2021 (1) TMI 79 - AT - Income Tax

Validity of initiation of proceedings u/s.147 - Unexplained investment u/s. 69B - No return of income filed for current AY - Addition based on presumption - HELD THAT - In the reasons has categorically mentioned that no return of income was filed for Assessment Year 2010- 11. It is from the perusal of return of income for Assessment Year 2009-10 and 2011-12, he has drawn a presumption that since authorized share capital has been increased from ₹ 1 lac in Assessment Year 2009-10 to ₹ 30 lac in Assessment Year 2011-12. He has no information or record regarding Assessment Year 2010-11, whether assessee had received any share capital or not or any return of income was filed or not. Even at the time of seeking approval u/s.151, it has been categorically mention that in item no.8 that ITR has not been filed. Based on this recommendation and Assessing Officer s satisfaction, approval has been granted that it is a fit case for issuing notice u/s.148, whereas the fact of the matter is that income tax return for Assessment Year 2010-11 was duly filed in time on 12.08.2010 u/s. 139 (1) and same was available on ITD system which is also evident from the comments of the Assessing Officer filed before the Ld. CIT (A) as incorporated above. Thus, the very premise for reopening was that the assessee has not filed the return of income which has been found to be factually incorrect. Even though there was a tangible material or information coming from the investigation wing, but Assessing Officer on the said material/ information received has to apply his mind after verifying the assessment records and after due application of mind, he has to satisfy himself and reached to reason to believe that income chargeable to tax has escaped assessment. Reasons recorded is based on complete non application of mind by the Assessing Officer, therefore, same are bad in law and does not confer any jurisdiction upon the Assessing Officer to reopen the case u/s.147 - Decided in favour of assessee.

Summary

Issues involved:
Validity of initiation of proceedings u/s.147, Reopening of assessment u/s.147 / 148, Approval u/s. 151, Addition u/s.68 for alleged accommodation entries, Commission expenses on accommodation entries, Unexplained investment u/s. 69 B.

Analysis:

1. Validity of initiation of proceedings u/s.147:
The appeal was filed against the order passed by the Ld. Commissioner of Income Tax (Appeals)-V for the quantum of assessment under section 143(3)/147 for the Assessment Year 2010-11. The Assessing Officer initiated proceedings u/s.147 based on information received during a search operation in the case of a group involved in providing accommodation entries. The reasons recorded by the Assessing Officer indicated a rise in the authorized capital of the assessee company, leading to the issuance of notice u/s.148. However, it was later revealed that the return of income for the relevant year had been filed, contrary to the Assessing Officer's presumption.

2. Reopening of assessment u/s.147 / 148:
The Assessing Officer alleged that the assessee had received accommodation entries from specific parties, leading to unexplained cash credits under section 68. Notional commission expenses were also added to the income. The appellant contended that the initiation of proceedings was based on incorrect facts, as the return of income had been filed within the stipulated time. The Tribunal held that the reasons recorded were based on a lack of application of mind by the Assessing Officer, rendering the proceedings invalid.

3. Approval u/s. 151:
The approval granted for issuing notice u/s.148 was found to be based on incorrect information regarding the filing of the return of income. Despite tangible material from the investigation wing, the Assessing Officer failed to verify the assessment records adequately. The Tribunal emphasized the importance of the Assessing Officer's duty to satisfy himself before assuming jurisdiction based on reasons to believe that income had escaped assessment.

4. Addition u/s.68 for alleged accommodation entries:
The Assessing Officer added the amounts received as accommodation entries from two companies under section 68, along with notional commission expenses and capital expenses. However, the Tribunal found the entire basis for such additions to be flawed due to the incorrect presumption that the return of income had not been filed.

5. Commission expenses on accommodation entries:
The Assessing Officer's addition of commission expenses on the alleged accommodation entries was found to lack merit, as the core reason for initiating proceedings was based on incorrect facts regarding the filing of the return of income.

6. Unexplained investment u/s. 69 B:
The Tribunal did not delve into this issue specifically as the proceedings were quashed based on the invalidity of the initiation of proceedings u/s.147. Consequently, other grounds raised by the assessee were deemed infructuous.

In conclusion, the Tribunal allowed the appeal, quashing the proceedings u/s.147 due to the lack of application of mind by the Assessing Officer and the invalid basis for reopening the assessment.