2021 (3) TMI 833 - AT - Income Tax

Reopening of assessment u/s 147 - Addition u/s 68 - unexplained share capital received - HELD THAT - AO in the assessment order has specifically mentioned that the return of income filed originally u/s 139(1) shows assessee has received share capital of ₹ 50 lakhs and unsecured loans of ₹ 2.10 crores in assessment year under appeal. Thus, there was no reason for the AO to mention in the reasons recorded for reopening of the assessment that there is an escapement of income on account of failure on the part of the assessee to disclose truly and fully all material facts necessary for assessment. The above facts on record clearly show that during the course of search no specific material or evidence was found against the assessee for receiving any accommodation entry from S.K. Jain group of cases. AO did not refer to any material found during the course of search against the assessee in the reasons recorded for reopening of the assessment. AO believed the information received from Investigation Wing that assessee has received accommodation entry but all the annexure seized during the course of search from S.K. Jain group of cases as discussed above did not implicate the assessee of receiving any accommodation entry. No material was found during the course of search as to how Sh. S.K. Jain group was controlling the investor companies or the companies provided loan to the assessee. Such fact is also not corroborated by any evidence or material, if found during the course of search. Thus, the AO recorded incorrect and wrong facts in the reasons recorded for reopening of the assessment. AO independently did not apply his mind to the information received from Investigation Wing and merely believed the same to be correct for the purpose of reopening of the assessment despite no specific material was found during the course of search against the assessee company. Whatever material was recovered during the course of search or any statement recorded during search in the case of S.K. Jain group of cases, such material was never supplied to assessee or confronted or given any right of cross examination to the assessee. Such material cannot be used against the assessee. AO has mentioned wrong and incorrect facts in the reasons recorded for reopening of the assessment and did not apply his mind to the information received from Investigation Wing. Thus, the reopening of the assessment is invalid and bad in law and is liable to be quashed. The decisions relied upon by Ld. Counsel for assessee support our findings. In this view of the matter, we set aside the orders of the authorities below and quash the reopening of the assessment. Appeal of assessee is allowed

Summary

Issues Involved:
1. Validity of reassessment proceedings under Section 147 of the Income Tax Act.
2. Addition of ?2,15,84,086/- under Section 68 as unexplained cash credit.
3. Addition of ?90,000/- on account of commission paid to brokers.

Issue-wise Detailed Analysis:

1. Validity of Reassessment Proceedings under Section 147:
The assessee challenged the initiation of reassessment proceedings under Section 147 of the Income Tax Act. The Assessing Officer (AO) initiated the reassessment based on information received from the Directorate of Income Tax (Investigation) regarding accommodation entries provided by the S.K. Jain group. The AO recorded reasons for reopening, stating that the assessee had introduced its own money by taking bogus accommodation entries. The assessee argued that the AO did not independently apply his mind to the information received and relied solely on the conclusions drawn by the Investigation Wing. The AO failed to discuss how the belief of accommodation entry was reached without any evidence or material on record. The Tribunal found that the AO recorded incorrect and wrong facts in the reasons for reopening and did not apply his mind independently. Therefore, the reopening of the assessment was held to be invalid and bad in law.

2. Addition of ?2,15,84,086/- under Section 68 as Unexplained Cash Credit:
The AO made an addition of ?2,15,84,086/- under Section 68, treating the share application money of ?50 lakhs and unsecured loans of ?1,65,84,086/- as unexplained cash credit. The assessee provided evidence, including ITR, bank statements, and balance sheets of the investors, to show that the share capital money was genuine. However, the AO did not accept the contention and made the addition based on the seized documents indicating that the Jain Brothers received ?50 lakhs in cash from the intermediary for providing accommodation entries. The Tribunal, after quashing the reopening of the assessment, did not delve into the merits of the addition, considering it an academic discussion.

3. Addition of ?90,000/- on Account of Commission Paid to Brokers:
The AO made an addition of ?90,000/- on account of commission paid for procuring accommodation entries. The assessee challenged this addition, arguing that the AO did not provide any material evidence to support the claim. The Tribunal, having quashed the reopening of the assessment, did not address the merits of this addition separately.

Conclusion:
The Tribunal quashed the reassessment proceedings initiated under Section 147, holding them invalid and bad in law due to the AO's failure to independently apply his mind and recording incorrect facts. Consequently, all additions made by the AO, including the addition of ?2,15,84,086/- under Section 68 and ?90,000/- on account of commission, were deleted. The appeal of the assessee was allowed.