2021 (4) TMI 169 - AT - Income Tax

Reopening of assessment u/s 147 - addition u/s 68 - assessee has received bogus share capital from certain paper/briefcase company without any business activity and that their accounts are being used to rotate the funds for accommodation entries of different types to various beneficiaries - HELD THAT - Reasons recorded by the AO have already been reproduced in the earlier paragraphs which clearly show that the case of the assessee was reopened on the ground that it has invested in the shares G.J. Holding Ltd.,however, the assessment order shows that the Assessing Officer made an addition u/s. 68 of the Act on the ground that the assessee has received bogus share capital/premium from G.J. Holding Ltd. Thus, there is contradiction in the reasons recorded and the assessment made. There is complete non-application of mind by the Assessing Officer while recording the reasons for reopening the assessment. The assessment was basically reopened on the basis of information obtained from the Investigation Wing and without due application of mind by the Assessing Officer and such reopening was on borrowed satisfaction. It has been held in various decisions of Hon'ble High Courts and the Co-ordinate Benches of the Tribunal that reopening of assessment on the basis of borrowed satisfaction and without independent application of mind by the Assessing Officer makes such reassessment a nullity. Since, the Assessing Officer in the instant case, has reopened the assessment on the basis of information obtained from the Investigation Wing that it has invested in the shares of G.J. Holdings Ltd., whereas, in the assessment order, the Assessing Officer has finally concluded that the assessee has received an amount of ₹ 5,40,000/- from G.J. Holding Ltd. in shape of share capital and share premium, therefore, it clearly shows that there is complete non-application of mind by the Assessing Officer while reopening the assessment - Decided in favour of assessee.

Summary

Issues Involved:
1. Validity of reopening the assessment under Section 147 of the Income Tax Act.
2. Legitimacy of the addition of ?5,40,000 under Section 68 of the Income Tax Act.
3. Legitimacy of the addition of ?9,720 for alleged expenditure on obtaining accommodation entry.
4. Whether the returned income declared by the assessee should be restored.

Issue-wise Detailed Analysis:

1. Validity of Reopening the Assessment under Section 147 of the Income Tax Act:

The primary issue was whether the reopening of the assessment by the Assessing Officer (AO) under Section 147 of the Income Tax Act was valid. The AO reopened the assessment based on information from the Investigation Wing, which suggested that the assessee, a company, had invested ?5,40,000 in G.J. Holdings Ltd. However, in the assessment order, the AO concluded that the assessee received ?5,40,000 as share capital/premium from G.J. Holdings Ltd., indicating a contradiction between the reasons recorded for reopening and the actual assessment made. The Tribunal noted that the reopening was based on "borrowed satisfaction" without independent application of mind by the AO, rendering the reassessment proceedings a nullity. The Tribunal quashed the reassessment proceedings, emphasizing that reopening based on non-existent or irrelevant facts is invalid.

2. Legitimacy of the Addition of ?5,40,000 under Section 68 of the Income Tax Act:

The AO made an addition of ?5,40,000 under Section 68, alleging that the assessee received share capital from a "paper/briefcase company" without any business activity. The assessee failed to substantiate the identity and creditworthiness of the investor company and the genuineness of the transaction to the AO's satisfaction. However, the Tribunal found that since the reopening itself was invalid due to non-application of mind and contradiction in the reasons recorded, the addition made under Section 68 also could not stand.

3. Legitimacy of the Addition of ?9,720 for Alleged Expenditure on Obtaining Accommodation Entry:

The AO also made an addition of ?9,720, assuming that the assessee must have incurred expenditure for obtaining the accommodation entry, calculated at 1.8% of the share capital received. The Tribunal did not specifically address this addition separately but implied that since the primary reassessment was quashed, this addition too would not hold.

4. Whether the Returned Income Declared by the Assessee Should be Restored:

The assessee argued for the restoration of the returned income declared in its return of income. Given that the Tribunal quashed the reassessment proceedings, the implication is that the returned income should be restored, as the additions made by the AO were invalidated.

Conclusion:

The Tribunal quashed the reassessment proceedings initiated by the AO, citing non-application of mind and reliance on non-existent facts. Consequently, the additions made under Sections 68 and for alleged expenditure on obtaining accommodation entry were also invalidated. The appeal of the assessee was allowed, and the returned income declared by the assessee was implied to be restored.