the assessee did not comply with these notices. The Tribunal did not explicitly address this issue, as it quashed the reassessment proceedings on other grounds.

4. Alleged violation of the principle of natural justice:
The assessee argued that the reassessment order was passed without giving an opportunity of being heard, violating the principle of natural justice. The Tribunal did not specifically address this issue, as it quashed the reassessment proceedings based on the invalidity of the notice under Section 148 and the lack of independent application of mind by the AO.

5. Addition of ?10,00,000 on account of share application money under Section 68:
The AO added ?10,00,000 to the assessee's income under Section 68, alleging that the amount was received as accommodation entry. The CIT(A) confirmed this addition. However, the Tribunal, having quashed the reassessment proceedings, did not specifically address this addition.

6. Addition of ?2,36,026 on account of agricultural expenses:
The AO added ?2,36,026 on account of agricultural expenses, which was confirmed by the CIT(A). The Tribunal did not specifically address this addition, as it quashed the reassessment proceedings.

7. Enhancement of addition to ?3,80,240 by CIT(A):
The CIT(A) enhanced the addition on account of agricultural expenses from ?2,36,026 to ?3,80,240. The assessee argued that this enhancement was arbitrary and without proper consideration of the explanations and submissions. The Tribunal did not specifically address this issue, as it quashed the reassessment proceedings.

8. Power of enhancement under Section 251:
The assessee contended that the CIT(A) exceeded his power of enhancement under Section 251 of the Income Tax Act. The Tribunal did not specifically address this issue, as it quashed the reassessment proceedings.

Conclusion:
The Tribunal quashed the reassessment proceedings initiated under Section 147/148, holding that the AO did not apply his own mind to the information received from the Investigation Wing and that the notice issued under Section 148 was invalid. Consequently, the Tribunal did not address the other issues raised by the assessee, as they became academic in nature. The assessee's appeal was allowed.

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