2017 (3) TMI 1052 - AT - Income Tax

Validity of reopening of assessment - Held that - The reopening was done on the basis of Investigation Wing. As decided in case of Signature Hotels (P) Ltd. Versus Income Tax Officer and Anr. 2011 (7) TMI 361 - Delhi High Court a notice under section 148 can be quashed if the belief is not bonafide, or one based on vague, irrelevant and non-specific information. The basis of the belief should be discernible from the material on record, which was available with the Assessing Officer, when he recorded the reason. There should be a link between the reasons and the evidence/material available with the Assessing Officer. The reasons to believe would mean cause or justification of the Assessing Officer to believe that the income has escaped assessment and not that the Assessing Officer should have finally ascertained the fact by legal evidence or reached a conclusion, as is determined and decided in the assessment order, which is the final stage before the Assessing Officer. - Decided in favour of assessee.

Issues Involved:
1. Jurisdiction of the Assessing Officer (AO) issuing notice under Section 148.
2. Validity of reassessment proceedings initiated under Section 148.
3. Adequacy and specificity of the reasons recorded for reopening the assessment.
4. Compliance with procedural requirements, including the supply of reasons for reopening to the assessee.
5. Validity of approval under Section 151 for reassessment.
6. Burden of proof under Section 68 regarding the share application money received.
7. Adequacy of evidence and the basis for addition made by the AO.

Issue-Wise Detailed Analysis:

1. Jurisdiction of the Assessing Officer (AO) issuing notice under Section 148:
The assessee contended that the reassessment proceedings initiated under Section 148 were without jurisdiction because the territorial jurisdiction vested in the AO having jurisdiction over the area of Kalkaji, New Delhi, where the registered office of the appellant is situated. The CIT(A) dismissed this ground, noting that the PAN of the appellant was under the jurisdiction of the DCIT, Faridabad, and the appellant did not raise the objection within one month of the notice issuance. The appellant had filed a revised return with the DCIT, Faridabad, thus implicitly accepting the jurisdiction.

2. Validity of reassessment proceedings initiated under Section 148:
The assessee argued that the reassessment proceedings were void ab initio as the AO failed to verify the veracity of the information before recording the reasons. The CIT(A) upheld the validity of the reassessment, stating that the AO had recorded reasons based on information received from the Investigation Wing, which was sufficient to form a prima facie belief of income escapement. The CIT(A) cited several judicial precedents supporting the sufficiency of reasons for reopening an assessment.

3. Adequacy and specificity of the reasons recorded for reopening the assessment:
The assessee claimed that the reasons recorded were vague and lacked a nexus or live link between the information and the belief of income escapement. The CIT(A) disagreed, noting that the AO had recorded specific information about accommodation entries from the Surender Kumar Jain Group. The CIT(A) referenced Supreme Court judgments affirming that reasons for reopening need only establish a prima facie belief, not conclusive evidence.

4. Compliance with procedural requirements, including the supply of reasons for reopening to the assessee:
The assessee asserted that the reasons for reopening were not supplied despite repeated requests. The CIT(A) reviewed the assessment records and found that the reasons recorded were indeed provided to the assessee before the completion of the assessment proceedings. The CIT(A) dismissed this ground, noting that the appellant had received and responded to notices, implying receipt of the reasons.

5. Validity of approval under Section 151 for reassessment:
The assessee contended that the approval under Section 151 was not in accordance with the law. The CIT(A) verified the assessment records and confirmed that the approval from the Additional Commissioner of Income Tax was obtained before issuing the notice under Section 148. This ground was dismissed.

6. Burden of proof under Section 68 regarding the share application money received:
The assessee argued that the burden under Section 68 was discharged by providing evidence during the assessment proceedings. The CIT(A) upheld the AO's addition, stating that the appellant failed to produce relevant persons from the investor companies, and the inquiries conducted indicated that the assessee received accommodation entries.

7. Adequacy of evidence and the basis for addition made by the AO:
The assessee claimed that the addition was based on mere allegations without confronting the assessee with incriminating material. The CIT(A) supported the AO's findings, noting that the information from the Investigation Wing and the lack of satisfactory explanation from the assessee justified the addition.

Conclusion:
The Tribunal found that the AO reopened the assessment solely based on information from the Investigation Wing, without independent verification. Citing the jurisdictional High Court's decision in Signature Hotels Pvt. Ltd. Vs ITO, the Tribunal quashed the reassessment proceedings as they did not meet the requirements of Section 147. The appeal of the assessee was allowed, and the assessment framed on the basis of notices issued under Section 147 read with Section 148 was quashed.

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