2017 (11) TMI 1550 - AT - Income Tax

Reopening of assessment - non disposal of objections by AO to reopening of assessment so filed by assessee - Held that - As AO has not passed any speaking order against the said objections so filed by assessee, which is a mandatory requirement as has been held by Hon ble Apex Court in the case of M/s GKN Driveshafts (India) Ltd vs ITO 2002 (11) TMI 7 - SUPREME Court , reopening order held void. - Decided in favour of assessee.

Summary

Issues:
1. Validity of assessment under section 143(3)/147 of the Act.
2. Legality of initiation proceedings under section 147 and completion of assessment.
3. Addition of share application money as unexplained cash credit under section 68 of the Act.
4. Addition of commission paid based on conjectures, surmises, and suspicion.

Issue 1: Validity of assessment under section 143(3)/147 of the Act:
The appeal challenged the assessment order under section 143(3)/147, arguing that the Commissioner of Income Tax (Appeals) erred in sustaining the order. The appellant contended that the initiation proceedings under section 147 were not based on valid reasons and lacked statutory pre-conditions. It was argued that the proceedings were initiated mechanically without independent application of mind, leading to unsustainable allegations of receiving accommodation entries. The appellant claimed that the reasons recorded were mere suspicions, and no independent inquiry was conducted before issuing the notice under section 148. The Assessing Officer (AO) held that the appellant failed to prove the identity and creditworthiness of the party involved, resulting in the addition to the assessed income.

Issue 2: Legality of initiation proceedings under section 147 and completion of assessment:
The appellant disputed the initiation proceedings under section 147 and completion of assessment, arguing that there was no material to support the belief that income had escaped assessment. The appellant contended that the proceedings were based on information received from the investigation office without independent verification. The AO observed discrepancies in the transactions related to share application money and concluded that the appellant introduced undisclosed income in the guise of legitimate transactions. The appellant's objections to the reopening of assessment were not disposed of through a separate speaking order, leading to a legal challenge based on precedents requiring such a procedure.

Issue 3: Addition of share application money as unexplained cash credit under section 68 of the Act:
The AO added the share application money as unexplained cash credit under section 68 of the Act, citing lack of proof regarding the identity and creditworthiness of the party involved. The appellant argued that necessary documents and explanations were provided, and the addition was based on suspicion without proper inquiry or opportunity for cross-examination. The AO's decision was based on the failure to establish the genuineness of the transactions, leading to the addition in the assessed income.

Issue 4: Addition of commission paid based on conjectures, surmises, and suspicion:
The appellant contested the addition of commission paid, claiming it was based on conjectures, surmises, and suspicion. The AO concluded that the commission payment lacked proper substantiation, leading to the addition in the assessed income. The appellant sought relief based on legal precedents requiring a proper disposal of objections and adherence to procedural requirements.

In the final judgment, the Tribunal allowed the appeal, quashing the assessment order due to the non-disposal of objections under section 147 of the Act. The decision was based on legal grounds and precedents mandating a separate speaking order for objections. As a result, the Tribunal did not delve into the merits of the case, as the legal issue was deemed sufficient to overturn the assessment order.