2019 (8) TMI 1121 - AT - Income Tax

Reopening of the assessment u/s 147 - whether obtaining necessary approval u/s 151? - borrowed satisfaction - non independent application of mind - HELD THAT - Both the approving authorities have given approval in a mechanical manner without due application of mind, therefore, such reassessment proceedings have to be treated as not in accordance with law and has to be quashed. Perusal of the reasons recorded show that the notice has been issued in a mechanical manner without independent application of mind by the AO and the satisfaction by the Assessing Officer is based on borrowed satisfaction of the Investigation Wing. AO without applying his mind, has simply, on the basis of the information of the Investigation Wing, jumped to the conclusion that there is escapement of income. The reasons so recorded do not show that there is any application of mind by the Assessing Officer for reaching the conclusion that there was escapement of income except the information from the Investigation Wing. The Hon'ble Delhi High Court in a number of decisions has held that reopening of assessment on the basis of report of the Investigation Wing without independent application of mind by the Assessing Officer is not in accordance with law and accordingly the reassessment proceedings have been quashed. Tribunal in the case of M/s SBS Realtors (P) Ltd. vs. ITO 2019 (4) TMI 357 - ITAT DELHI has also quashed the reassessment proceedings based on the information provided by the Investigation Wing without any independent application of mind. It was held that there was no tangible material which formed the basis for the belief that income has escaped assessment. - Decided in favour of assessee.

Issues Involved:
1. Validity of reassessment proceedings under Section 147 of the Income-tax Act.
2. Legality of the additions made under Sections 68 and 69C of the Income-tax Act.
3. Proper application of mind by the approving authorities under Section 151 of the Income-tax Act.
4. Adequacy of reasons recorded for reopening the assessment.
5. Non-provision of opportunity to cross-examine parties whose statements were used against the assessee.
6. Levy of interest under Sections 234A, 234B, and 234C of the Income-tax Act.

Detailed Analysis:

1. Validity of Reassessment Proceedings under Section 147:
The reassessment proceedings were initiated based on information received from the Investigation Wing that the assessee had engaged in transactions involving bogus long-term capital gains (LTCG). The Tribunal examined whether the Assessing Officer (AO) had applied his mind independently or merely relied on the information provided. The Tribunal found that the AO had not independently verified the information and had issued the notice based on borrowed satisfaction. This was deemed insufficient for reopening the assessment, as per the legal precedents set by the Delhi High Court in cases like *PCIT vs. Meenakshi Overseas Pvt. Ltd.* and *South Yarra Holdings vs. ITO*. The Tribunal emphasized that the reasons to believe must be self-evident and show a link between the information and the belief of income escapement.

2. Legality of Additions under Sections 68 and 69C:
The AO had added ?20,97,998/- under Section 68, treating the LTCG as bogus, and ?1,04,900/- under Section 69C as unexplained expenditure (commission for earning bogus LTCG). The Tribunal did not adjudicate these additions on merit, as the reassessment proceedings themselves were found invalid. However, it was noted that the AO's conclusions were based on the investigation report without independent verification, which was inadequate for such additions.

3. Application of Mind by Approving Authorities under Section 151:
The Tribunal scrutinized the approval process for reopening the assessment. It was found that the Joint Commissioner and Principal Commissioner had given mechanical approvals with remarks like "Yes. I am satisfied." The Tribunal cited several decisions, including *CIT vs. S. Goyanka Lime & Chemical Ltd.* and *Pr. CIT vs. N.C. Cables Ltd.*, to highlight that such mechanical approvals without detailed reasoning are invalid. The Tribunal concluded that the reassessment proceedings were not in accordance with law due to the lack of proper application of mind by the approving authorities.

4. Adequacy of Reasons Recorded for Reopening:
The reasons recorded by the AO were found to be mere conclusions without explaining the basis for the belief that income had escaped assessment. The Tribunal emphasized that the reasons must demonstrate a link between the information and the belief of income escapement. The Tribunal referred to the *PCIT vs. Meenakshi Overseas Pvt. Ltd.* case, which stressed that the reasons must be tangible and evident from the recorded reasons.

5. Non-Provision of Opportunity to Cross-Examine:
The assessee had raised a ground that the AO did not provide an opportunity to cross-examine parties whose statements were used against them. The Tribunal noted that this issue was not disposed of by the CIT(A). While the Tribunal did not delve deeply into this issue due to the quashing of the reassessment proceedings, it highlighted the importance of providing such opportunities as part of a fair assessment process.

6. Levy of Interest under Sections 234A, 234B, and 234C:
The assessee challenged the levy of interest under Sections 234A, 234B, and 234C. The Tribunal did not specifically address this issue, as the reassessment proceedings were quashed. However, it implied that such levies would not stand if the reassessment itself was invalid.

Conclusion:
The Tribunal quashed the reassessment proceedings in all the appeals due to the mechanical approval of reopening, lack of independent application of mind by the AO, and inadequacy of the reasons recorded for reopening. Consequently, the additions made under Sections 68 and 69C were also invalidated. The Tribunal's decision underscores the necessity for AOs and approving authorities to exercise their powers judiciously and not mechanically.

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