2021 (1) TMI 949 - AT - Income Tax

Reopening of assessment u/s 147 - borrowed satisfaction - non independent application of mind by AO - argued approval granted u/s. 151 for issuance of notice u/s. 148 of the Act by the JCIT, Range-24, New Delhi was a mechanical approval, hence, initiation of proceedings u/s. 147 of the Act on this ground is also invalid - accommodation entries received - HELD THAT - Reasons to believe recorded by the AO are mechanically based on borrowed satisfaction of Investigation Wing even does not disclose the nature of alleged accommodation entries whether loan, share application, share capital etc. The entire reasons to believe recorded by the AO is reproduction of conclusions drawn by the Investigation Wing. It is settled law that reopening of assessment based on the opinion and information wherein the AO has not investigated/enquired the matter independently, then the Department was not entitled to reopen the assessment. It is noted that AO has not investigated the matter himself and has not made any enquiry to corroborate the Information of the Investigation Wing on which basis the case of the assessee has been reopened, meaning thereby the AO has not applied his mind and only issued notice u/s. 148 of the Act. Thus, the AO has acted mechanically and without any independent application of mind. It is further noted that initiation of proceedings is 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 application of mind by him. Even otherwise, we find that Ld. Joint CIT, Range-24, New Delhi has granted the approval in a mechanical manner by mentioning only Yes, I am satisfied that this is a fit case for issue of notice u/s. 148 of the I.T. Act. which is not valid for initiating the reassessment proceedings. Thereafter, the AO has mechanically issued notice u/s. 148 - Even otherwise, we find that Ld. Joint CIT, Range-24, New Delhi has granted the approval in a mechanical manner by mentioning only Yes, I am satisfied that this is a fit case for issue of notice u/s. 148 of the I.T. Act. which is not valid for initiating the reassessment proceedings. Thereafter, the AO has mechanically issued notice u/s. 148 - Decided in favour of assessee.

Summary

Issues Involved:
1. Validity of reopening the assessment under Section 147 of the Income Tax Act, 1961.
2. Application of mind by the Assessing Officer (AO) in recording reasons for reopening.
3. Mechanical approval under Section 151 for issuance of notice under Section 148.
4. Validity of the addition made under Section 68 of the Act.

Detailed Analysis:

1. Validity of Reopening the Assessment under Section 147:
The reopening of the assessment was challenged on the grounds that the AO did not apply his mind independently and relied solely on the information provided by the Investigation Wing. The Tribunal observed that the reasons to believe recorded by the AO were mechanical and based on borrowed satisfaction from the Investigation Wing. The AO did not independently verify the material or information before recording the reasons for reopening. The Tribunal cited several case laws, including ACIT vs. Dhariya Construction Co. (2010) 328 ITR 515 (SC) and PCIT vs. G & G Pharma India Ltd. (2016) 384 ITR 147 (Delhi), to support its view that reopening based on borrowed satisfaction is invalid.

2. Application of Mind by the AO:
The Tribunal noted that the AO failed to apply his mind independently to the material provided by the Investigation Wing. The reasons recorded for reopening did not disclose the nature of the alleged accommodation entries and were merely a reproduction of the conclusions drawn by the Investigation Wing. The Tribunal emphasized that it is a prerequisite for the AO to apply his mind to the material/statement supplied by the Investigation Wing. The Tribunal relied on the decision in Pr CIT v. RMG Plyvinyl (I) Ltd. (2017) 83 taxmann.com 348 (Delhi), which held that the AO must independently verify the information before forming a belief that income has escaped assessment.

3. Mechanical Approval under Section 151:
The Tribunal found that the approval granted by the Joint Commissioner of Income Tax (JCIT) under Section 151 was mechanical. The JCIT merely stated, "Yes, I am satisfied that this is a fit case for issue of notice u/s. 148 of the I.T. Act," without any detailed reasoning or application of mind. The Tribunal cited the decision in CIT vs. S. Goyanka Lime & Chemical Ltd. (2015) 64 taxmann.com 313 (SC), where the Supreme Court held that mechanical approval without application of mind renders the reopening invalid.

4. Validity of the Addition under Section 68:
The AO added ?1.30 crores to the assessee's income under Section 68, treating it as unexplained cash credit, and also added ?2,34,000 as commission paid for obtaining accommodation entries. The Tribunal, having found the reopening invalid, did not delve into the merits of the addition under Section 68. The Tribunal quashed the reassessment proceedings and deleted the addition, emphasizing that the entire process of reopening was flawed due to lack of independent application of mind and mechanical approval.

Conclusion:
The Tribunal allowed the appeal filed by the assessee, quashing the reassessment proceedings and deleting the addition made under Section 68. The decision was based on the finding that the reopening of the assessment was invalid due to the AO's failure to apply his mind independently and the mechanical approval granted under Section 151. The Tribunal's decision was announced on 14th January, 2021.