2020 (2) TMI 1267 - AT - Income Tax

Reopening of assessment u/s 147 - Addition u/s 68 - HELD THAT - 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 by the Hon ble Delhi High Court in the case of CIT vs SFIL Stock Broking Ltd. 2010 (4) TMI 102 - DELHI HIGH COURT wherein it was observed that reassessment proceedings were initiated on the basis of information received from investigation wing regarding alleged accommodation entries and it has been held by jurisdictional Delhi High Court 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. The reasons recorded are therefore vague, highly non specific and reflect complete non-application of mind. It is also noted that there is no live link or direct nexus between alleged material and, inference. It is further noted that initiation of proceedings is also based on non application of mind much less independent application of mind but is a case of borrowed satisfaction. Nothing is independently examined or considered by the AO which can demonstrate non-application of mind by him. There is nothing to show that the cash is paid from coffers of the assessee. Reasons do not indicate as to who AO reached to the conclusion that the assessee received accommodation entry and escaped assessment. Proceedings initiated by invoking the provisions of section 147 of the Act by the AO and upheld by the Ld. CIT(A) are nonest in law and without jurisdiction, hence, the assessment is quashed and ground no. 1 is allowed.

Summary

Issues Involved:
1. Validity of Re-opening of Assessment.
2. Addition of ?10,00,000 under Section 68 of the Income Tax Act, 1961.
3. Addition of ?20,000 as Unexplained Expenditure.
4. Use of Adverse Material without Providing Copy for Rebuttal.

Issue-wise Detailed Analysis:

1. Validity of Re-opening of Assessment:
The primary issue was whether the re-opening of the assessment was valid under the law. The assessee argued that the reassessment was without jurisdiction and did not comply with the mandatory provisions of sections 147/148 of the Income Tax Act. It was contended that the reasons recorded for reassessment were bald, lacked a prima facie view, and did not demonstrate the Assessing Officer's (AO) application of mind. The AO’s action was based solely on information from the Investigation Wing, without any independent inquiry or tangible material linking the assessee to the alleged accommodation entry. The Tribunal found that the AO acted mechanically and without independent application of mind, making the proceedings without jurisdiction. The Tribunal quashed the reassessment, citing precedents such as ACIT vs. Dhariya Construction Co. and Pr. CIT vs. RMG Polyvinyls (I) Ltd., which emphasized the necessity of independent application of mind by the AO.

2. Addition of ?10,00,000 under Section 68:
The assessee challenged the addition of ?10,00,000 under Section 68 of the Income Tax Act, which was made by the AO on account of unexplained cash credit. However, since the Tribunal quashed the reassessment proceedings on the grounds of invalid jurisdiction, this addition was rendered moot and was not specifically addressed further in the judgment.

3. Addition of ?20,000 as Unexplained Expenditure:
The AO also made an addition of ?20,000 as unexplained expenditure, which was confirmed by the Commissioner of Income Tax (Appeals) [CIT(A)]. Similar to the issue of ?10,00,000 addition, this issue also became irrelevant due to the quashing of the reassessment proceedings.

4. Use of Adverse Material without Providing Copy for Rebuttal:
The assessee contended that the AO used adverse material gathered at the back and behind the appellant without providing a copy for rebuttal. The Tribunal’s decision to quash the reassessment on jurisdictional grounds implicitly addressed this issue, as the entire reassessment process was deemed invalid.

Conclusion:
The Tribunal concluded that the reassessment proceedings initiated by the AO were without jurisdiction due to a lack of independent application of mind and reliance solely on information from the Investigation Wing. Consequently, the reassessment was quashed, and the appeal was partly allowed. The other grounds raised by the assessee were dismissed as they were not argued further. The Tribunal’s order emphasized adherence to the principles of independent inquiry and application of mind in reassessment proceedings.