2018 (12) TMI 808 - AT - Income Tax

Reopening of assessment - addition u/s 68 - assessee was beneficiary of accommodation entries - non independent application of mind by AO - borrowed satisfaction - Held that - In the instant case none of the companies from whom the assessee company has received share capital/share premium are mentioned in the statement of Shri Rajesh Kumar Aggarwal, therefore, it is a clear case of no independent application of mind by the Assessing Officer to the tangible material and the reasons failed to demonstrate live link between tangible material and formation of reasons to believe that income has escaped assessment. The satisfaction recorded by the Assessing Officer is at best a reproduction of the conclusion of the investigation wing report and is a borrowed satisfaction. The Hon ble Delhi High Court in the case of RMG Polyvinyl (I) Ltd. 2017 (7) TMI 371 - DELHI HIGH COURT has held that where information was received from Investigation Wind that assessee was beneficiary of accommodation entries but not further enquiry was undertaken by the Assessing Officer, said information could not be said to be tangible material per se and, thus, reassessment on said basis was not justified. - Decided in favour of assessee.

Summary

Issues Involved:
1. Validity of reopening of assessment under Section 147/148 of the Income Tax Act.
2. Addition of ?6,00,00,000/- as unexplained cash credit under Section 68 of the Income Tax Act.

Detailed Analysis:

Validity of Reopening of Assessment:
The assessee challenged the reopening of the assessment under Section 147/148 of the Income Tax Act, arguing that the Assessing Officer (AO) did not independently apply his mind and relied solely on information from the Investigation Wing. The AO reopened the assessment based on information that the assessee received ?6,00,00,000/- in share capital/share premium from shell companies. The AO's reasons for reopening included statements from Shri Rajesh Kumar Aggarwal, who controlled several companies providing accommodation entries.

The Tribunal found that none of the companies from which the assessee received share capital were listed among those controlled by Shri Rajesh Kumar Aggarwal. The Tribunal emphasized the need for the AO to demonstrate a live link between tangible material and the formation of reasons to believe that income had escaped assessment. The Tribunal cited several judicial precedents, including the Delhi High Court's ruling in Meenakshi Overseas (P) Ltd., which stressed that reasons to believe must be based on tangible material and not merely conclusions or borrowed satisfaction from the Investigation Wing's report.

The Tribunal concluded that the AO's reasons for reopening the assessment were vague, lacked independent application of mind, and did not establish a live link between the information received and the belief that income had escaped assessment. Therefore, the reopening of the assessment was deemed void ab-initio.

Addition of ?6,00,00,000/- as Unexplained Cash Credit:
The AO added ?6,00,00,000/- to the assessee's income under Section 68, treating it as unexplained cash credit. The assessee argued that this amount was already included in the settlement application of the SRM Group before the Income Tax Settlement Commission (ITSC). The AO rejected this explanation, citing the pattern of bank entries as indicative of accommodation entries.

The CIT(A) upheld the AO's decision, stating that the share applicants were shell companies with no business activities, thus justifying the addition under Section 68. However, since the Tribunal quashed the reopening of the assessment, it did not adjudicate on the merits of this addition, deeming it academic.

Conclusion:
The Tribunal allowed the appeal, setting aside the CIT(A)'s order and quashing the reassessment proceedings initiated under Section 147/148 due to lack of independent application of mind and failure to establish a live link between tangible material and the belief that income had escaped assessment. Consequently, the other grounds, including the addition of ?6,00,00,000/- as unexplained cash credit, were not adjudicated.