2018 (8) TMI 750 - AT - Income Tax

Reopening of assessment - reason to believe - independent application of mind by the AO - AO has initiated the reassessment proceedings mainly on the basis of information received from the Investigation Wing - allegation of taking accommodation entries from different parties - Held that - Since the assessment has been reopened on the basis of information received from Investigation Wing and there is no independent application of mind by the Assessing Officer before such reopening, therefore, following the decisions of the Jurisdictional High Court cited (2017 (7) TMI 371 - DELHI HIGH COURT), we hold that such reopening of the assessment is not in accordance with law. - Decided against the revenue.

Summary

Issues Involved:
1. Validity of reopening of assessment under Section 147/148 of the Income Tax Act.
2. Addition of ?2 crores under Section 68 of the Income Tax Act.

Detailed Analysis:

1. Validity of Reopening of Assessment under Section 147/148:
The appeal concerns the reopening of the assessment of the assessee for the assessment year 2005-06, based on information received from the Investigation Wing regarding accommodation entries amounting to ?2 crores. The Assessing Officer (AO) initiated reassessment proceedings under Section 147/148, citing reasons that the assessee had received accommodation entries from three entities controlled by an individual who admitted to providing such entries.

The assessee challenged the reopening, arguing that the AO did not independently apply his mind and merely relied on the information from the Investigation Wing. The CIT(A) upheld the reopening, stating that the AO had followed the proper procedure and recorded reasons for reopening.

However, the Tribunal found discrepancies between the reasons recorded in the assessment order and those supplied to the assessee. It noted that the AO's reasons were based on borrowed satisfaction from the Investigation Wing's report without independent application of mind. Citing various decisions of the Hon’ble Delhi High Court, including Pr.CIT vs. Meenakshi Overseas (P) Ltd., the Tribunal held that reopening based on borrowed satisfaction without independent inquiry is invalid. Consequently, the Tribunal quashed the reopening of the assessment.

2. Addition of ?2 Crores under Section 68:
The AO added ?2 crores to the assessee's income under Section 68, asserting that the loans received from three entities were accommodation entries and lacked genuineness. The AO relied on statements made by the controller of these entities, who admitted to providing accommodation entries.

The CIT(A) deleted the addition, observing that the assessee had received regular loans, paid interest after TDS, and repaid the loans through account payee cheques. The CIT(A) noted that the assessee's name did not appear in the third party's statement, and the AO did not establish any income received or accrued to the assessee. The CIT(A) concluded that the AO did not make a proper case of income escapement or concealment and deleted the addition.

The Revenue appealed against this deletion, arguing that the CIT(A) failed to appreciate the admissions made by the loan providers and did not follow relevant judicial precedents. However, since the Tribunal quashed the reassessment proceedings on the ground of invalid reopening, the issue of the addition under Section 68 became academic and was not adjudicated.

Conclusion:
The Tribunal quashed the reopening of the assessment under Section 147/148 due to the AO's reliance on borrowed satisfaction without independent application of mind. Consequently, the reassessment proceedings were invalidated, rendering the issue of the addition under Section 68 academic. The Cross Objection filed by the assessee was allowed, and the appeal filed by the Revenue was dismissed.