2016 (12) TMI 1011 - AT - Income Tax

Validity of reopening of assessment - foundation of AO s belief is the information received from Investigation wing of the department - Held that - AO has not applied his mind to any tangible material in his possession before issuing notice u/s. 148, in absence of which the reopening of assessment cannot be accepted in the eyes of law, as laid down by Hon ble Jurisdictional High Court as well as Tribunal in plenty of cases. Therefore, forming of belief of escapement and consequently reopening of assessment on the basis of mere information received by AO from Investigation wing is not tenable. See PR. Commissioner of Income Tax-4 Versus G & G Pharma India Ltd. 2015 (10) TMI 754 - DELHI HIGH COURT - Decided in favour of assessee

Issues:
Validity of reopening of assessment u/s 147, Addition u/s 68 of the IT Act, Failure to prove identity and creditworthiness of creditors, Allegation of undisclosed income, Legal validity of AO's belief of escapement of income based on information received from Investigation Wing.

Validity of Reopening of Assessment u/s 147:
The appellant challenged the reopening of assessment, claiming it was not legally valid as the reasons recorded were vague without tangible material. The AO based the reopening on information received from the Investigation Wing, failing to apply his mind to independent material. The Tribunal held that reopening without tangible material is not acceptable, citing various precedents. Referring to the decision in CIT vs. G & G Pharma India Ltd., the Tribunal concluded the reopening was invalid, leading to the appeal being allowed without delving into the merits of the additions.

Addition u/s 68 of the IT Act:
The AO made additions u/s 68 and u/s 69C of the IT Act totaling ?20,40,000, alleging unexplained cash credits and commission paid for accommodation entries. The appellant argued that the share capital received was legitimate and that no addition could be made simply because the company had not commenced business. However, the AO found the appellant failed to prove the identity and creditworthiness of creditors, leading to the additions. The Tribunal's decision on the validity of reopening rendered the discussion on this issue unnecessary.

Failure to Prove Identity and Creditworthiness of Creditors:
The appellant submitted evidence supporting the share capital received and the existence of the companies involved. However, the AO found discrepancies in the addresses provided for the creditors, leading to doubts about their existence. The Tribunal noted the lack of concrete evidence establishing the identity and creditworthiness of the creditors, which supported the AO's decision to make the additions.

Allegation of Undisclosed Income:
The AO alleged that the credit entries represented undisclosed income of the appellant, invoking section 68 of the IT Act. The appellant contended that the entries were related to share capital issued, emphasizing the legitimate nature of the transactions. Despite the appellant's arguments, the AO proceeded with the additions based on the lack of declared receipts in the profit and loss account, as the company had not commenced business activities.

Legal Validity of AO's Belief of Escapement of Income Based on Information Received from Investigation Wing:
The Tribunal emphasized that the AO's belief of escapement and subsequent reopening of assessment solely based on information from the Investigation Wing was legally untenable. Citing precedents and the decision in CIT vs. G & G Pharma India Ltd., the Tribunal concluded that the AO must apply his mind to tangible material before reopening an assessment. As the reopening was deemed invalid, the Tribunal allowed the appeal without addressing the merits of the additions made by the AO.

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