2020 (11) TMI 823 - AT - Income Tax

Reopening of assessment u/s 147 - No proper recording of satisfaction by Principal CIT - eligibility of reasons to believe - HELD THAT - It is difficult to make out as to what were the reasons for belief that income has escaped assessment with the AO on the basis of which Principal CIT has accorded sanction by merely writing I am satisfied. From the approval recorded and words used that Yes. I am satisfied. , it is proved on record that the sanction is accorded in mechanical manner and Pr.CIT has not applied independent mind while according sanction as there is not an iota of material on record as to what documents he had perused and what were the reasons for his being satisfied to accord the sanction to initiate the reopening of assessment u/ss 147/148 of the Act. Even the AO has not applied his judicial mind independently while recording the reasons for initiating proceedings u/s 147/148 - Bare perusal of the reasons recorded shows that the entire emphasis is placed on the report of the Investigation Wing, which has otherwise been based upon the statements of Pradeep Kumar Jindal, Shri Subodh Kumar Khandelwal, Ms. Seema Khandelwal Ms. Meera Mishra who have furnished the list of companies stated to be not doing any business but engaged in providing accommodation entries. Before issuing the notice, the AO has not examined the profile of the said companies to arrive at the logical conclusion so as to issue notice u/s 148 Neither any reason has been recorded which is sufficient to believe that income to the tune of ₹ 15,00,000/- received from M/s. Hajima Resorts Ltd. has escaped assessment nor any such notice has been given to the assessee. All these facts goes to prove that the AO has not applied his judicial mind before recording the reasons to believe that such and such income has escaped assessment rather proceeded to initiate the proceedings u/s 147/148 of the Act by blindly following the report of the Investigation Wing. Coordinate Bench of the Tribunal in case cited as ITO, Ward 17 (4), New Delhi vs. M/s. Virat Credit Holdings Pvt. Ltd. 2018 (2) TMI 871 - ITAT DELHI dealt with the identical issue arising out of the search and seizure operation conducted by the Investigation Wing on 18.11.2015 on Pradeep Kumar Jindal Group of companies who were allegedly engaged into providing accommodation entries, quashed the reassessment on the ground that AO has not applied his judicial mind independently and that ld. Principal CIT has accorded mechanical approval by merely writing words that Yes, I am satisfied. without applying his judicial mind. According sanction is not a supervisory role rather it is a quasi-judicial function to be performed by the Principal CIT/CIT, as the case may be, as required u/s 151 of the Act. - Decided in favour of assessee.

Summary

Issues Involved:
1. Validity of initiation, continuation, and conclusion of reassessment proceedings.
2. Assumption of jurisdiction for reassessment proceedings and misapplication of jurisdiction sanction.
3. Reasonableness of the initiation of reassessment proceedings based on non-application of mind and reliance on an investigation report.
4. Addition of ?45,00,000 without providing cross-examination of the person whose statement initiated the proceedings.
5. Addition of ?45,00,000 without proper investigation from the other party.
6. Addition under section 68 amounting to ?45,00,000.
7. Enhancement of addition on account of commission ?45,000 without specific show cause notice.
8. Addition on account of commission paid amounting to ?45,000.

Detailed Analysis:

1. Validity of Initiation, Continuation, and Conclusion of Reassessment Proceedings:
The assessee challenged the initiation, continuation, and conclusion of reassessment proceedings on both factual and legal grounds. The Tribunal found that the approval granted by the Principal Commissioner of Income Tax (Pr.CIT) was mechanical and lacked independent application of mind. The Tribunal cited the Supreme Court's decision in NTPC vs. CIT, emphasizing that legal grounds can be raised at any stage. The Tribunal concluded that the reassessment proceedings were invalid due to the mechanical nature of the approval and lack of independent judicial mind application by the Assessing Officer (AO).

2. Assumption of Jurisdiction for Reassessment Proceedings and Misapplication of Jurisdiction Sanction:
The Tribunal scrutinized the sanction accorded by the Pr.CIT, which merely stated "Yes, I am satisfied" without detailing the reasons for satisfaction. The Tribunal emphasized that the sanction is a quasi-judicial function requiring a detailed examination of the material facts. The Tribunal found that the Pr.CIT failed to apply an independent mind, rendering the assumption of jurisdiction for reassessment invalid.

3. Reasonableness of the Initiation of Reassessment Proceedings:
The initiation of reassessment proceedings was based on information from the Investigation Wing, which relied on statements from individuals associated with Pradeep Kumar Jindal's companies. The Tribunal noted that the AO did not independently verify the information or examine the companies' profiles before initiating the proceedings. The Tribunal concluded that the AO's reliance on the investigation report without independent verification was unreasonable.

4. Addition of ?45,00,000 Without Providing Cross-Examination:
The assessee argued that the addition of ?45,00,000 was made without providing the opportunity to cross-examine the individuals whose statements were used to initiate the proceedings. The Tribunal agreed, citing the principle of natural justice, and found that the addition was made in violation of settled legal principles.

5. Addition of ?45,00,000 Without Proper Investigation:
The Tribunal found that the AO did not conduct a proper investigation from the other parties involved. The AO relied solely on the statements from the investigation report without verifying the transactions' genuineness. The Tribunal held that the lack of proper investigation rendered the addition invalid.

6. Addition Under Section 68 Amounting to ?45,00,000:
The AO added ?45,00,000 under section 68, citing unexplained cash credits. The Tribunal found that the AO did not establish the identity, creditworthiness, and genuineness of the transactions. The Tribunal concluded that the addition under section 68 was not justified due to the lack of proper verification and investigation.

7. Enhancement of Addition on Account of Commission ?45,000 Without Specific Show Cause Notice:
The Tribunal noted that the CIT(A) enhanced the addition by ?45,000 on account of commission without issuing a specific show cause notice to the assessee. The Tribunal held that this enhancement was procedurally incorrect and violated the principles of natural justice.

8. Addition on Account of Commission Paid Amounting to ?45,000:
The Tribunal found that the addition of ?45,000 as commission paid at the rate of 1% of ?45,00,000 was not substantiated with proper evidence. The AO did not provide a specific basis for this addition, leading the Tribunal to conclude that it was unjustified.

Conclusion:
The Tribunal quashed the reassessment proceedings and the additions made by the AO, citing the lack of independent judicial mind application, mechanical approval by the Pr.CIT, and procedural violations. The appeal filed by the assessee was allowed, and the reassessment order was set aside.