2017 (11) TMI 1133 - AT - Income Tax

Reopening of assessment - assessee had taken cheques from the accommodation entry provider - reasons to believe - borrowed information - no independent application of mind by AO - Held that - Going through the reasons to believe recorded by the Assessing Officer, reproduced hereunder, we concur with the contention of the ld. AR that it is vague as the reasons to belief has been formed solely on the basis of information received from the Investigating Wing of the Department. No specific source of information has not been disclosed, on the basis of which it has been assumed that assessee had taken cheques from the accommodation entry provider, after paying them unaccounted cash. Obviously, no occasion to the assessee has been given to cross examine the alleged entry provider, on the basis of whose statements or intimation, the Investigation Wing of the Department had come to the finding of alleged accommodation entry and sent it to the Assessing Officer, who has based on his reasons to initiate reopening proceedings without examining the veracity of the said information. The alleged information of the Investigation Wing can alone at the best be a reason to suspect, however, in the absence of any other material, same cannot be a tangible material for the formation of belief. Undisputedly, in the present case, there was no material other than the purported information before the Assessing Officer to form his reasons to believe that there was an escapement of assessable income. - Decided in favour of assessee.

Summary

Issues Involved:
1. Validity of initiation of proceedings under Section 147 of the Income Tax Act.
2. Requirement of tangible material for "reason to believe" that income had escaped assessment.
3. Assessment based on mere information from the Investigation Wing.
4. Failure to provide the assessee an opportunity to cross-examine the alleged entry providers.
5. Burden of proof regarding the genuineness of share application money.
6. Validity of additions made by the Assessing Officer.
7. Procedural fairness in assessment proceedings.

Detailed Analysis:
1. Validity of Initiation of Proceedings under Section 147:
The assessee challenged the initiation of proceedings under Section 147, arguing that the CIT (Appeals) erred in upholding the initiation despite the absence of tangible material to form a "reason to believe" that income had escaped assessment. The Tribunal agreed with the assessee, noting that the reasons to believe were based solely on information from the Investigation Wing, which was not sufficient to assume jurisdiction under Section 147.

2. Requirement of Tangible Material:
The assessee contended that "reason to believe" and "reason to suspect" are not the same, and the former requires stronger evidence. The Tribunal concurred, highlighting that the Assessing Officer had no material other than general information, which is insufficient for valid initiation of proceedings under Section 147.

3. Assessment Based on Information from the Investigation Wing:
The Tribunal found that the information from the Investigation Wing, without any supporting material, is insufficient to form a valid "reason to believe." The reasons recorded by the Assessing Officer were deemed vague and solely based on this information, making the initiation of proceedings invalid.

4. Opportunity to Cross-Examine:
The Tribunal noted that the assessee was not given an opportunity to cross-examine the alleged entry providers, whose statements were used as a basis for the assessment. This lack of opportunity undermined the validity of the proceedings.

5. Burden of Proof:
The CIT (Appeals) was found to have erred in holding that the assessee had not discharged the burden of proving the genuineness of the share application money. The Tribunal emphasized that the burden initially lay on the assessee, but once discharged, it was for the revenue to establish escapement of income. The Tribunal cited the jurisdictional High Court's decision in CIT vs. Pradeep Gupta, which held that the burden is on the revenue to establish escapement of income.

6. Validity of Additions:
The Tribunal held that the additions made by the Assessing Officer were unsustainable. The Assessing Officer's reliance on statements from the Investigation Wing without confronting the assessee or providing evidence was not justified. The Tribunal quashed the assessment order as void ab initio, rendering the additions invalid.

7. Procedural Fairness:
The Tribunal criticized the procedural fairness of the assessment proceedings, noting that the remand report of the Assessing Officer was not shown to the assessee for rebuttal. The CIT (Appeals) also failed to provide a fair opportunity to the assessee, making the proceedings arbitrary and contrary to law.

Conclusion:
The Tribunal allowed the appeal, quashing the assessment order as void ab initio due to the invalid initiation of proceedings under Section 147, lack of tangible material, and procedural unfairness. The remaining grounds questioning the validity of additions were deemed academic and disposed of accordingly. The order was pronounced in the Open Court on 12th September 2017.