2021 (2) TMI 709 - AT - Income Tax

Reopening of assessment u/s 147 - invalid notice - incorrect reasons are recorded and there was non-application of the mind on the part of the Approving Authority while giving sanction under section 151 - HELD THAT - We are of the view that the issue is covered by the Order of ITAT, Delhi G-Bench, Delhi in the case of VRC Township Pvt. Ltd., Delhi 2020 (10) TMI 1223 - ITAT DELHI in which reopening of the assessment in identical circumstances was held to be bad in law and sanction accorded by the Sanctioning Authority was also found invalid, therefore, reopening of the assessment was quashed. In the present case, the Learned Counsel for the Assessee has pointed-out that assessee has raised this issue before the Ld. CIT(A), but, he has rejected the submissions of the assessee holding that Section 147(b) as mentioned in the reason and Format is a typographical human error which is curable under section 292B of the I.T. Act, 1961. This issue is also considered in the Order of VRC Township Pvt. Ltd., (supra) following the decision of Hon ble Bombay High Court in the case of Kalpana Shantilal Haria 2018 (1) TMI 195 - BOMBAY HIGH COURT . Following the same reasons for decision, we set aside the Orders of the authorities below and quash the reopening of the assessment in both the assessment years under appeals. All additions stand deleted. Accordingly, appeals of the Assessee are allowed.

Issues Involved:
1. Initiation of re-assessment proceedings under section 147/148 of the I.T. Act, 1961.
2. Validity of sanction granted under section 151 of the I.T. Act, 1961.
3. Addition of ?10 lakh each under section 68 of the I.T. Act, 1961.
4. Addition of ?18 lakhs each on account of Commission.

Detailed Analysis:

1. Initiation of Re-assessment Proceedings under Section 147/148 of the I.T. Act, 1961:
The assessee challenged the re-assessment proceedings initiated by the A.O. based on information received from the Investigation Wing about accommodation entries. The Tribunal noted that the A.O. mentioned Section 147(b), which does not exist in the statute, indicating non-application of mind. The Tribunal cited the case of VRC Township Pvt. Ltd., where similar errors led to quashing of the re-assessment.

2. Validity of Sanction Granted under Section 151 of the I.T. Act, 1961:
The Tribunal found that the Additional CIT granted sanction in a mechanical manner without pointing out errors in the reasons recorded by the A.O. The Tribunal emphasized that sanction must be given with due application of mind, referencing the Hon’ble Bombay High Court's decision in Kalpana Shantilal Haria vs. ACIT, which held that mechanical approval without examining the proposal is invalid. The Tribunal also referenced the ITAT Delhi G-Bench’s decision in Shree Balkishan Agarwal Glass Industries Ltd., which quashed re-assessment due to mechanical approval.

3. Addition of ?10 Lakh Each under Section 68 of the I.T. Act, 1961:
The A.O. made additions based on the information that the assessee received ?10 lakh each as accommodation entries. However, the Tribunal found that the reasons recorded for reopening were based on incorrect facts and non-application of mind. The Tribunal cited several cases, including the Hon’ble Delhi High Court's decision in PCIT vs. Meenakshi Overseas (P) Ltd., which held that reasons must demonstrate a link between tangible material and the formation of belief that income escaped assessment. The Tribunal concluded that the A.O.'s reasons were not valid and quashed the additions.

4. Addition of ?18 Lakhs Each on Account of Commission:
The A.O. added ?18,000/- on account of unexplained expenditure to obtain accommodation entries. The Tribunal, however, found that the re-assessment proceedings were invalid due to the reasons mentioned above. Consequently, all additions, including those on account of commission, were deleted.

Conclusion:
The Tribunal quashed the re-assessment proceedings for both assessment years, holding that the initiation of re-assessment and the sanction granted were invalid due to non-application of mind and reliance on incorrect facts. All additions made by the A.O. were deleted, and the appeals of the assessee were allowed.

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