2022 (6) TMI 441 - AT - Income Tax

Assessment u/s 153A OR reopening of assessment u/s 147 - as submitted on behalf of the assessee that the assessment order is violative of principle of natural justice and in breach of statutory safeguards - HELD THAT - The reasons as recorded by the AO has no discussion of the material which was taken in account by the investigation wing. It was considered to be sacrosanct - The statement of Kishori Saran Goel is not part of the reasons to believe nor supplied and confronted to assessee, while issuing notice u/s.148 of the Act. There is force in contention of counsel of assessee that as scrutiny assessment u/s. 153A in regard to assessee was conducted that all the more required to disclose the tangible material in regard to transaction requiring reassessment. There should have been an independent application of mind by the Ld. AO to the information out of the statement forming basis of allegations of accommodation entries. Merely reproducing the conclusions of investigation report in his own words is indeed borrowed satisfaction as contended by counsel for the assessee. Consequently, the Bench is inclined to decide these grounds of cross objection in favour of the assessee. Decided against revenue.

Issues Involved:
1. Validity of reassessment proceedings under Section 147 of the Income Tax Act, 1961.
2. Deletion of additions made under Sections 68 and 69C of the Income Tax Act.
3. Jurisdictional challenge to the Assessing Officer's authority.

Detailed Analysis:

1. Validity of Reassessment Proceedings under Section 147:
The core issue raised by the assessee was the legality of the reassessment proceedings initiated under Section 147. The assessee argued that the Assessing Officer (AO) lacked tangible material to form a "reason to believe" that income had escaped assessment. The AO's decision was based solely on information from the Deputy Director of Income Tax (Investigation) regarding a third-party search, specifically a statement by Sh. Kishori Sharan Goel, which implicated the assessee in receiving accommodation entries. However, the Tribunal found that the AO did not independently verify or apply his mind to the information received, thus constituting "borrowed satisfaction." The Tribunal cited several judicial precedents, including CIT vs. Daulat Ram Rawatmull, Avtee Ltd. v. DCIT, and Pr. Commissioner of Income Tax vs. Meenakshi Overseas (P.) Ltd., to support its decision that the reassessment proceedings were invalid due to the lack of tangible material and independent application of mind by the AO.

2. Deletion of Additions Made under Sections 68 and 69C:
The Commissioner of Income Tax (Appeals) [CIT(A)] had deleted the additions made by the AO under Sections 68 and 69C of the Act, which were related to sums received through bogus sales and alleged income from commission on sale of bogus entries. The CIT(A) reasoned that these additions would result in double counting since the amounts were already included in the sales credited to the Profit & Loss Account. The Tribunal upheld this decision, noting that the AO's additions were based on unverified statements and lacked concrete evidence. The Tribunal emphasized that the reasons for the additions were not sufficiently substantiated by the AO, further invalidating the reassessment.

3. Jurisdictional Challenge to the Assessing Officer's Authority:
The assessee also challenged the jurisdiction of the AO to initiate reassessment proceedings under Section 147, arguing that the AO should have proceeded under Sections 153A or 153C following the search operations. The Tribunal found merit in this argument, noting that the AO had not adhered to the statutory safeguards and principles of natural justice required for reassessment proceedings. The Tribunal highlighted that the AO failed to provide the assessee with an opportunity to cross-examine the evidence collected, which was a violation of natural justice principles. Consequently, the Tribunal ruled in favor of the assessee, setting aside the reassessment orders and dismissing the Revenue's appeal.

Conclusion:
The Tribunal concluded that the reassessment proceedings under Section 147 were invalid due to the lack of tangible material and independent application of mind by the AO. The additions made under Sections 68 and 69C were also deleted as they were based on unverified statements and lacked concrete evidence. The jurisdictional challenge to the AO's authority was upheld, leading to the setting aside of the reassessment orders and dismissal of the Revenue's appeal. The Tribunal's decision emphasized the importance of adhering to statutory safeguards and principles of natural justice in reassessment proceedings.

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