2018 (7) TMI 230 - AT - Income Tax

Reopening of assessment - addition u/s. 69C as alleged unexplained expenditure - non independent application of mind by AO - Borrowed knowledge - Held that - Mere information received from DDIT(Inv) cannot constitute valid reasons for initiating reassessment proceedings in the absence of anything to show that A.O. had independently applied his mind to arrive at a belief that the income had escaped assessment. AO has acted mechanically and without any independent application of mind. It is also evident that while alleging cash payment in dispute it is not even known or stated on which date and on what basis such sums was allegedly paid by assessee; the reasons recorded are therefore vague highly non specific and reflect complete non-application of mind. There is no live link or direct nexus between alleged material and inference. It is a case of investigation in the garb of action u/s 148 of the Act on the basis that proceedings have been initiated on the basis of no material much less any tangible and relevant material and as such reasons record do not constitute valid reason to believe for initiating proceedings u/s 147 of the Act. - Decided in favour of assessee.

Summary

Issues Involved:
1. Validity of proceedings initiated under Section 147 of the Income Tax Act, 1961.
2. Validity of notice issued under Section 148 of the Income Tax Act, 1961.
3. Addition of ?19,00,000 under Section 69C as unexplained expenditure.
4. Charging of interest under Sections 234A, 234B, and 234C of the Income Tax Act, 1961.

Issue-wise Detailed Analysis:

1. Validity of proceedings initiated under Section 147 of the Income Tax Act, 1961:
The assessee argued that the initiation of proceedings under Section 147 was mechanical and without application of mind, thus invalid. The Tribunal noted that the Assessing Officer (AO) had recorded the reasons for initiating proceedings based on information received from the Investigation Wing regarding the payment of capitation fees. However, the Tribunal found that the AO acted mechanically without independent application of mind. The AO's reasons were vague, non-specific, and lacked tangible material to form a prima facie belief that income had escaped assessment. The Tribunal cited the case of CIT vs. SFIL Stock Broking Ltd. (325 ITR 285) and other precedents to support the view that mere information from the Investigation Wing cannot constitute valid reasons for reassessment without independent application of mind by the AO. Consequently, the proceedings under Section 147 were deemed without jurisdiction and quashed.

2. Validity of notice issued under Section 148 of the Income Tax Act, 1961:
The assessee contended that the notice under Section 148 was issued without jurisdiction and should be quashed along with the assessment order based on such notice. The Tribunal observed that the AO's reasons for issuing the notice were based on unsubstantiated allegations and lacked specific details about the alleged income escaping assessment. The Tribunal concluded that the notice under Section 148 was issued mechanically without proper application of mind, making it invalid. This finding was consistent with the Tribunal's decision to quash the proceedings under Section 147.

3. Addition of ?19,00,000 under Section 69C as unexplained expenditure:
The AO had added ?19,00,000 as unexplained expenditure under Section 69C, based on the alleged payment of capitation fees by the assessee. The Tribunal noted that the AO failed to provide any specific and incriminating material linking the assessee to the alleged payment. The addition was made on arbitrary assumptions and without providing the assessee an opportunity for cross-examination. Given the Tribunal's decision to quash the assessment proceedings, this ground became academic and was not adjudicated further.

4. Charging of interest under Sections 234A, 234B, and 234C of the Income Tax Act, 1961:
The assessee challenged the charging of interest under Sections 234A, 234B, and 234C. However, since the Tribunal quashed the assessment proceedings, this issue also became academic and was not adjudicated.

Conclusion:
The Tribunal concluded that the proceedings initiated under Section 147 and the notice issued under Section 148 were without jurisdiction and quashed the assessment. Consequently, the other grounds raised by the assessee became academic and were not adjudicated. The appeal filed by the assessee was allowed.