2021 (3) TMI 881 - AT - Income Tax

Reopening of assessment u/s 147 - addition u/s 68 - validity of reason to believe - approval under section 151 given by CIT - HELD THAT - A.O. has recorded wrong, incorrect and non-existing reasons while reopening of the assessment and was not having any tangible material with him to form a belief that income chargeable to tax has escaped assessment. There is no live link established between the so-called material or the escapement of income so as to validly initiate reassessment proceedings against the assessee. Thus, there is a total non-application of mind on the part of the A.O. to refer the reasons for reopening of assessment. Thus, such reopening of the assessment is invalid and bad in Law and is liable to be quashed. We, accordingly, set aside the orders of the authorities below and quash the reopening of assessment in the matter. Resultantly, all additions stands deleted. A.O. after recording the reasons for reopening of the assessment has referred the matter to the Addl. CIT for approval of the Pr. CIT under section 151 - Addl. CIT has referred the matter to Pr. CIT who has approved the reopening of the assessment in which the Pr. CIT has mentioned approved as per proforma . However, no such proforma is also placed on record. It would show that the Pr. CIT has not gone into the assessment record of the assessee or the return of income before approving the reasons recorded for reopening of assessment because the assessee has already disclosed ₹ 95 lacs received from the Investor company in 04 transactions in assessment year under appeal, but, the A.O. in the reasons recorded has mentioned that assessee has received an amount of ₹ 50 lacs only in 02 transactions from the Investor Company. Pr. CIT merely approved the reasons without saying anything. Pr.CIT has recorded his satisfaction for reopening of the assessment in a most mechanical manner without considering even the assessment records or the return of income filed by assessee and his satisfaction appears to be in a ritualistic and formal rather than meaningful. Therefore, such approval under section 151 of the I.T. Act, 1961, is totally without application of mind and as such the satisfaction cannot be said to be valid in the eyes of Law. The reassessment order, thus, passed is also invalid and bad in Law - Decided in favour of assessee.

Issues Involved:
1. Reopening of the assessment under section 147/148 of the Income Tax Act, 1961.
2. Addition of ?95 lakhs as share application money under section 68 of the Income Tax Act, 1961.
3. Addition of ?1,90,000/- on account of commission paid.

Issue-wise Detailed Analysis:

1. Reopening of the Assessment under Section 147/148 of the Income Tax Act, 1961:

The Assessee challenged the reopening of the assessment on the grounds that the reasons recorded for reopening were based on incorrect and non-existing facts. The Assessing Officer (A.O.) received information from CIT, Central-2, Delhi, stating that Shri Aseem Kumar Gupta provided accommodation entries to several beneficiaries. The A.O. believed that the Assessee received ?50 lakhs as accommodation entry from Moderate Credit Corp Ltd., controlled by Shri Aseem Kumar Gupta. However, the A.O. noted that the Assessee received ?95 lakhs from the Investor company, which was disclosed in the return of income. The A.O. recorded incorrect facts in the reasons for reopening, as the amount of ?95 lakhs was already disclosed by the Assessee.

The Assessee argued that there was non-application of mind by the A.O. and that the approval granted by the Pr. CIT under section 151 was mechanical and invalid. The Tribunal found that the A.O. recorded incorrect and wrong facts in the reasons for reopening and that there was no tangible material to form a belief that income chargeable to tax had escaped assessment. The Tribunal concluded that the reopening of the assessment was invalid and bad in law due to the total non-application of mind by the A.O. and the mechanical approval by the Pr. CIT.

2. Addition of ?95 Lakhs as Share Application Money under Section 68 of the Income Tax Act, 1961:

The A.O. made an addition of ?95 lakhs under section 68, treating the share application money received from Moderate Credit Corp Ltd. as unexplained. The Assessee contended that the Investor company was a Non-Banking Finance Company (NBFC) registered with the Reserve Bank of India and provided all necessary documentary evidence, including the balance sheet, income tax return, confirmation, share application form, memorandum of association, bank statements, master data, and PAN details of the Investor company. The A.O. did not summon the Director of the Investor company for verification.

The Tribunal observed that the Assessee disclosed all primary facts in the return of income, and there was no non-disclosure of material facts. The Tribunal found that the A.O. did not have any tangible material to establish that the Investor company was controlled by Shri Aseem Kumar Gupta. The Tribunal concluded that the addition of ?95 lakhs was not justified as the Assessee provided sufficient evidence to substantiate the genuineness of the transaction.

3. Addition of ?1,90,000/- on Account of Commission Paid:

The A.O. made an addition of ?1,90,000/- on account of commission paid for arranging the accommodation entry. The Assessee argued that the A.O. did not have any tangible material to substantiate the claim of commission paid. The Tribunal found that the A.O. did not provide any evidence to support the addition of ?1,90,000/- and concluded that the addition was not justified.

Conclusion:

The Tribunal quashed the reopening of the assessment, holding it invalid and bad in law due to the non-application of mind by the A.O. and the mechanical approval by the Pr. CIT. Consequently, all additions made by the A.O., including ?95 lakhs as share application money and ?1,90,000/- on account of commission paid, were deleted. The Tribunal emphasized the importance of proper application of mind and tangible material in initiating reassessment proceedings.

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