2018 (6) TMI 145 - AT - Income Tax

Reopening of assessment - approval u/s 151 from the CIT before issuing notice u/s 148 - casual approach in granted approval - unexplained cash credit u/s. 68 - non application of mind by the Additional Commissioner before granting the approval - Held that - United Electrical Co. Pvt. Ltd. Vs CIT 2002 (10) TMI 86 - DELHI HIGH COURT has held if the Additional Commissioner had cared to go through the statement of the said parties, perhaps he would not have granted his approval, which was mandatory in terms of the proviso to sub-section (1) of section 151 of the Act as the action under section 147 was being initiated after the expiry of four years from the end of the relevant assessment year. The power vested in the Commissioner to grant or not to grant approval is coupled with a duty. The Commissioner is required to apply his mind to the proposal put up to him for approval in the light of the material relied upon by the Assessing Officer. The said power cannot be exercised casually and in a routine manner. We are constrained to observe that in the present case there has been no application of mind by the Additional Commissioner before granting the approval. In the present case Commissioner has simply mentioned approved to the report submitted by the concerned AO. In the light of the ratios/observations of the Hon ble High Court mentioned hereinabove, we have no hesitation to hold that the reopening proceedings vis- -vis provisions of Sec. 151 are bad in law and the assessment has to be declared as void ab initio. Ground No. 1 of assessee s appeal is allowed.

Summary

Issues Involved:
1. Legality of notice issued under Section 148 of the Income Tax Act.
2. Addition of share capital as unexplained cash credit under Section 68 of the Income Tax Act.

Detailed Analysis:

1. Legality of Notice Issued Under Section 148:
The primary issue raised by the assessee was that the notice issued under Section 148 was illegal, void, and without jurisdiction. The assessee argued that the reasons recorded for initiating proceedings under Section 148 were not proper, lacked nexus between the materials relied upon and the belief formed for escapement of income, and showed no application of mind. Additionally, it was contended that the approval for reopening was granted mechanically without due application of mind, as evidenced by the Addl. CIT's mere endorsement of "Yes, I am satisfied that it is a fit case for reopening u/s. 147."

The Tribunal examined the reasons recorded by the Assessing Officer (AO) and the approval given by the Addl. CIT. It was found that the AO had not applied his mind independently and had issued the notice based on information received from the Directorate of Income Tax (Investigation). The Tribunal noted that the reasons were vague and not based on tangible material, thus making the reopening bad in law.

The Tribunal relied on several judicial precedents, including the Delhi High Court's decision in *Signature Hotels (P) Ltd. vs. ITO* and the Supreme Court's decision in *CIT vs. S. Goyanka Lime & Chemicals Ltd.*, which emphasized the necessity of the AO's independent application of mind and proper recording of satisfaction by the approving authority. Consequently, the Tribunal quashed the reassessment proceedings, deeming them invalid.

2. Addition of Share Capital as Unexplained Cash Credit Under Section 68:
On the merits of the case, the AO had added ?40,80,000 as unexplained cash credit under Section 68, alleging that the share capital received from M/s. Geefcee Finance Ltd. was a form of accommodation entry. The AO's conclusion was based on the investigation report which indicated that M/s. Geefcee Finance Ltd. was engaged in providing accommodation entries and had no genuine business activities.

The assessee contended that all necessary details and documentary evidence were provided to prove the identity, creditworthiness, and genuineness of the transactions. The assessee argued that the AO's addition was based on mere doubts and without substantial evidence.

The Tribunal, however, did not delve into the merits of this issue in detail, as it had already quashed the reassessment proceedings on legal grounds. The Tribunal noted that since the reassessment was found to be invalid, the addition under Section 68 became academic and did not require further adjudication.

Conclusion:
The Tribunal allowed the appeal filed by the assessee, quashing the reassessment proceedings initiated under Section 148 due to the lack of proper application of mind and mechanical approval by the Addl. CIT. The addition of ?40,80,000 under Section 68 was not addressed on merits, as the reassessment itself was deemed invalid.