2020 (1) TMI 719 - AT - Income Tax

Reopening of assessment u/s 147 - information received from investigation wing regarding alleged accommodation entries - Borrowed satisfaction - non independent application of mind by AO - HELD THAT - It is a case where action has been taken mechanically on the basis of information received from investigation wing, and, not on an independent application of mind and therefore on this ground, the proceedings are without jurisdiction. It is apparent from the fact that according to the AO, Investigation Wing has informed that assessee company has received accommodation entry in the garb of share application money which is said to be as per inquiry made by the Directorate of Investigation (DI) on the persons said to be involved providing accommodation entries/ bogus share application. Based on inquiries made, DI is said to have provided details of persons who are beneficiaries of such accommodation entries and one such beneficiary is said to be the assessee. In this case notice u/s. 148 was issued merely on the basis of information from D.I. that the assessee has received accommodation entry of ₹ 38 laks. There is no mention of any application of mind or any independent inquiry or any link between any tangible material and formation of reasons to believe that income chargeable to tax has escaped assessment. AO was not having even the material before him, at the time of initiation of proceedings, on the basis of which the Investigation Wing sent his report. AO assumed and worked only on the satisfaction of only Investigation Wing. It is also noted that even the copies of statements recorded by the Investigation Wing in the case of Tarn Goyal on the basis of which impugned proceedings have been initiated were not available with the AO as admitted by the AO himself in his letter dated 10.12.2015 AO has not even specified as to what is the amount of alleged income escaping assessment, which shows that AO has merely recorded certain unsubstantiated allegations on the basis of some information received, which is against the principle laid down in the case of CIT vs SFIL Stock Broking Ltd 2010 (4) TMI 102 - DELHI HIGH COURT wherein held that mere information received from DDIT(Inv) cannot constitute valid reasons for initiating reassessment proceedings in the absence of anything to show that A.O. had independently applied his mind to arrive at a belief that the income had escaped assessment. Thus, the AO has acted mechanically and without any independent application of mind. Proceedings initiated by invoking the provisions of section 147 by the AO and upheld by the Ld. CIT(A) are nonest in law and without jurisdiction, hence, the re-assessment is quashed - Decided in favour of assessee.

Summary

Issues Involved:
1. Jurisdiction and validity of the initiation of proceedings under sections 147 and 148.
2. Disposition of objections against reassessment proceedings.
3. Addition of ?38,00,000 under section 68 as alleged accommodation entries.
4. Addition of ?76,000 as commission on alleged accommodation entries.

Issue-wise Detailed Analysis:

1. Jurisdiction and Validity of Initiation of Proceedings under Sections 147 and 148:
The assessee contended that the initiation of proceedings under sections 147 and 148 was without jurisdiction, mechanical, and lacked application of mind. The Tribunal noted that the Assessing Officer (AO) initiated the proceedings based on information from the Investigation Wing, which indicated that the assessee had received accommodation entries of ?38,00,000. The AO did not independently verify the information or conduct an inquiry before initiating the proceedings. The Tribunal found that the AO acted mechanically and relied solely on the Investigation Wing's report without any independent application of mind. The Tribunal cited several precedents, including the Delhi High Court's rulings in CIT vs. SFIL Stock Broking Ltd. and Pr. CIT vs. Meenakshi Overseas (P) Ltd., to support the view that mere information from the Investigation Wing cannot constitute valid reasons for initiating reassessment proceedings. Consequently, the Tribunal quashed the reassessment proceedings as being without jurisdiction and allowed the legal ground raised by the assessee.

2. Disposition of Objections Against Reassessment Proceedings:
The assessee argued that the reassessment proceedings were unsustainable as the AO did not dispose of all objections raised against the reassessment. The Tribunal's decision to quash the reassessment proceedings on jurisdictional grounds rendered this issue moot. Therefore, the Tribunal did not specifically address this ground.

3. Addition of ?38,00,000 under Section 68 as Alleged Accommodation Entries:
The AO added ?38,00,000 to the assessee's income under section 68, alleging that the amount represented accommodation entries from two companies, Countrywide Credit and Securities P. Ltd. and Taurus Iron & Steel Co. P. Ltd. The Tribunal's decision to quash the reassessment proceedings on jurisdictional grounds meant that the addition under section 68 was also invalid. The Tribunal did not delve into the merits of this addition due to the quashing of the reassessment proceedings.

4. Addition of ?76,000 as Commission on Alleged Accommodation Entries:
The AO also added ?76,000 as commission on the alleged accommodation entries of ?38,00,000. Similar to the addition under section 68, the Tribunal's decision to quash the reassessment proceedings invalidated this addition as well. The Tribunal did not specifically address the merits of this addition due to the quashing of the reassessment proceedings.

Conclusion:
The Tribunal quashed the reassessment proceedings initiated under sections 147 and 148 on the grounds that they were mechanical, lacked independent application of mind, and were based solely on information from the Investigation Wing. Consequently, the additions of ?38,00,000 under section 68 and ?76,000 as commission were also invalidated. The Tribunal allowed the legal ground raised by the assessee and dismissed the other grounds as moot. The appeal filed by the assessee was partly allowed.