2020 (1) TMI 728 - AT - Income Tax

Reopening of assessment u/s 147 - reason to believe that the income of the assessee has escaped assessment - Bogus accommodation entries - HELD THAT - The reason to believe does not spell out any connection of assessee s with M/s. Avenue Dealers and what wrongful conduct of assessee has been detected by the Investigation Wing or FMC is discerned from the reasons recorded. Moreover, note from the said reasons recorded by AO that no where it is stated as to how the assessee got profit which he has derived from the commodity trading with M/s. Avenue Dealers Pvt. Ltd. and what is the connection of assessee with its director Shri Devesh Upadhyay. Though it was stated that Shri Devesh Upadhyay s statement was recorded there is no whisper as to whether the assessee has been named by Shri Devesh Upadhyay to be a beneficiary. The reasons recorded has not provided the details of the transaction alleged to be bogus such as nature of the commodity, dates and about the contracts as well as the number of contractee the assessee have entered into for taking the alleged bogus entries. The details of the bank transactions also are found absent. The reasons recorded by the AO is totally silent with regard to the amount and nature of bogus entries and transactions and the persons with whom the transactions had taken place. Requirement under the law has not been made in the reasons recorded in the instant case to reopen the assessment and, therefore, the reopening and consequent reassessment is not valid in the eyes of law and, therefore, all the consequent proceedings are null in the eyes of law. No adverse view could have been taken against the assessee. The allegation of attributing illegal conspiracy/activities etc. is hurled without any basis and therefore, on merits as well as on the legal issue the assessee succeeds and, therefore, since the assessee succeeds in respect of the legal issues itself, since the AO did not satisfy the condition precedent for assuming jurisdiction to reopen the assessment, the notice issued u/s. 148 itself is null in the eyes of law and, therefore, all the subsequent proceedings are null in the eyes of law and therefore, the reassessment order is quashed and resultantly all the three appeals of assessee are allowed.

Summary

Issues Involved:

1. Validity of the reopening of assessment under Section 147 of the Income-tax Act, 1961.
2. Whether there was actual escapement of income.
3. The legitimacy of the assessment based on statements recorded during the survey.
4. Classification of income from commodity transactions.
5. Assessment based on third-party statements and ignoring evidence provided by the assessee.

Issue-wise Detailed Analysis:

1. Validity of the Reopening of Assessment under Section 147 of the Income-tax Act, 1961:

The Tribunal examined whether the Assessing Officer (AO) had the "reason to believe" that the income of the assessee had escaped assessment, which is a jurisdictional condition precedent for reopening under Section 147. The AO must have a rational connection between the material and the belief of income escapement. The Tribunal noted that the information received by the AO from the DDIT (Inv.) and the Forward Market Commission (FMC) was general and did not specifically pertain to the assessee. The reasons recorded by the AO were vague and generalized, lacking specific details about the assessee's alleged wrongdoings. The Tribunal concluded that the AO's reasons were based on suspicion and conjecture without a direct nexus to the assessee's actions, making the reopening invalid.

2. Whether There Was Actual Escapement of Income:

The Tribunal emphasized that the reasons for reopening should indicate an income escaping assessment, not merely the need for inquiry. The AO's reasons must point to an actual income escapement rather than a suspicion. In this case, the AO's reasons were found to be insufficient as they did not provide specific details or evidence of the assessee's involvement in bogus transactions. The Tribunal highlighted that the AO's reasons failed to establish a cause-and-effect relationship between the information received and the alleged income escapement.

3. Legitimacy of the Assessment Based on Statements Recorded During the Survey:

The Tribunal noted that the AO relied on statements recorded during the survey, which have no evidentiary value as per the Supreme Court's ruling in CIT Vs. S. Kader Khan & Son. The AO's conclusions were based on these statements without independent verification or corroboration. The Tribunal found that the AO's reliance on such statements was unjustified and could not form the basis for a valid assessment.

4. Classification of Income from Commodity Transactions:

The Tribunal observed that the AO changed the classification of income from commodity transactions from "other income" to a different head without adequate justification. The Tribunal referred to the Bombay High Court's ruling in Bonanja Commodities Brokers Pvt. Ltd. Vs. Mrs. Roshanara Bhinder, which held that transactions without margin money cannot be considered illegal. The Tribunal found that the AO's reclassification lacked a proper basis and was not supported by evidence.

5. Assessment Based on Third-Party Statements and Ignoring Evidence Provided by the Assessee:

The Tribunal noted that the AO ignored the evidence provided by the assessee and relied on third-party statements, which were not substantiated. The Tribunal emphasized that the AO's conclusions were based on generalized information and unverified statements, making the assessment unjustified. The Tribunal also highlighted that the AO did not dispose of the assessee's objections to the reopening by passing a speaking order, as required by the Supreme Court in GKN Driveshaft India Ltd. Vs. ITO.

Conclusion:

The Tribunal concluded that the AO did not satisfy the jurisdictional conditions for reopening the assessment under Section 147. The reasons recorded by the AO were vague, generalized, and lacked specific details about the assessee's alleged wrongdoings. The reliance on statements recorded during the survey and third-party statements without independent verification was unjustified. The reclassification of income from commodity transactions was also found to be without proper basis. Consequently, the Tribunal quashed the reassessment order and allowed all the appeals of the assessee.