2019 (2) TMI 154 - AT - Income Tax

Validity of reopening of assessment - non application of mind by the competent authority while recording satisfaction u/s 151 - reasons to believe - Held that - The note of satisfaction recorded by the AO in the reasons is based on the 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 with the support of tangible material gathered by way of conducting inquiry shall be held as without application of the mind since, he has used the same to form reason to believe that income had escaped assessment. 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. Therefore, 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. 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.

Summary

Issues Involved:
1. Validity of reassessment proceedings under Section 147 of the IT Act.
2. Application of mind by the competent authority under Section 151 of the IT Act.
3. Addition of ?10,00,000 under Section 68 of the IT Act as unexplained cash credits.
4. Addition of ?18,000 under Section 69 of the IT Act as commission paid on cash credits.

Issue-wise Detailed Analysis:

1. Validity of Reassessment Proceedings under Section 147 of the IT Act:
The assessee challenged the reassessment proceedings initiated by the Assessing Officer (AO) on the grounds that the AO did not apply independent judgment and relied solely on information from the Directorate of Income Tax (Investigation) regarding accommodation entries. The Tribunal noted that the AO's reasons for reopening the assessment were based on borrowed satisfaction without independent verification or tangible material linking the information to the assessee’s income. The Tribunal cited several judgments, including *PCIT vs. Meenakshi Overseas (P) Ltd.*, *PCIT vs. G&G Pharma India Ltd.*, and *PCIT vs. RMG Polyvinyl (I) Ltd.*, to support the view that reassessment based on unverified information from the Investigation Wing is invalid. The Tribunal concluded that the reassessment proceedings were invalid and bad in law.

2. Application of Mind by the Competent Authority under Section 151 of the IT Act:
The Tribunal examined whether the competent authority applied its mind while granting approval under Section 151 for issuing notice under Section 148. The Tribunal found that the approval was granted in a mechanical manner with the authority merely stating, "Yes, I am satisfied," without any detailed reasoning. This was deemed insufficient to meet the requirements of Section 151. The Tribunal relied on the decision in *CIT vs. M/s. S. Goyanka Lime and Chemicals Ltd.*, where the Supreme Court upheld that mechanical approval without application of mind invalidates the reassessment proceedings. Consequently, the Tribunal held that the approval under Section 151 was invalid, rendering the reassessment proceedings void.

3. Addition of ?10,00,000 under Section 68 of the IT Act as Unexplained Cash Credits:
Given the Tribunal's decision to quash the reassessment proceedings, the addition of ?10,00,000 under Section 68 for unexplained cash credits became moot. The Tribunal did not need to address the merits of this addition since the foundational reassessment proceedings were deemed invalid.

4. Addition of ?18,000 under Section 69 of the IT Act as Commission Paid on Cash Credits:
Similarly, the addition of ?18,000 under Section 69 for commission paid on the cash credits was also rendered academic and infructuous due to the quashing of the reassessment proceedings. The Tribunal did not delve into the specifics of this addition.

Conclusion:
In summary, the Tribunal quashed the reassessment proceedings initiated under Section 147 and the notice issued under Section 148 due to the lack of independent application of mind by the AO and mechanical approval by the competent authority under Section 151. Consequently, all subsequent proceedings, including the additions under Sections 68 and 69, were held invalid and unsustainable. The Tribunal's decision underscores the necessity for AOs and approving authorities to exercise independent judgment and provide detailed reasoning when initiating reassessment proceedings.