2019 (4) TMI 270 - AT - Income Tax

Validity of proceedings u/s 148 - validity of reasons recorded - addition u/s 68 on the basis of information received from Investigation wing and on same lines of reasons recorded - HELD THAT - Once AO receives any information or material from investigation wing or from elsewhere, then instead of recording the reasons from borrowed satisfaction, he has to independently apply his mind and verify the record of the assessee before forming his reason to believe for reopening the case u/s 147. Formation of reason to believe is a jurisdictional fact, which AO must spell while recording his reasons and should be germane to the facts of the assessee and material or information coming on record. If jurisdictional fact has been recorded on wrong premise or on incorrect assumption of facts, whether fully or partially, then jurisdiction cannot be acquired to reopen the assessment. Thus, when any information dehors any live link nexus with the income escaping assessment, then it cannot be held to be valid information for reopening the assessment u/s 147. We agree with the contentions of the Ld. Counsel that, if there are such a huge amount of discrepancy and mistakes in the reasons recorded , divorced from the facts of the case, then such reasons cannot clothe the AO with the jurisdiction to reopen the assessment u/s 147. Here in this case AO in his remand report submitted before the Ld. CIT(A) and also in view of the observation made by the Ld. CIT(A), it is amply established that there are various discrepancies and it is for this reason alone, Ld. CIT(A) has deleted the various additions. Hence, we hold that such reasons recorded cannot be held to be in accordance with law, and because of such huge discrepancy and errors, it cannot be held that AO could have entertained reason to believe based on borrowed satisfaction of someone else. Thus, the entire reopening is held to be invalid. Addition u/s 68 - HELD THAT - In absence of any inquiry, such a material or documents filed by the assessee cannot be discarded. AO has simply relied upon the information received from Investigation Wing, without even carrying out any prima facie inquiry so as to show that assessee s contention or material filed by him cannot be relied upon. Even at the stage of CIT(A) no such inquiry has been done and most of the additions otherwise also stands deleted for the reasons that they were not received in this year but in the earlier years. No iota of evidence of material so as to confirm these additions on merits and therefore, we have no hesitation in deleting the entire addition, because assessee has been able to discharge its prima facie onus by proving the identity, creditworthiness and genuineness of the share application money received. In absence of any material or inquiry conducted by the AO that these are non-existing entities or a paper company and there being no rebuttal from the side of the department, addition made u/s 68 is directed to be deleted. Accordingly, in view of our finding in assessee s appeal is allowed.

Summary

Issues Involved:
1. Validity of proceedings under Section 148 and reopening of assessment under Section 147.
2. Mechanical approval by the CIT under Section 151.
3. Addition of ?28 lakhs sustained by CIT(A) out of the total addition of ?1,53,50,000 under Section 68.
4. Addition of ?28,000 under Section 69C on account of commission/premium allegedly paid by the assessee for obtaining share capital.

Issue-Wise Detailed Analysis:

1. Validity of proceedings under Section 148 and reopening of assessment under Section 147:

The assessee challenged the reopening of the assessment on the grounds that the reasons recorded were not in accordance with the law and that the approval granted by the CIT was mechanical. The AO issued a notice under Section 148 based on information received from the ACIT Central Circle, which indicated that the assessee had received accommodation entries from various companies controlled by Shri S.K. Gupta. The AO recorded reasons for the belief that income had escaped assessment, citing statements from Shri S.K. Gupta admitting to providing accommodation entries.

The AO made an addition of ?1,72,75,483 based on these reasons, but the assessee argued that there was no nexus between the reasons recorded and the income escaping assessment. The assessee also pointed out discrepancies in the list of companies and amounts mentioned in the reasons recorded, some of which pertained to the previous assessment year or were never received.

The Tribunal found that the AO had not applied his mind independently and had recorded reasons based on borrowed satisfaction. The Tribunal quashed the reopening of the assessment, citing judgments from the Hon'ble Delhi High Court, which emphasized the need for the AO to apply his mind and establish a live link between the material and the income escaping assessment.

2. Mechanical approval by the CIT under Section 151:

The assessee contended that the approval granted by the CIT under Section 151 was purely mechanical. The Tribunal noted that the approval simply stated "approved in view of the above reasons," indicating a lack of application of mind by the CIT. The Tribunal held that such mechanical approval could not validate the reopening of the assessment.

3. Addition of ?28 lakhs sustained by CIT(A) out of the total addition of ?1,53,50,000 under Section 68:

The CIT(A) deleted most of the additions made by the AO but sustained an addition of ?28 lakhs related to share application money received from Omni Farms Pvt. Ltd. and Chander Prabhu Financial Services Pvt. Ltd. The CIT(A) reasoned that similar additions had been sustained in the previous assessment year.

The Tribunal noted that the additions for these two companies had been deleted by the Tribunal in the previous assessment year. The Tribunal found that the assessee had provided sufficient documentary evidence to prove the identity, genuineness, and creditworthiness of the share applicants. The Tribunal deleted the addition of ?28 lakhs, following its earlier decision.

4. Addition of ?28,000 under Section 69C on account of commission/premium allegedly paid by the assessee for obtaining share capital:

The AO had added ?1,50,000 under Section 69C, representing 1% commission for obtaining accommodation entries. The CIT(A) reduced this addition to ?28,000. The Tribunal, having quashed the reopening of the assessment and deleted the additions on merits, also deleted the addition under Section 69C.

Decision:

The Tribunal quashed the reassessment proceedings under Section 147 and deleted the additions made by the AO. The Tribunal held that the reasons recorded for reopening the assessment were not in accordance with the law due to discrepancies and lack of independent application of mind by the AO. The Tribunal also found that the assessee had provided sufficient evidence to prove the identity, genuineness, and creditworthiness of the share applicants, and there was no material to support the additions made by the AO. The appeal of the assessee was allowed, and the appeal of the revenue was dismissed.