2018 (8) TMI 515 - AT - Income Tax

Reopening of assessment - information received from the investigation wing - borrowed satisfaction by AO - non independent application of mind - Held that - Information received from the director of investigation wing and the AO without making any effort to examine and discuss the material received from the Investigation Wing and without application of the mind to the same formed a reason to believe that income had escaped assessment. This shows that the AO proceeded to initiate reassessment proceedings on the basis of borrowed satisfaction without any application of mind and exercise on the information received from the Investigation Wing of the Department. No hesitation to hold that the AO proceeded to initiate reassessment proceedings u/s. 147 and to issue notice u/s. 148 on the basis of borrowed satisfaction and without any application of mind and examination of the so called material and information received from the investigation wing to establish any nexus, even prima-facie, with the such information. In our considered opinion the initiation of reassessment proceedings u/s. 147, notice u/s. 148 reassessment proceedings and all consequent proceeding and orders, including impugned reassessment and first appellate order, are bad in law and thus, not sustainable and we hold so. - Decided in favour of assessee.

Issues Involved:
1. Validity of reassessment proceedings initiated without proper approval.
2. Reassessment based on information from the investigation wing without substantive material.
3. Failure to issue notice under Section 143(2) of the Income Tax Act.
4. Adequacy of opportunity for the assessee to be heard.
5. Dismissal of appeal for non-prosecution by the CIT(A).
6. Non-compliance with Section 250(6) of the Income Tax Act.
7. Addition under Section 68 of the Income Tax Act.
8. Additional ground regarding the invalidity of the assessment order due to lack of reasonable time provided for remedy.

Detailed Analysis:

1. Validity of Reassessment Proceedings Initiated Without Proper Approval:
The Tribunal examined whether the reassessment proceedings were initiated with proper approval under Section 151 of the Income Tax Act. The assessee argued that the approval was mechanical and without application of mind, as indicated by the Addl. CIT's mere notation of "Yes, I am satisfied." The Tribunal referred to the decision of the Madhya Pradesh High Court in CIT vs. M/s. S. Goyanka Lime and Chemicals Ltd., which held that such mechanical approval renders the reassessment invalid. Consequently, the Tribunal found the reassessment proceedings and the notice under Section 148 to be invalid and unsustainable.

2. Reassessment Based on Information from the Investigation Wing Without Substantive Material:
The Tribunal considered the argument that the reassessment was based solely on information from the investigation wing without any independent material to substantiate the allegations. The Tribunal noted that the reasons recorded by the AO failed to demonstrate a link between the tangible material and the formation of the belief that income had escaped assessment. The Tribunal cited the Delhi High Court's decisions in PCIT vs. Meenakshi Overseas P. Ltd. and PCIT vs. G&G Pharma India Ltd., which emphasized the need for the AO to apply an independent mind rather than relying on borrowed satisfaction. The Tribunal concluded that the reassessment proceedings were invalid due to the lack of independent application of mind by the AO.

3. Failure to Issue Notice Under Section 143(2) of the Income Tax Act:
The assessee contended that the reassessment order was passed without issuing a notice under Section 143(2) of the Income Tax Act. The Tribunal did not specifically address this issue in detail, as the reassessment proceedings were already found to be invalid on other grounds.

4. Adequacy of Opportunity for the Assessee to be Heard:
The assessee argued that they were not given adequate opportunity to be heard. However, the Tribunal did not delve into this issue separately, as the reassessment proceedings were quashed on other legal grounds.

5. Dismissal of Appeal for Non-Prosecution by the CIT(A):
The assessee contended that the CIT(A) dismissed the appeal for non-prosecution, which is not permissible under the law. The Tribunal referred to the Bombay High Court's decision in CIT (Central) Nagpur vs. Premkumar Arjundas Luthra (HUF), which held that the CIT(A) cannot dismiss an appeal for non-prosecution. However, since the reassessment proceedings were already quashed, this issue became moot.

6. Non-Compliance with Section 250(6) of the Income Tax Act:
The assessee argued that the CIT(A)'s order did not comply with Section 250(6) of the Income Tax Act, which requires the order to be in writing and state the points for determination, the decision thereon, and the reasons for the decision. The Tribunal did not specifically address this issue, as the reassessment proceedings were already quashed.

7. Addition Under Section 68 of the Income Tax Act:
The assessee challenged the addition of ?10,49,00,000 under Section 68 of the Income Tax Act. However, since the reassessment proceedings were found to be invalid, the Tribunal did not adjudicate this issue on merits.

8. Additional Ground Regarding the Invalidity of the Assessment Order Due to Lack of Reasonable Time Provided for Remedy:
The assessee raised an additional ground that the assessment order was invalid as the AO did not provide a reasonable time of four weeks for taking remedy against the disposal of preliminary objections. The Tribunal admitted this additional ground, noting that it was a legal ground that could be raised at any stage. The Tribunal found that the AO's failure to wait for four weeks after disposing of the objections, as required by the Bombay High Court's decision in Asian Paints Ltd., rendered the reassessment proceedings void.

Conclusion:
The Tribunal quashed the initiation of reassessment proceedings under Section 147 of the Income Tax Act, the notice under Section 148, and all consequent proceedings and orders, including the reassessment and first appellate order. As a result, the other grounds of the assessee on merits became academic and infructuous. The appeal of the assessee was allowed on legal grounds.

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