2016 (11) TMI 589 - AT - Income Tax

Validity of reopening of assessment - Held that - We have to necessarily conclude that the reasons were recorded without application of mind. Therefore, on this ground itself, the reopening of assessment has to be held bad in law by following the judgements of the jurisdictional High Court in the case Signature Hotels Pvt. Ltd. vs. ITO (2011 (7) TMI 361 - Delhi High Court ) wherein it was held that notice issued based on a report from Investigation Wing is invalid where the AO does not examine the evidence. - Decided in favour of assessee

Summary

Issues Involved:
1. Validity of reassessment u/s 147 without recording valid reasons and obtaining approval.
2. Addition of share application money u/s 68 without considering submissions/evidences.
3. Jurisdiction of making addition of share application money u/s 68.
4. Sustainability of impugned assessment order on legal and factual grounds.
5. Charging interest u/s 234B of the Income Tax Act, 1961.

Analysis:

Issue 1:
The AO attempted to reopen the assessment based on a search operation revealing potential undisclosed income through accommodation entries. However, the reasons recorded for reopening were found to lack proper application of mind, rendering the reopening of assessment legally flawed. Citing precedents like Signature Hotels Pvt. Ltd. vs. ITO, it was concluded that the notice issued without proper examination of evidence from the Investigation Wing is invalid. The judgment emphasized the necessity for the AO to apply his mind to the materials before forming a prima facie opinion on income escapement.

Issue 2:
The CIT(A) confirmed the addition of share application money without considering the submissions and evidences presented by the assessee. The tribunal found this action to be erroneous, indicating a failure to assess the relevant material before making the addition. This lack of due diligence in considering the assessee's contentions led to a decision against the department's action.

Issue 3:
The tribunal further assessed the jurisdiction of making an addition of share application money under section 68, emphasizing that the action must be within the scope and jurisdiction of the assessment order. It was determined that the addition made in this case was beyond jurisdiction, illegal, and contrary to the facts and circumstances presented. The tribunal highlighted the importance of adhering to legal boundaries in making such additions.

Issue 4:
The impugned assessment order was found to be unsustainable on various legal and factual grounds. The tribunal noted that the order was passed without proper examination of facts, findings, and without providing essential procedural safeguards like the opportunity for cross-examination. This lack of adherence to principles of natural justice rendered the assessment order invalid and unsustainable.

Issue 5:
Regarding the charging of interest u/s 234B of the Income Tax Act, 1961, the tribunal found fault with the CIT(A) for not reversing the AO's decision. The failure to address this aspect was considered an error in law and facts, indicating a lack of proper consideration of statutory provisions related to interest charges. The tribunal highlighted the need for a comprehensive review of all relevant aspects in the assessment process.

In conclusion, the tribunal allowed the appeal of the assessee, quashing the assessment due to legal flaws in the reassessment process and the unsustainable nature of the impugned assessment order. The judgment emphasized the importance of adhering to legal procedures, considering all relevant evidence, and ensuring the application of mind in making assessment decisions.