2018 (6) TMI 693 - AT - Income Tax

Initiation of proceedings u/s 147 - approval/sanction given by the Pr. CIT without recording satisfaction - Held that - Approval of Pr.CIT was sought before initiating the proceedings u/s 147 and approval of CIT was given without applied his mind while giving the approval for reopening the assessment - hence following the judicial pronouncements in case of ITO vs. N.C. Cables Ltd. 2014 (11) TMI 593 - ITAT DELHI and by keeping in view that the approval/sanction given by the Pr. CIT without recording satisfaction, we are of the view that the reopening in the present case is not sustainable - hence reopening u/s 147 of the Act by issuing the notice u/s 148 of the Act on the basis of mechanical approval by the Pr. CIT without recording satisfaction on the objective material is quashed - Decided in favor of assessee.

Issues Involved:
1. Validity of proceedings initiated under Section 147 of the Income Tax Act.
2. Addition of ?15,00,000 as unexplained cash credit under Section 68.
3. Addition of ?30,000 as unexplained expenditure under Section 69C.
4. Levy of interest under Sections 234A and 234B.

Issue-wise Detailed Analysis:

1. Validity of Proceedings Initiated under Section 147:
The main grievance of the assessee was the initiation of proceedings under Section 147 of the Income Tax Act, 1961. The assessee argued that the Assessing Officer (AO) did not have tangible material to form a "reason to believe" that income had escaped assessment and that the proceedings were initiated mechanically without application of mind. The assessee pointed out that the Principal Commissioner of Income Tax (Pr. CIT) approved the initiation of proceedings in a mechanical manner, without proper application of mind, as evidenced by the mere use of the word "approved" on the proposal.

The tribunal noted that the approval of the Pr. CIT was sought before initiating the proceedings, and the Pr. CIT gave the approval by simply writing "approved" without demonstrating how and in what manner he was satisfied. This was deemed insufficient as per the legal standards set by various judicial pronouncements. The tribunal cited several case laws, including the Hon'ble Delhi High Court's decision in Pr. CIT Vs N.C. Cables Ltd., which emphasized that the satisfaction of the Pr. CIT must be recorded in a meaningful manner, not just ritualistically.

Given the lack of proper application of mind by the Pr. CIT, the tribunal concluded that the reopening of the assessment under Section 147 was not sustainable. The tribunal quashed the reopening of the assessment, thereby allowing the appeal of the assessee on this ground.

2. Addition of ?15,00,000 as Unexplained Cash Credit under Section 68:
The assessee contested the addition of ?15,00,000, representing a sum received from M/s Shalini Holdings Ltd. as share capital, which was held as unexplained cash credit under Section 68. The assessee argued that there was no adverse material brought on record by the AO to assume that the credits represented unexplained cash credit. The assessee had provided voluminous evidence, including audited financial statements, annual returns, and the order of assessment of the share applicant, to discharge the burden of proving the genuineness of the transactions and the creditworthiness of the share applicant.

The tribunal observed that the shareholder was a corporate entity, duly assessed to tax, and had subscribed to share capital through banking channels, supported by necessary documents. The tribunal noted that once the shareholder had confirmed the investment, the addition could not be upheld on arbitrary grounds without any evidence or allegation that the credit emanated from the appellant company. The tribunal found that the CIT(A) had failed to appreciate the evidence provided by the assessee and had proceeded to confirm the addition on mere speculation and generalized statements.

The tribunal concluded that the addition of ?15,00,000 as unexplained cash credit under Section 68 was not justified and allowed the appeal of the assessee on this ground.

3. Addition of ?30,000 as Unexplained Expenditure under Section 69C:
The assessee challenged the addition of ?30,000 on account of alleged commission paid to the entry provider in cash for obtaining accommodation entries, held as unexplained expenditure under Section 69C. The tribunal did not provide a detailed analysis of this issue in the judgment, as the primary focus was on the validity of the proceedings under Section 147 and the addition under Section 68.

4. Levy of Interest under Sections 234A and 234B:
The assessee also contested the levy of interest of ?38,861 under Section 234A and ?4,51,791 under Section 234B. The tribunal did not provide a detailed analysis of this issue, as the primary focus was on the validity of the proceedings under Section 147 and the addition under Section 68.

Conclusion:
The tribunal quashed the reopening of the assessment under Section 147 due to the mechanical approval by the Pr. CIT without proper application of mind. Consequently, the addition of ?15,00,000 as unexplained cash credit under Section 68 was also quashed. The appeal of the assessee was allowed.

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