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2021 (5) TMI 342 - AT - Income TaxReopening of assessment u/s 147 - borrowed satisfaction v/s independent application of mind - addition u/s 68 - assessee has failed to discharge the onus of establishing the genuineness of the transaction of investment made by M/s. Real Time Consultants - HELD THAT - Though the AO had issued notice u/s. 148 of the Act after obtaining sanction from the concerned authority, yet it is apparent that the AO has issued notice u/s 148 of the Act on the basis of the information received from the department. AO has not pointed out as to how the investment in question is the unexplained income of the assessee. Action taken under section 147 on the basis of borrowed satisfaction is bad in law. Since the material for forming belief in the present case are similar to the material available in the aforesaid cases, and the coordinate Benches have decided the identical issue in favour of the assessee, we find merit in the contention of the Ld. Counsel that the AO has initiated proceedings u/s. 147 read with section 148 of the Act on the basis of information received from the department without application of his mind. In our considered view, the assessee's case is covered by the decisions rendered by the coordinate Bench in the case of M/s. century Fiscal Services Ltd. Vs. ITO 2020 (11) TMI 766 - ITAT CHANDIGARH and M/s. Indo Global Techno Trade Limited vs. ITO 2020 (6) TMI 375 - ITAT CHANDIGARH Hence we hold that the AO has assumed the jurisdiction under section 147 of the Act in a mechanical manner, therefore the order passed by the AO is liable to be quashed. Allow the appeal of the assessee.
Issues Involved:
1. Validity of the reopening of assessment under Section 147 read with Section 148 of the Income Tax Act, 1961. 2. Legitimacy of the addition of ?20,00,000 under Section 68 of the Income Tax Act, 1961. Detailed Analysis: 1. Validity of the Reopening of Assessment under Section 147 read with Section 148 of the Income Tax Act, 1961: The assessee challenged the reopening of the assessment on the grounds that the Assessing Officer (AO) did not independently apply his mind and issued the notice under Section 148 based on information received from the Income Tax Officer (ITO), Ward-15(3), Mumbai. The AO received information regarding a seizure action in the case of M/s. Varah Infra Group, which indicated that M/s. Real Time Consultants Pvt. Ltd., a company managed by Jagdish Prasad Purohit, made an investment of ?20 lacs in the assessee company. The AO issued notice under Section 148 after obtaining sanction from the Principal Commissioner of Income Tax under Section 151. The assessee's counsel argued that the AO formed his belief solely on the information received without applying his mind, making the satisfaction recorded a "borrowed satisfaction." The counsel referred to decisions of the Chandigarh Bench of the Tribunal in similar cases, where reassessment proceedings initiated based on borrowed satisfaction were quashed. The Tribunal examined the reasons recorded by the AO, which indicated that the AO relied on the information received from the department without verifying the facts independently. The Tribunal cited the case of M/s. Century Fiscal Services Ltd. vs. ITO, where it was held that the AO must independently satisfy himself and form a belief of escapement of income, rather than merely relying on information from the investigation department. The Tribunal also referred to the case of Indo Global Techno Trade Ltd. vs. ITO, where it was held that the AO's assumption of jurisdiction based on non-specific routine information without independent consideration was wrong. The Tribunal concluded that the AO initiated proceedings under Section 147 read with Section 148 based on borrowed satisfaction without applying his mind, making the reassessment proceedings invalid. Therefore, the order passed by the AO was quashed. 2. Legitimacy of the Addition of ?20,00,000 under Section 68 of the Income Tax Act, 1961: The AO made an addition of ?20 lacs under Section 68, holding that the assessee failed to discharge the onus of establishing the genuineness of the transaction of investment made by M/s. Real Time Consultants Pvt. Ltd. The assessee challenged this addition before the Commissioner of Income Tax (Appeals) [CIT(A)], who confirmed the addition. The assessee's counsel argued that the CIT(A) violated the provisions of law by not setting aside the assessment order, as the case was reopened based on a search conducted in the case of M/s. Varah Infra Group. According to the counsel, the assessment should have been completed under Section 153C of the Act, not under Section 143(3) read with Section 147. The Departmental Representative (DR) contended that the AO passed the assessment order as per the provisions of law after due application of mind and that the documents seized during the seizure action did not pertain to the assessee. Since the Tribunal quashed the reassessment proceedings on the grounds of invalid initiation under Section 147, the issue of the addition under Section 68 became academic. Therefore, the Tribunal did not deem it necessary to adjudicate on the merits of the addition. Conclusion: The appeal of the assessee was allowed, and the reassessment proceedings initiated by the AO were quashed due to the invalid initiation of proceedings under Section 147 based on borrowed satisfaction. The alternative plea regarding the action under Section 153C was rendered academic and was not adjudicated.
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