2021 (8) TMI 1023 - AT - Income Tax

Validity of the reassessment order u/s 147 which was sought to be revised by the impugned order u/s 263 - validity of re-assessment proceedings cannot be judged or challenged in revisionary proceeding - main contentions raised by the ld. CIT-DR was that once the assessee has accepted the re-assessment order and has not challenged the validity of reopening u/s.147, then assessee is precluded from agitating this issue especially in the proceedings u/s.263 on the ground that assessment order itself is bad in law - HELD THAT - The present proceedings being collateral proceedings and if the assessment order is inherently invalid or bad in law, then validity of such an order can be challenged at any stage in the collateral proceedings including the proceedings u/s.263, because invalid order cannot be set aside or can be revised to make it valid. Though assessment order may be said to be erroneous but certainly it cannot be held prejudicial to the interest of the revenue in such circumstances when assessment order itself is unsustainable. The reasons recorded by the AO are totally vague, scanty and ambiguous. The reasons recorded by the AO do not disclose the AO's mind as to what was the nature and amount of transaction or entries, which had been given or taken by the assessee in the relevant year. The reasons recorded by the AO also do not disclose his mind as to when and in what mode or way the bogus entries or transactions were given or taken by the assessee. From the reasons recorded, nobody can know what was the amount and nature of bogus entries or transactions given and taken by the assessee in the relevant year and with whom the transaction had taken place. There is no live nexus with the information received and the formation of belief by the Ld. AO. At least the reason which is the foundation and edifice for acquiring jurisdiction to reopen the assessment, at least should prima facie indicate that there is live link nexus with the material coming on record with the income escaping assessment. The material should not be specific but also should indicate what is the amount which is escaping assessment. As held above, nowhere the reasons refer what was the nature of accommodation entry, the quantum of the amount of entry which has escaped assessment. In fact the reason is purely based on general observation and the modus operandi without any live link nexus with the assessee. Thus it is well settled that only the reasons recorded by the AO for initiating proceedings u/s 147 of the Act are to be looked at or examined for sustaining or setting aside a notice issued u/s 148 of the Act. The reasons are required to be read as they were recorded by the AO. No substitution or deletion is permissible. No addition can be made to those reasons. Therefore, the details of entries or amount mentioned in the assessment order and in respect of which ultimate addition has been made by the AO, cannot be made a basis to say that the reasons recorded by the AO were with reference to those amounts mentioned in the assessment order. Thus since the reassessment order itself is bad in law, therefore, the same cannot be revised under section 263 of the I.T. Act. Only valid re-assessment order can be revised under section 263 - Decided in favour of assessee. Reopening of assessment - addition of bogus accommodation entry - HELD THAT - As reasons recorded at least mention what is the nature of accommodation entry and which is the entity from which assessee has received the amount. Whether the entry has been received towards share application money or loan or gift, etc. These reasons are purely vague and show there is a non application of mind on the information which was received and the reason recorded by the AO - he has not even mentioned as to what was the nature of entry as given in the report and simply saying that assessee received entry to the tune of ₹ 20,50,000/- from entry operators during the period is not sufficient. Such a vague reasons cannot justify the reopening and as observed above, the Assessing Officer can validly acquire jurisdiction only when the reasons recorded itself points out or speaks of live link nexus with the material available on record and income escaping assessment and it should not be vague or mere pretence - he should have at least perused the report and examine what is the material pertaining to assessee and what is the nature of entry and whether it is matching with records of the assessee. He should have prima facie seen what is the nature of bogus entry and from which entity assessee has received. Such vague and general observation made by the Assessing Officer in the reasons recorded does not confer any jurisdiction to him reopen the case - Decided in favour of assessee.

Issues Involved:
1. Validity of Reassessment Proceedings under Section 147/148.
2. Jurisdiction of Principal Commissioner of Income Tax (PCIT) under Section 263.
3. Examination of Seized Material and Independent Inquiry by Assessing Officer (AO).
4. Admission of Additional Grounds of Appeal.
5. Application of Mind by AO in Recording Reasons for Reopening Assessment.

Detailed Analysis:

1. Validity of Reassessment Proceedings under Section 147/148:
The reassessment proceedings were initiated based on information from the Investigation Wing regarding accommodation entries received by the assessee. The AO issued notices under Section 148 after recording reasons and obtaining approval from competent authorities. The reasons for reopening were based on vague and generalized information without specific details of the transactions, such as the names of parties, dates, and nature of the transactions. The Tribunal found that the reasons recorded by the AO were vague, lacked tangible material, and did not establish a live link between the information and the belief that income had escaped assessment. Citing various judicial precedents, the Tribunal held that such vague reasons could not justify reopening the assessment, rendering the reassessment proceedings invalid.

2. Jurisdiction of Principal Commissioner of Income Tax (PCIT) under Section 263:
The PCIT invoked Section 263 to revise the reassessment orders on the grounds that the AO failed to examine the seized material and relevant documents during the reassessment proceedings. The Tribunal, however, found that since the reassessment orders themselves were invalid, the PCIT did not have the jurisdiction to revise these orders under Section 263. The Tribunal emphasized that only valid reassessment orders could be revised under Section 263, and an invalid order could not be made valid through revision. The Tribunal quashed the orders passed by the PCIT under Section 263.

3. Examination of Seized Material and Independent Inquiry by Assessing Officer (AO):
The PCIT observed that the AO did not examine the seized material, including cash books and bank books seized during the search of Shri S.K. Jain's premises. The AO had relied on the appraisal report without independently verifying the seized documents. The Tribunal noted that the AO had issued notices under Section 133(6) to the companies that invested in the assessee and received replies. However, the lack of examination of the seized material was a significant lapse. Despite this, the Tribunal held that since the reassessment proceedings were invalid, the PCIT's order under Section 263 could not stand.

4. Admission of Additional Grounds of Appeal:
The assessee raised additional grounds challenging the validity of the reassessment proceedings and the jurisdiction of the PCIT under Section 263. The Tribunal admitted these additional grounds, noting that they were legal in nature and went to the root of the matter. The Tribunal referred to the decisions of the Hon'ble Supreme Court and High Courts, which allowed the challenge to the validity of reassessment proceedings in collateral proceedings under Section 263.

5. Application of Mind by AO in Recording Reasons for Reopening Assessment:
The Tribunal found that the AO had not applied his mind independently while recording the reasons for reopening the assessment. The AO merely relied on the information from the Investigation Wing without verifying the details or establishing a clear link between the information and the belief that income had escaped assessment. The Tribunal cited various judicial precedents to emphasize that the reasons recorded must be clear, specific, and based on tangible material. The vague and generalized reasons recorded by the AO in this case did not meet these criteria, leading to the conclusion that the reopening of the assessment was invalid.

Conclusion:
The Tribunal allowed the appeals of the assessee, quashing the orders passed by the PCIT under Section 263 and holding that the reassessment proceedings initiated under Section 147/148 were invalid. The Tribunal emphasized the need for specific, detailed, and tangible reasons for reopening assessments and the requirement for the AO to independently verify the information received before initiating reassessment proceedings.

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