2019 (1) TMI 1073 - HC - Income Tax

Reopening of assessment - unexplained investments - Held that - No information was received by the Assessing Officer from the Investigation Wing that the assessee had received accommodation entry (see paragraph 25(i) of the impugned order). The aforesaid rationale is incorrect, for whether or not any accommodation entry was received has to be inferred and concluded from the facts by the Assessing Officer, and not by a third person. It is the subjective opinion formed by the Assessing Officer that has to be tested on the principle of an honest and reasonable person. In this case, the stockbrokers had elucidated on the sham and bogus nature of the share transaction i.e., investment and sale of worthless shares which was done through unknown persons who were the respondent-assessee s representatives, and other facts accepted and admitted in the statements which were recorded by the Investigation Wing. Similarly, paragraph 25(ii) of the impugned order proceeds on wrong premise that when the block assessment order in the case of Ms. Mohinder Kaur was quashed on the technical ground that addition of ₹ 2.5 crores could not have been made in the block assessment proceedings, re-opening under Section 147 read with Section 148 would not be justified, for the entire money of Taranjit Singh was routed through the respondent-assessee or the Revenue could not take a somersault for the purpose of reopening assessment or make addition on substantive basis later on. This reasoning is wrong and fallacious being contrary to law, for appellate orders in the case of Ms. Mohinder Kaur had not been passed when the reason to believe in the case of respondent-assessee were recorded. The reason to believe recorded cannot be set aside on the basis of the appellate order in the case respondent-assessee making substantive addition instead of protective additions made in the assessment order. Question of somersault does not arise when protective addition made into substantive addition. - Decided against assessee Addition u/s 68 - addition on protective basis on the ground that three brokers have given accommodation entries to the appellant Company - Held that - The assessee had not raised a specific ground that they were not furnished statements on oath or were denied opportunity to cross-examine the brokers. The Assessment Order specifically refers to the failure of the stock brokers to produce relevant documents/papers. Assessing Officer had not only relied upon the statements recorded by Deputy Director (Inv.) but had also himself recorded the statement of Shagun Garg on 11th March, 2005. The Commissioner of Income Tax (Appeals) had similarly recorded the statement of Hari Krishan Punni on 27th February, 2008 during the pendency of the appeal. Relevant facts noticed in the assessment order, statement an oath etc. have been passed over and overlooked - answer the substantial question of law No. (2) in favour of the appellant-Revenue and against the assessee

Summary

Issues Involved:
1. Validity of reassessment proceedings initiated under Section 148 read with Section 147 of the Income Tax Act, 1961.
2. Deletion of additions made under Section 68 of the Income Tax Act, 1961.

Issue-Wise Detailed Analysis:

1. Validity of Reassessment Proceedings:

The Tribunal found that the Assessing Officer (AO) did not apply his mind to the information received from the Additional Director of Income Tax (Investigation) and had no tangible material to form a belief that income chargeable to tax had escaped assessment. The Tribunal emphasized that the AO must have "reason to believe" that income had escaped assessment, which must be based on tangible material and not mere suspicion. The Tribunal quashed the reassessment proceedings, citing lack of independent examination by the AO and reliance on unverified information from the Investigation Wing.

The High Court, however, held that the Tribunal's approach was incorrect. It emphasized that the validity of the "reason to believe" must be assessed based on the information available at the time of issuing the notice under Section 148, not on subsequent findings. The Court highlighted that the AO had relevant material, including statements from stockbrokers confirming sham transactions, which justified the belief that income had escaped assessment. The Court referred to the Supreme Court's decision in Rajesh Jhaveri Stock Brokers Private Limited, which clarified that at the stage of initiation, the AO only needs a prima facie belief based on reasonable grounds.

The High Court concluded that the Tribunal erred in quashing the reassessment proceedings and held that the AO had valid reasons to believe that income had escaped assessment. Therefore, the reassessment proceedings were valid.

2. Deletion of Additions under Section 68:

The Tribunal deleted the additions made by the AO on the grounds that the assessee had proved the identity, creditworthiness, and genuineness of the transactions. The Tribunal noted that the stockbrokers had confirmed the sale of shares and the receipt of sale consideration through banking channels. The Tribunal also observed that the AO did not provide the assessee an opportunity to cross-examine the stockbrokers, which violated the principles of natural justice.

The High Court found contradictions in the Tribunal's findings. The Court noted that the Tribunal, in some parts of its order, accepted that the transactions were sham and the amount was assessable in the hands of Taranjit Singh, while in other parts, it upheld the genuineness of the transactions. The High Court emphasized that the Tribunal ignored significant evidence, including statements from the stockbrokers and the Director of the assessee company, which indicated that the transactions were bogus.

The High Court held that the Tribunal's decision to delete the additions was flawed due to the contradictory findings and failure to consider all relevant evidence. The Court remanded the matter to the Tribunal for fresh consideration, directing it to take into account all facts and circumstances recorded by the AO and the first Appellate Authority.

Conclusion:

The High Court set aside the Tribunal's order quashing the reassessment proceedings and deleting the additions. It remanded the matter to the Tribunal for fresh consideration on both issues, directing it to decide the issues raised on merits without being influenced by the impugned order or the present judgment. The appeals were disposed of with no order as to costs, and parties were directed to appear before the Tribunal on a specified date for further proceedings.