2021 (7) TMI 507 - AT - Income Tax

Reopening of assessment u/s 147 - addition u/s 68 - non independent application of mind by AO - borrowed satisfaction - HELD THAT - Reopening was made on the basis of the report of the Investigation Wing and there is no independent application of mind by the AO for the reopening. The Hon ble High Court in a number of cases have held that the reopening on the basis of the report of the Investigation Wing without independent application of mind by the AO is not valid. Accordingly the reassessment proceedings which were based on the report of the Investigation Wing and without independent application of mind by the AO have been held to be illegal. Since the AO in the instant case has reopened the assessment on the basis of report of the Investigation Wing and there appears to be no independent application of mind by the AO for reopening of the case therefore the reassessment proceedings initiated by the AO in the instant case in our opinion is not proper. Decided in favour of assessee.

Summary

Issues involved:
1. Validity of reassessment proceedings under section 147 of the Income Tax Act, 1961.
2. Addition of ?3,05,400 under section 68 by treating a loan as unexplained cash credit.

Issue 1 - Validity of reassessment proceedings:
The case involved a reassessment proceeding initiated under section 147 of the Income Tax Act, 1961 based on information received from the Investigation Wing. The Assessing Officer (AO) reopened the case without independent application of mind, solely relying on the report from the Investigation Wing. The Tribunal noted that several court decisions have held such reopening without independent assessment as invalid. Consequently, the Tribunal deemed the reassessment proceedings as illegal due to lack of proper application of mind by the AO, rendering subsequent proceedings void. As a result, the reassessment proceedings were held to be improper, leading to the allowance of the appeal challenging the validity of the reassessment proceedings.

Issue 2 - Addition under section 68:
The Assessing Officer made an addition of ?3,05,400 to the total income of the assessee, comprising ?3 lakh as an alleged unexplained cash credit from a non-genuine firm and ?5,400 as commission. The assessee contended that the loan was genuine and had been repaid, providing necessary documentation and explanations. The Tribunal acknowledged that the reassessment proceedings were illegal due to lack of independent application of mind. Consequently, the Tribunal did not delve into the merits of the addition of ?3,05,400, as the success on the legal ground of the reassessment proceedings made the challenge to the addition on merit academic. Therefore, the Tribunal allowed the appeal filed by the assessee without adjudicating on the addition made under section 68.

In conclusion, the Tribunal allowed the appeal filed by the assessee, primarily on the grounds of the invalidity of the reassessment proceedings, which subsequently made the challenge to the addition under section 68 redundant. The decision highlighted the importance of independent application of mind by the Assessing Officer in reassessment proceedings, emphasizing the legal requirement for a valid reassessment based on proper satisfaction and reasoning.