2021 (11) TMI 671 - AT - Income Tax

Validity of re-assessment proceedings initiated u/s.148 - eligibility of reasons to believe - proof of live link nexus or connection for the formation of believe - Addition u/s 68 - HELD THAT - There is neither any discussion of any investigation report as referred to by the Assessing Officer in the assessment order or any reference of any material from the reasons recorded. It is not clear from the reasons recorded as to what is nature of the accommodation entry; and secondly, from which entity or companies, the assessee had received alleged accommodation entry. It is also not clear, whether it is on account of share application money or loan or any other kind of credit entry from any such entity. Reasons recorded at least should disclosed the prima facie material which has proximate or live link nexus with such information or material that the income chargeable to tax has escaped assessment. AO can assume jurisdiction for reopening the assessment only on the basis of material referred to in the reasons recorded and reasons recorded alone is the edifice or foundation of jurisdiction u/s.147. If the reasons recorded are silent or there is no reference of any material, then other extraneous material referred subsequently cannot justify acquiring of jurisdiction for reopening u/s 147. Any annexure or report discussed in the assessment order which is not part of the reasons recorded cannot be construed as material forming belief u/s.147. The formation of reasons to believe can only be seen on the reason recorded in writing by the Assessing Officer before issuance of notice u/s.148 Even if the information received from Investigation Wing was a valid information and material available with the Assessing Officer, then at least Assessing Officer after applying his mind should have brought on record at the time of recording the reasons that assessee has received accommodation entry in the nature of share capital or any bogus entry by any entry provider - The reasons recorded itself goes to show that it is purely based on borrowed satisfaction and without application of mind and such an approach has been frowned by the Hon ble Jurisdictional High Court in the cases of PCIT vs. Meenakshi Overseas P. Ltd.. 2017 (5) TMI 1428 - DELHI HIGH COURT and PCIT vs. RMG Polyvinyl (I) Ltd., 2017 (7) TMI 371 - DELHI HIGH COURT While considering the validity of the reasons recorded, which is an evidentiary fact and basis, nothing can be read or taken into consideration which has not been stated in the reasons recorded - As in the case of Signature Hotels 2011 (7) TMI 361 - DELHI HIGH COURT has held that even the annexure to the report giving detail of entry did not construe any material. Here in this case there is no whisper of any such material on record in the reasons recorded. Reasons as incorporated above are not only vague but does not have any live link nexus or connection for the formation of believe is a material on record. Such a vague reference that since information has been received from an investigation wing that the assessee has taken accommodation entry without any reference to any material or nature of entry provided or name of entity who has provided such entry is purely vague and such reasons cannot clothe to the Assessing Officer with the jurisdiction to reopen assessment u/s.147 - Decided in favour of assessee.

Summary

Issues Involved:
1. Validity of re-assessment proceedings initiated under Section 148 of the Income Tax Act.
2. Addition of sums under Section 68 of the Income Tax Act for Assessment Years 2007-08 and 2009-10.

Detailed Analysis:

1. Validity of Re-assessment Proceedings Initiated Under Section 148:
The assessee challenged the validity of the re-assessment proceedings initiated under Section 148 on the grounds that the reasons recorded by the Assessing Officer (AO) were vague and lacked any reference to material on record. The AO had reopened the cases based on information received from the Investigation Wing that the assessee had obtained accommodation entries from Shri Surender Kumar Jain Group, who was an entry operator.

Findings:
- The AO recorded reasons stating that the assessee received accommodation entries of ?1,25,00,000/- for AY 2007-08 and ?50,00,000/- for AY 2009-10.
- The reasons were deemed vague as they did not specify the nature of the accommodation entries, the entities involved, or the type of credit entry (share application money, loan, etc.).
- The CIT (A) upheld the AO's actions, citing Supreme Court precedents that supported the validity of reopening assessments based on information from investigation reports.

Judgment:
The Tribunal found the reasons recorded by the AO to be insufficient and vague. It emphasized that reasons must have a live link or nexus with the material suggesting income escapement. The AO's reasons lacked specific details and were based on borrowed satisfaction without proper application of mind. Consequently, the re-assessment proceedings were quashed as void ab initio.

2. Addition of Sums Under Section 68:
The AO made additions of ?1,25,00,000/- for AY 2007-08 and ?50,00,000/- for AY 2009-10 under Section 68, treating them as unexplained credits.

Findings:
- The AO relied on the investigation report and statements from the entry operators to conclude that the assessee received bogus accommodation entries.
- The CIT (A) supported the AO's findings, stating that the investigation report and subsequent inquiries provided sufficient grounds for the additions.

Judgment:
Given that the re-assessment proceedings were quashed, the additions made under Section 68 were also invalidated. The Tribunal did not delve into the merits of the additions, as the foundation for reopening the assessments itself was found to be flawed.

Conclusion:
The Tribunal allowed the assessee's appeal, quashing the re-assessment proceedings initiated under Section 148 for both AY 2007-08 and AY 2009-10. Consequently, the additions made under Section 68 were also set aside. The judgment highlighted the necessity for AOs to record specific and detailed reasons when reopening assessments, ensuring a clear nexus with the material indicating income escapement.