2020 (12) TMI 985 - AT - Income Tax

Reopening of assessment u/s 147 - HELD THAT - AO has completely ignored the reassessment order dated 11.3.2015 passed u/s. 148/143(3) of the Act in which he has accepted the cash credit in dispute in the form of share capital from these 5 entities and again reopened the case of the assessee for the same assessment year on the same ground by recording the almost same reasons and made the same addition which is in dispute while completing the assessment in dispute u/s. 147/143(3) of the Act vide order dated 30.12.2017, which is not permissible as per law as well as in view of the aforesaid judgment of ADITYA KHANNA 2017 (12) TMI 64 - DELHI HIGH COURT Considering the documentary evidences filed by the assessee in the shape of paper book and the written submissions alongwith various case law Aditya Khanna, as reproduced above, the addition in dispute is deleted and the appeal filed by the assessee is allowed.

2017 (12) TMI 64 - HC

Issues Involved:
1. Validity of the assessment under sections 147/148 of the Income Tax Act.
2. Legality of reopening the case based on previously considered material.
3. Application of independent mind by the Assessing Officer (AO) in initiating reassessment.
4. Validity of sanction under section 151 of the Income Tax Act.
5. Use of material seized from third parties under sections 147/148 versus section 153C.
6. Addition of ?2,60,00,000 under section 68 as unexplained cash credit.
7. Rejection of evidence by AO without conducting further inquiry.
8. Violation of principles of natural justice.
9. Addition of ?5,20,000 as commission on alleged accommodation entries.

Issue-wise Detailed Analysis:

1. Validity of the assessment under sections 147/148 of the Income Tax Act:
The Tribunal examined whether the assessment was validly reopened under sections 147/148. The Assessee argued that the reopening was invalid as it was based on the same material and reasons previously considered. The Tribunal noted that the initial assessment was completed, and the reassessment was based on information from the SFIO and DDIT regarding money laundering operations. However, the Tribunal found that the same information was used in both the original and subsequent reassessments, rendering the second reopening invalid.

2. Legality of reopening the case based on previously considered material:
The Tribunal emphasized that reopening the assessment on the same set of reasons and material already considered in the original reassessment was not permissible. The Tribunal referred to the judgment in the case of Pr. CIT, Central (1) vs. Aditya Khanna, where it was held that reassessment based on the same material and reasons is invalid. Consequently, the Tribunal found the second reassessment to be without jurisdiction.

3. Application of independent mind by the Assessing Officer (AO) in initiating reassessment:
The Tribunal observed that the AO did not apply an independent mind while initiating the reassessment. The reassessment was based on the same material and reasons as the original assessment, indicating a lack of independent application of mind. The Tribunal concluded that the reassessment proceedings were a result of a change of mind by the successor AO, which is not permissible.

4. Validity of sanction under section 151 of the Income Tax Act:
The Assessee contended that the sanction under section 151 was mechanical and lacked proper application of mind. The Tribunal agreed, noting that the sanctioning authority did not independently verify the material before granting approval for reopening. This mechanical satisfaction rendered the sanction invalid, further invalidating the reassessment proceedings.

5. Use of material seized from third parties under sections 147/148 versus section 153C:
The Tribunal considered the Assessee's argument that the AO should have invoked section 153C, which deals with material seized from third parties, instead of sections 147/148. The Tribunal found merit in this argument, noting that the AO's reliance on material seized from third parties without following the proper procedure under section 153C was improper.

6. Addition of ?2,60,00,000 under section 68 as unexplained cash credit:
The Tribunal examined the addition of ?2,60,00,000 under section 68. The Assessee argued that it had discharged its initial onus by providing requisite documents proving the identity, creditworthiness, and genuineness of the lenders. The Tribunal found that the AO did not conduct further inquiry to disprove the Assessee's evidence. Therefore, the addition under section 68 was deemed unjustified.

7. Rejection of evidence by AO without conducting further inquiry:
The Tribunal noted that the AO rejected the evidence provided by the Assessee without conducting further inquiry. The AO's failure to verify the evidence and conduct a thorough investigation rendered the addition baseless. The Tribunal emphasized that the onus shifted to the revenue after the Assessee discharged its initial burden, which the AO failed to address.

8. Violation of principles of natural justice:
The Tribunal found that the AO violated the principles of natural justice by not confronting the Assessee with the material used to make adverse findings. The AO's reliance on unverified material without giving the Assessee an opportunity to respond was against the principles of natural justice, further invalidating the reassessment proceedings.

9. Addition of ?5,20,000 as commission on alleged accommodation entries:
The Tribunal examined the addition of ?5,20,000 as commission on the alleged accommodation entries. The Assessee argued that this addition was baseless, as it was connected to the main addition of ?2.60 crores, which was already deemed unjustified. The Tribunal agreed, noting that when the main addition is baseless, the consequent addition is also baseless.

Conclusion:
The Tribunal concluded that the reassessment proceedings were invalid due to the use of the same material and reasons previously considered, lack of independent application of mind, mechanical sanction under section 151, improper use of material seized from third parties, and violation of principles of natural justice. Consequently, the additions under sections 68 and 69 were deleted, and the appeal filed by the Assessee was allowed.

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