2017 (9) TMI 813 - AT - Income Tax

Reopening of the assessment u/s 147/148 - additions u/s 68 and on commission under section 69A - independent application of mind - information received from Investigation wing - Held that - A.O. recorded incorrect facts in reasons for reopening of assessment. The reasons failed to demonstrate that the link between the tangible material and the formation of the reasons to believe that income has escaped assessment. The A.O. had not independently considered the tangible material which formed the basis for the reasons to believe that income had escaped assessment. The A.O. merely reproduced information received from Investigation wing and enquiries conducted by them and then straightaway came to the conclusion that Income chargeable to tax has escaped assessment . In the present case as already noticed the reasons to believe contained not the reasons but the conclusion of the A.O. There is no independent application of mind by the A.O. to the tangible material which form the basis of the reasons to believe that income has escaped assessment. The conclusion of the A.O at best are reproduction of the conclusion of the Investigation report. Thus it is clearly a borrowed satisfaction. Appeal of the assessee is allowed.

Issues Involved:
1. Reopening of the assessment under sections 147/148 of the I.T. Act, 1961.
2. Addition of ?34,50,200 under section 68 of the I.T. Act, 1961.
3. Addition of ?3,450 on account of commission under section 69A of the I.T. Act, 1961.

Issue-wise Detailed Analysis:

1. Reopening of the Assessment under Sections 147/148 of the I.T. Act, 1961:
The assessee challenged the reopening of the assessment for the A.Y. 2000-2001. The original return was filed on 19th September 2000, declaring an income of ?34,510, and was processed under section 143(1). The reopening was based on information received from the Investigation Wing, indicating that the assessee had taken accommodation entries totaling ?34,50,200. The A.O. recorded reasons under section 148 and issued a notice. The assessee contended that the reopening was based on borrowed satisfaction without independent application of mind by the A.O., merely copying the Investigation Wing's report. Citing decisions from the Hon’ble Delhi High Court in Pr. CIT vs. G And G Pharma India Ltd. and Pr. CIT vs. Meenakshi Overseas Pvt. Ltd., the assessee argued that the reopening was bad in law. The Tribunal agreed, noting that the reasons recorded were conclusions without demonstrating a link between the information and the belief that income had escaped assessment. The Tribunal concluded that the reopening was invalid and quashed the reassessment proceedings.

2. Addition of ?34,50,200 under Section 68 of the I.T. Act, 1961:
The A.O. added ?34,50,200 to the assessee's income under section 68, considering it as unexplained credits. The assessee argued that the amounts were repayments of loans from earlier years and provided ledger accounts and letters from the parties involved. The Tribunal found that the reasons for reopening did not demonstrate a clear link between the information and the belief that the income had escaped assessment. The A.O. had not independently verified the tangible material and had merely reproduced the Investigation Wing's conclusions. Consequently, the Tribunal held that the addition under section 68 was unsustainable and deleted it.

3. Addition of ?3,450 on Account of Commission under Section 69A of the I.T. Act, 1961:
The A.O. also added ?3,450 as commission for providing accommodation entries under section 69A. The assessee's challenge to this addition was linked to the overall challenge to the reopening of the assessment. Since the Tribunal quashed the reopening of the assessment, the addition of ?3,450 was also deleted.

Conclusion:
The Tribunal allowed the appeal of the assessee, quashing the reopening of the assessment under sections 147/148 and deleting all additions made in the reassessment order. The Tribunal emphasized the need for independent application of mind by the A.O. and the necessity of demonstrating a clear link between the information and the belief that income had escaped assessment.

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