2017 (12) TMI 611 - AT - Income Tax

Reopening of assessment - non compliance with section 151 - reasons to believe - Held that - The reopening in this case lacks jurisdiction on twin counts. Firstly, the assessee has not been properly intimated about any such satisfaction/approval despite request in the objection to reopening filed before the Assessing Officer repeatedly. Secondly, in the remand proceedings before the ld. Commissioner of Income Tax (Appeals), a sanction/approval letter dated 30.03.2015 which is of the same date as the date of notice for reopening has been submitted. This satisfaction/approval is of Joint Commissioner of Income Tax (Appeals). In reply, to assessee s objection, the Assessing Officer never gave any such detail. This gives credence to the submission of ld. Counsel of the assessee that due approval/satisfaction was not obtained in this case before issue of notice of reopening. Hence, the sequence of events and discussion hereinabove make it clear that the satisfaction/approval has not been duly obtained as envisaged in the Act and as mandated in the case laws referred by the ld. Counsel of the assessee. In such situation, when the reopening proceedings vis-a-viz compliance with section 151 has not been duly met with, the reopening proceedings deserve to be declared as void-ab-initio and the same is declared void-ab-initio as such. - Decided in favour of assessee.

Summary

Issues Involved:
1. Deletion of addition under Section 68 of the Income Tax Act.
2. Non-consideration of case laws regarding genuineness of transactions.
3. Deletion of interest and notional commission.
4. Validity of reopening the assessment under Section 147.
5. Legality of the Assessing Officer's order under Section 147 read with Section 143(3).

Detailed Analysis:

1. Deletion of Addition under Section 68:
The Revenue contended that the Commissioner of Income Tax (Appeals) erred in deleting the addition made under Section 68 by relying solely on the retracted statement of Shri Pravin Kumar Jain. The Assessing Officer (AO) had added ?45,00,000 as unexplained cash credit, citing that the lender companies were paper entities controlled by Pravin Kumar Jain, who admitted to providing accommodation entries. Despite the assessee furnishing bank statements, ledger accounts, and other documents to establish the identity and creditworthiness of the parties, the AO did not accept the genuineness of the transactions. The Commissioner of Income Tax (Appeals) deleted the addition, noting that the assessee had provided sufficient evidence and that the AO had relied on a retracted statement without corroborative evidence.

2. Non-Consideration of Case Laws:
The Revenue argued that the Commissioner of Income Tax (Appeals) ignored several case laws where higher courts held that mere payment by cheque does not prove the genuineness of the transaction. The AO cited various case laws to support the addition under Section 68, emphasizing that the primary onus to prove the genuineness of the transactions lies with the assessee. However, the Commissioner of Income Tax (Appeals) found that the AO did not make any inquiries with the lender companies and relied solely on the retracted statements, which were not corroborated by other evidence.

3. Deletion of Interest and Notional Commission:
The AO disallowed the interest expenditure of ?90,617 and notional commission of ?67,500, arguing that the loans were non-genuine and the assessee must have paid commission for obtaining accommodation entries. The Commissioner of Income Tax (Appeals) deleted these disallowances, stating that the AO failed to provide evidence that the transactions were sham and that the assessee had sufficiently demonstrated the genuineness of the loans and interest payments.

4. Validity of Reopening the Assessment under Section 147:
The assessee challenged the reopening of the assessment, arguing that there was no valid reason and that the AO did not apply his mind. The Commissioner of Income Tax (Appeals) upheld the reopening, noting that the AO had received specific information from the Investigation Wing about accommodation entries and had recorded proper reasons. The Commissioner of Income Tax (Appeals) cited several judicial precedents to support the reopening, emphasizing that the AO had prima facie reasons to believe that income had escaped assessment.

5. Legality of the Assessing Officer's Order under Section 147 read with Section 143(3):
The assessee contended that the AO's order was illegal and bad in law. The Commissioner of Income Tax (Appeals) dismissed this ground, stating that the AO had followed due process in reopening the assessment and issuing the notice under Section 148. The Commissioner of Income Tax (Appeals) found that the AO had obtained the necessary sanction from the Joint Commissioner of Income Tax and had recorded reasons for reopening based on credible information.

Conclusion:
The Tribunal quashed the reopening of the assessment, holding that the AO did not properly obtain the necessary sanction under Section 151(2) and did not provide the assessee with the details of the approval despite repeated requests. Consequently, the Tribunal declared the reopening void ab initio. As the reopening was quashed, the Tribunal dismissed the Revenue's appeal on merits as infructuous and allowed the assessee's cross-objection.