2019 (11) TMI 862 - AT - Income Tax

Reopening of assessment u/s 147 - addition u/s 68 - Validity of reason to believe - HELD THAT - A.O. has not gone through the details of the information and has not even applied his mind and merely concluded that he has reason to believe that income chargeable to tax has escaped assessment. In the reasons A.O. has recorded that assessee has received accommodation entry of ₹ 2.45 crores, but, ultimately made an addition of ₹ 11.05 crores without bringing any material against the assessee. The reasons to believe are, therefore, not in fact reasons, but, only conclusion of the A.O. There is no independent application of mind by the A.O. to the report of Investigation Wing to form the basis for recording the reasons. The reasons recorded by the A.O. are also incorrect as noted above. The reasons failed to demonstrate the link between the alleged tangible material and the formation of reasons to believe that income chargeable to tax has escaped assessment. Reopening of the assessment is bad in law and that sanction/approval granted by Pr. Commissioner of Income Tax is also invalid. We may also note that vide Order sheet Dated 23.08.2019 the case was re-fixed for hearing because the Ld. D.R. argued that approval have been granted by Commissioner of Income Tax after due discussion of the matter and perusal of the relevant information and thereafter approval in prescribed proforma sent to the A.O. and he has mentioned that I am satisfied. However, no record was produced. Therefore, this case was re-fixed for fresh hearing. However, on the date of hearing no such record have been produced for the inspection of the Bench. Therefore, satisfaction recorded by the Pr. Commissioner of Income Tax is invalid and without application of mind. Therefore, the reopening of the assessment is invalid and bad in Law and cannot be sustained in Law. We, accordingly, set aside the Orders of the authorities below and quash the reopening of the assessment under section 147/148 - Decided in favour of assessee.

Issues Involved:
1. Validity of the reopening of the assessment under section 147/148 of the I.T. Act, 1961.
2. Validity of the approval/sanction granted by the Pr. Commissioner of Income Tax.
3. Addition of ?11.05 crores under section 68 of the I.T. Act.
4. Addition of ?22,10,000/- on account of commission.

Detailed Analysis:

1. Validity of the reopening of the assessment under section 147/148 of the I.T. Act, 1961:

The assessee challenged the reopening of the assessment on multiple grounds, arguing that the assessment was framed based on third-party information without the A.O. applying his mind. The assessee cited several judgments to support their claim, including Pr. CIT vs. RMG Polyvinyl (I) Ltd., Pr. CIT vs. Meenakshi Overseas (P) Ltd., and Pr. CIT vs. G And G Pharma India Ltd., which emphasized the necessity of the A.O. independently verifying the information received from the Investigation Wing before forming a belief that income had escaped assessment.

The Tribunal found that the A.O. recorded incorrect facts in the reasons for reopening the assessment, such as the non-existence of M/s. Management Services Pvt. Ltd. and the incorrect association of M/s. Shubh Propbuild Pvt. Ltd. with Shri Himanshu Verma. The Tribunal concluded that the A.O. did not independently apply his mind to the information received and merely reproduced the Investigation Wing's report, leading to the reopening being deemed invalid and bad in law.

2. Validity of the approval/sanction granted by the Pr. Commissioner of Income Tax:

The assessee argued that the approval under section 151 was granted mechanically without an independent application of mind. The approval recorded by the Pr. Commissioner of Income Tax was simply "Yes, I am satisfied," which the Tribunal found insufficient. The Tribunal relied on judgments such as United Electrical Co. Pvt. Ltd. vs. CIT and CIT vs. S. Goyanka Lime & Chemical Ltd., which held that such mechanical approvals without detailed reasoning are invalid.

The Tribunal noted that no record was produced to show that the Pr. Commissioner of Income Tax had independently reviewed the material before granting approval. Therefore, the Tribunal concluded that the approval/sanction was invalid and without application of mind.

3. Addition of ?11.05 crores under section 68 of the I.T. Act:

The A.O. made an addition of ?11.05 crores on account of share capital and share premium received from 38 parties, based on the statement of Shri Himanshu Verma and the Investigation Wing's report. However, the Tribunal found that the A.O.'s reasons for reopening the assessment were based on incorrect facts and lacked independent verification. The Tribunal also noted that the A.O. did not provide the assessee with an opportunity to cross-examine Shri Himanshu Verma, whose statement was used against the assessee.

Given that the reopening of the assessment was quashed, the Tribunal did not need to decide on the merits of the addition, rendering it an academic discussion only.

4. Addition of ?22,10,000/- on account of commission:

The A.O. added ?22,10,000/- as commission allegedly paid by the assessee for arranging accommodation entries. However, since the Tribunal quashed the reopening of the assessment, this addition was also rendered invalid and was deleted along with the other additions.

Conclusion:

The Tribunal quashed the reopening of the assessment under section 147/148 of the I.T. Act, 1961, due to the A.O.'s failure to independently verify the information received from the Investigation Wing and the mechanical approval granted by the Pr. Commissioner of Income Tax. Consequently, all additions made by the A.O., including ?11.05 crores under section 68 and ?22,10,000/- on account of commission, were deleted.

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