2022 (2) TMI 919 - AT - Income Tax

Reopening of assessment u/s 147 - Eligibility of Reasons recorded for reopening of assessment - borrowed satisfaction - Non independent application of mind by AO - Unexplained deposits - HELD THAT - The reasons recorded clearly state that the same was recorded merely on the basis of the information received by the AO from DIT(Investigation), Surat and Ahmedabad relating to the accommodation entries. AO has not recorded any other information that what extent of income which has escaped from the assessment for the Asst.Year 2009-10 in the case of the assessee by these accommodation entries. AO was not clear whether these entries in the receipt/income of the assessee. He simply repeated the information that he has received from the DIT(Investigation), Surat and Ahmedabad. As relying on MARIYAM ISMAIL RAJWANI case 2016 (8) TMI 1472 - ITAT AHMEDABAD reopening of the assessment is bad in law, when the reassessment is based on borrowed satisfaction . In the present case also deposits made by Pioneer Mercantile Ltd. and Jupiter Business Ltd were towards share application money to the assessee-company which has been explained by the assessee before the ld.CIT(A) vide its letter dated 10.10.2017, the same was not considered by the ld.CIT(A) and however confirmed the additions - on the validity of re- assessment notice issued on the ground of borrowed reasons , the CIT(A) has not followed jurisdictional Tribunal s decision and upheld the reopening of the assessment, which is not in accordance with law and following judicial discipline. Appeal of the assessee is allowed

Summary

Issues Involved:
1. Delay in filing the appeal.
2. Validity of reassessment under section 147 of the Income Tax Act.
3. Legitimacy of additions made for alleged bogus purchases.
4. Levy of interest under sections 234-A, 234-B, and 234-D of the Income Tax Act.

Detailed Analysis:

1. Delay in Filing the Appeal:
The appeal was filed with a delay of 51 days. The assessee cited multiple legal proceedings and financial crises as reasons for the delay. The affidavit mentioned that the company was dealing with tax demands and had sold properties to settle liabilities with financial institutions. The Revenue had no objection to condoning the delay. The tribunal was satisfied with the reasons provided and condoned the delay, allowing the appeal to proceed.

2. Validity of Reassessment under Section 147 of the Income Tax Act:
The reassessment was initiated based on information from the Director of Income Tax (Investigation) regarding accommodation entries obtained from benami concerns. The AO reopened the assessment under section 147 for the second time, citing failure to disclose material facts by the assessee. The assessee argued that the reassessment was based on "borrowed satisfaction" and lacked the AO's independent application of mind. The tribunal observed that the AO merely repeated the information received without establishing how the income had escaped assessment. Citing precedent cases, the tribunal held that reassessment based on borrowed satisfaction is invalid. Consequently, the reassessment proceedings were quashed.

3. Legitimacy of Additions Made for Alleged Bogus Purchases:
The AO added ?51,37,815 to the assessee's income, alleging it was derived from bogus purchases and accommodation entries. The assessee contended that the amounts received were share application money from companies assessed under valid PANs, and both companies were active per ROC records. The tribunal noted that the AO failed to independently verify the information and relied solely on the investigation reports. Since the reassessment was quashed, the additions made were rendered invalid.

4. Levy of Interest under Sections 234-A, 234-B, and 234-D of the Income Tax Act:
The assessee contested the levy of interest under sections 234-A, 234-B, and 234-D. However, since the reassessment itself was quashed, the issue of interest became moot and did not require further adjudication.

Conclusion:
The tribunal quashed the reassessment proceedings, declaring them invalid due to the AO's reliance on borrowed information without independent verification. Consequently, the additions made for alleged bogus purchases were also invalidated. The appeal was allowed in favor of the assessee.