2019 (9) TMI 256 - AT - Income Tax

Reopening of assessment - reopening on basis of report of the investigation wing - non independant application of mind - addition u/s 68 - HELD THAT - The Hon ble Delhi High Court in a number of cases has held that the reopening on the basis of report of investigation wing without independent application of mind by the Assessing Officer is not valid. Accordingly the reassessment proceedings which were based on the report of the investigation wing and without independent application of mind by the Assessing Officer have been held to be illegal. Since the Assessing Officer in the instant case has reopened the assessment on the basis of report of the investigation wing and there appears to be no independent application of mind by the Assessing officer for reopening of the case, therefore, the reassessment proceeding initiated by the Assessing Officer are not proper. Therefore, hold that the reassessment proceeding initiated by the Assessing Officer is illegal and accordingly the subsequent proceedings also become illegal and void - Decided in favour of assessee.

Issues:
1. Validity of reassessment proceedings under section 147/148.
2. Addition of ?5,50,000 as cash credit under section 68.
3. Initiation of penalty proceedings under section 271(1)(c).

Issue 1: Validity of reassessment proceedings under section 147/148:
The appeal challenged the legality of reopening the assessment, contending that the reasons recorded lacked independent application of mind by the Assessing Officer. The appellant argued that the information received from the Investigation Wing was the sole basis for reopening, without tangible material or specific allegations against the assessee. Citing precedents, the appellant asserted that the reasons were based on borrowed satisfaction, lacking a live link between the information and the belief of income escapement. The Tribunal concurred, noting that reopening solely on the investigation report without independent assessment is invalid. Consequently, the reassessment proceedings were deemed illegal and void, leading to the allowance of the appeal on this ground.

Issue 2: Addition of ?5,50,000 as cash credit under section 68:
The appellant, besides challenging the reassessment validity, contested the addition of ?5,50,000 as share application money under section 68. The appellant submitted extensive documentation to establish the identity and creditworthiness of the investor company, including financial statements and compliance with notice under section 133(6). The appellant highlighted the substantial net worth of the investor company to support the genuineness of the transaction. Additionally, the appellant argued that the failure to produce the director of the investor company was due to the Assessing Officer's inaction on issuing a notice under section 131. Relying on various decisions, the appellant claimed to have fulfilled the onus of proving section 68 requirements. The Tribunal, however, did not delve into the merit of the addition due to the illegality of the reassessment proceedings, rendering the challenge on this issue academic.

Issue 3: Initiation of penalty proceedings under section 271(1)(c):
The appeal also raised concerns regarding the initiation of penalty proceedings under section 271(1)(c) by the Assessing Officer. However, as the Tribunal found the reassessment proceedings to be illegal, the challenge against the penalty proceedings was not directly addressed in the judgment.

In conclusion, the Tribunal allowed the appeal on the grounds of the invalidity of the reassessment proceedings, rendering the other issues, including the addition of cash credit under section 68 and the initiation of penalty proceedings, moot. The judgment emphasized the necessity of independent assessment by the Assessing Officer before reopening assessments, as supported by legal precedents.

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