2017 (12) TMI 1343 - AT - Income Tax

Validity of the reopening u/s 147 r.w.s. 148 - non application of independent mind by AO - Held that - AO simply acted upon the information received from the Investigation Wing and did not apply his own mind. Therefore, the reopening u/s 147 by issuing the notice u/s 148 of the Act, only on the basis of information received from the Investigation Wing was not valid. Accordingly, the reassessment framed by the AO is quashed. - Decided in favour of assessee.

Summary

Issues Involved:
1. Validity of the reopening of assessment under Section 147 read with Section 148 of the Income Tax Act.
2. Addition of ?13,00,000 on account of unexplained cash credit.
3. Addition of ?5,00,000 on account of share capital received from Thar Steel Pvt. Ltd.
4. Addition of ?8,00,000 on account of share capital received from Bhavani Portfolio Ltd.

Detailed Analysis:

Issue 1: Validity of the reopening of assessment under Section 147 read with Section 148 of the Income Tax Act
The primary issue raised by the assessee was the legality of the reopening of the assessment under Section 147 read with Section 148 of the Income Tax Act. The assessee argued that the reopening was not in accordance with the statutory conditions prescribed under these sections. The Assessing Officer (AO) had reopened the assessment based on information received from the Investigation Wing, suggesting that the assessee was a beneficiary of accommodation entries provided by an entry operator. The AO issued a notice under Section 148 without independently verifying the information or applying his own mind. The tribunal noted that the AO's reasons for reopening were solely based on the Investigation Wing's report and lacked independent analysis or verification. Citing various case laws, including the judgments of the Hon'ble Jurisdictional High Court in Principal Commissioner of Income Tax-4 Vs G & G Pharma Ltd. and Pr. CIT Vs Meenakshi Overseas Pvt. Ltd., the tribunal held that the basic requirement for reopening an assessment is the application of mind by the AO. Since the AO did not independently verify the information and merely relied on the Investigation Wing's report, the reopening of the assessment was deemed invalid. Consequently, the reassessment framed by the AO was quashed.

Issue 2: Addition of ?13,00,000 on account of unexplained cash credit
The assessee contested the addition of ?13,00,000 made by the AO under Section 68 of the Act, arguing that the AO had not provided any factual basis for the addition and had ignored the confirmations and evidence submitted by the assessee. The AO had added the amount on the grounds that the assessee's explanation was not tenable and that the unaccounted income had been routed through companies created by the entry operator. The tribunal, however, did not provide a separate finding on this issue as the reassessment proceedings themselves were quashed.

Issue 3: Addition of ?5,00,000 on account of share capital received from Thar Steel Pvt. Ltd.
The assessee argued that the addition of ?5,00,000 was not legally sustainable as the amount was not received during the year under consideration. The AO had made the addition based on the information from the Investigation Wing without verifying the actual receipt of the amount during the relevant assessment year. The tribunal did not provide a separate finding on this issue due to the quashing of the reassessment proceedings.

Issue 4: Addition of ?8,00,000 on account of share capital received from Bhavani Portfolio Ltd.
The assessee contended that the addition of ?8,00,000 was unjustified as all material facts and evidence, including confirmations, share application forms, balance sheets, and PAN details, were provided to the AO. The AO had disbelieved the explanation and added the amount, stating that the transactions were with bogus companies. The tribunal did not provide a separate finding on this issue as the reassessment proceedings were quashed.

Conclusion:
The tribunal quashed the reassessment proceedings initiated by the AO under Section 147 read with Section 148 of the Income Tax Act due to the lack of independent application of mind by the AO and reliance solely on the Investigation Wing's report. Consequently, no separate findings were provided on the remaining issues raised by the assessee. The appeal of the assessee was allowed.