2018 (12) TMI 912 - AT - Income Tax

Revision u/s 263 - Reopening of assessment u/s 147 - Held that - The assessee could be permitted to challenge the validity of the Order passed under section 263 on the ground that the assessment order was non-est. Since the reassessment order itself is bad in law, therefore, Learned Counsel for the Assessee, rightly contended that the same cannot be revised under section 263. Only valid re-assessment order can be revised under section 263. On this ground itself the proceedings under section 263 of the I.T. Act are bad in law and liable to be quashed. We, accordingly, set aside the Order of Pr. CIT passed under section 263 and quash the same. The remaining plea of the assessee are not required to be adjudicated. However, we may briefly note that A.O. examined entire seized material at the time of recording reasons and re-assessment stage. The assessee produced sufficient evidences at the re-assessment proceedings to prove the identity of the creditors, their creditworthiness and genuineness of the transaction. The A.O. also made direct enquiry by issuing summons under section 133(6) of the I.T. Act to the Investors who have also replied directly to the A.O. Therefore, A.O. rightly accepted the credits as genuine. In view of the above finding, there is no need to give a finding in detail on merits. In view of the above, we allow the appeal of assessee. Reopening of assessment - non independent application of mind - Held that - A.O. on the basis of the information and material received from Investigation Wing has recorded reasons for reopening of the assessment which was ultimately found to be incorrect and non-existent. It is well settled law that when no new material other than examined by the A.O originally found on record for the purpose of initiating the re-assessment proceedings, the proceedings under section 148 would be invalid and bad in law. We rely upon decision of Delhi High Court in the case of Atul Kumar Swamy 2014 (3) TMI 759 - DELHI HIGH COURT . The Hon ble Delhi High Court in the case of SNG Developers Ltd. 2017 (7) TMI 575 - DELHI HIGH COURT held that when A.O. initiated the re-assessment proceedings without application of mind, such proceedings would be invalid. A.O. in the present case has failed to verify the information received from Investigation Wing. Therefore, it is non-application of mind on the part of the A.O. to record correct facts in the reasons for reopening of the assessment. In such circumstances, the re-assessment order could not be treated as valid and in accordance with law. Since re-assessment proceedings are invalid and bad in law, therefore, such proceedings could not be revised under section 263 of the I.T. Act. We set aside the order passed by the Ld. Pr. CIT under section 263 of the I.T. Act and quash the same. - Appeal of the Assessee is allowed.

Summary

Issues Involved:
1. Validity of reassessment proceedings under Section 147/148 of the I.T. Act.
2. Issuance of notice under Section 143(2) of the I.T. Act.
3. Examination of seized material during reassessment.
4. Jurisdiction of the Principal Commissioner of Income Tax (Pr. CIT) under Section 263 of the I.T. Act.
5. Creditworthiness and genuineness of share application money.
6. Application of judicial precedents and legal principles.

Detailed Analysis:

1. Validity of Reassessment Proceedings under Section 147/148 of the I.T. Act:
The reassessment proceedings were initiated based on information received from the Investigation Wing regarding accommodation entries from the S.K. Jain group. However, the reassessment orders were challenged on the grounds that the reasons recorded for reopening were incorrect and non-existent. It was argued that the A.O. did not apply his mind independently and merely relied on the information received. The Tribunal noted that the reasons for reopening must be accurate and based on correct facts. In several cases, the reasons recorded were found to be incorrect, leading to the conclusion that the reassessment proceedings were invalid and bad in law.

2. Issuance of Notice under Section 143(2) of the I.T. Act:
The Tribunal emphasized the mandatory nature of issuing a notice under Section 143(2) before completing the reassessment. In multiple instances, it was found that no formal notice under Section 143(2) was issued, which rendered the reassessment orders invalid. The Tribunal relied on judicial precedents, including the Hon’ble Delhi High Court's decisions, which held that the absence of such notice is fatal to the reassessment proceedings.

3. Examination of Seized Material during Reassessment:
The Pr. CIT invoked Section 263, alleging that the A.O. did not examine the seized material related to the S.K. Jain group adequately. The Tribunal observed that the A.O. had considered the material provided by the Investigation Wing and had issued notices under Section 133(6) to the investor companies. The A.O. had also received replies directly from these companies. Therefore, it was concluded that the A.O. had conducted sufficient inquiry, and the reassessment orders were not erroneous on this ground.

4. Jurisdiction of the Pr. CIT under Section 263 of the I.T. Act:
The Tribunal scrutinized the Pr. CIT's jurisdiction under Section 263, which allows revision of orders that are erroneous and prejudicial to the interests of the Revenue. It was argued that the reassessment orders, being invalid due to the lack of notice under Section 143(2) and incorrect reasons for reopening, could not be revised under Section 263. The Tribunal agreed with this contention, stating that only valid reassessment orders can be revised under Section 263.

5. Creditworthiness and Genuineness of Share Application Money:
The assessee provided documentary evidence, such as confirmations, bank statements, ITRs, and audited financials, to prove the identity, creditworthiness, and genuineness of the transactions. The A.O. had accepted these explanations during the reassessment. The Tribunal noted that the A.O. had made sufficient inquiries and had taken a possible view based on the evidence available. Therefore, the reassessment orders were not erroneous on this ground.

6. Application of Judicial Precedents and Legal Principles:
The Tribunal relied on various judicial precedents to support its conclusions. Key decisions included:
- CIT vs. CPR Capital Services Ltd.: Emphasized the necessity of issuing a notice under Section 143(2).
- Pr. CIT vs. Silverline: Held that reassessment orders without such notice are invalid.
- Haryana Acrylic Manufacturing Co. vs. CIT: Stated that reassessment after four years requires specific mention of the assessee's failure to disclose material facts.
- Well Intertrade (P) Ltd. vs. ITO: Reaffirmed that reassessment based on incorrect facts is invalid.

Conclusion:
The Tribunal allowed the appeals of the assessees, quashing the orders passed under Section 263 of the I.T. Act. It was concluded that the reassessment proceedings were invalid due to the lack of notice under Section 143(2) and incorrect reasons for reopening. Consequently, such reassessment orders could not be revised under Section 263. The Tribunal also acknowledged that the A.O. had conducted sufficient inquiry into the creditworthiness and genuineness of the share application money.