2019 (5) TMI 775 - AT - Income Tax

Reopening of assessment - non recording of reasons by AO - assessee not given copy of reasons recorded for issuance of notice u/s 148 - non independent application of mind by AO - borrowed satisfaction - HELD THAT - Reasons have not been recorded by the AO rather based the assessment order on the information received from DCIT, CC 2(2), Mumbai along with assessment order of M/s. Avance Technologies Limited passed u/s 153C of the Act, so the question of supplying reasons recorded to the assessee does not arise. When assessee had made a request for supply of the reasons recorded and the said request had not been adhered to and the AO proceeded to pass the assessment order even without providing an opportunity to cross examine the Director of M/s. Avance Technologies Limited whose statements have been relied upon to prove the fact that M/s. Avance Technologies Limited, a accommodation entry provider has provided accommodation entry of ₹ 25,00,000/- to the assessee. So, the very initiation of assessment proceedings u/s 147/148 of the Act were void and non est at the very outset because the AO has not recorded any reasons after applying his mind nor supplied the copy thereof to the assessee and as such, in these circumstances, question of filing / disposing off the objections by assessee/AO does not arise. As decided in Pr.CIT-16 vs. Jagat Talkies Distributors 2017 (9) TMI 192 - DELHI HIGH COURT wherein GKN Driveshaft (India) Ltd. 2002 (11) TMI 7 - SUPREME COURT discussed held that when the assessee has not been given copy of reasons recorded for issuance of notice u/s 148 by the AO, entire assessment proceedings and resultant assessment order passed u/s 143(3)/148 was to be quashed. - Decided in favour of assessee.

Summary

Issues:
1. Jurisdiction of AO under sections 143(3)/147 without complying with mandatory conditions.
2. Validity of reassessment order under section 143(3)/147.
3. Non-supply of reasons recorded for reopening assessment.
4. Addition of ?25,00,000 under section 68 of the Income Tax Act, 1961.

Issue 1: Jurisdiction of AO under sections 143(3)/147 without complying with mandatory conditions:
The Appellant challenged the impugned reassessment order passed by the Commissioner of Income-tax (Appeals) for the assessment year 2010-11. The Assessing Officer (AO) initiated reassessment proceedings under sections 143(3)/147 based on information received from the Deputy Commissioner of Income-tax, Central Circle 2(2), Mumbai, regarding alleged accommodation entries. The AO made an addition of ?25,00,000 under section 68 of the Act. The Appellant contended that the AO lacked jurisdiction as mandatory conditions under sections 147 to 151 were not complied with. The Tribunal analyzed the facts and arguments presented and concluded that the reassessment order was liable to be quashed due to the AO's failure to comply with essential conditions, thereby allowing the appeal.

Issue 2: Validity of reassessment order under section 143(3)/147:
The Appellant challenged the confirmation of the addition by the ld. CIT (A) and brought the matter before the Tribunal. The Tribunal heard the arguments of both parties and reviewed the orders passed by the revenue authorities. The Appellant contended that the reassessment order was bad in law. After a thorough examination of the facts and legal provisions, the Tribunal found that the reassessment order was not valid due to the AO's failure to comply with mandatory conditions, ultimately leading to the quashing of the assessment order.

Issue 3: Non-supply of reasons recorded for reopening assessment:
The crux of the matter revolved around the non-supply of "reasons recorded" by the AO to the assessee despite demand. The Tribunal scrutinized the contentions of both parties. The Appellant argued that the AO never provided the reasons recorded, which was essential for the validity of the reassessment. The Tribunal observed that the reasons recorded were not supplied to the assessee, indicating a lack of compliance with procedural requirements. Citing relevant case laws, including M/s. GKN Driveshaft India Ltd. vs. ITO, the Tribunal emphasized the importance of providing reasons to the assessee and concluded that the initiation of the reassessment proceedings was void due to the absence of recorded reasons.

Issue 4: Addition of ?25,00,000 under section 68 of the Income Tax Act, 1961:
The AO made an addition of ?25,00,000 under section 68 of the Act, treating it as an alleged accommodation entry. The ld. CIT (A) confirmed this addition, leading the Appellant to appeal before the Tribunal. The Tribunal examined the facts, arguments, and legal precedents cited by both parties. After careful consideration, the Tribunal found that the addition was not sustainable due to procedural irregularities and the lack of compliance with essential legal requirements. Consequently, the Tribunal quashed the assessment order, allowing the appeal filed by the assessee.

This detailed analysis of the judgment highlights the key issues raised, the arguments presented by both parties, the legal principles applied, and the ultimate decision reached by the Tribunal in favor of the assessee.