2023 (6) TMI 207 - AT - Income Tax

Validity of Reopening of assessment - reason to belief - Bogus share transactions - independent application of mind by AO v/s borrowed satisfaction - certain information from Investigation Cell where statement of President Anand Rathi Commodities recorded there were client code modifications of transactions in which there was no physical delivery of the goods on NSEL platform and that the said scam was investigated by DDIT(Inv) - HELD THAT - The basis of the belief should be discernible from the material on record, which was available with the Assessing Officer, when he recorded reason and there should be a link or close nexus between material obtained and formation of belief. From the perusal of the reasons recorded by the Assessing Officer, it is noticed that the Assessing Officer though, has given a detailed description of information received from DDIT(Inv), he has not recorded any finding with respect to the alleged transactions entered into by the assessee and the basis on which the income of Rs. 17,40,120/- is found to be undisclosed. AO has described the overall nature of the fraud committed but failed to record how the same to be related to the assessee. On perusal of records, it is noticed that there is a gap in understanding of facts with regard to the speculative losses incurred by the assessee, which, according to the AO, cannot be set off against the normal business income. A perusal of the P L Account evidences that the assessee had only income from non speculative business and does not have any speculative loss which he has set off against any income. Therefore, we see merit in the contention of AO while recording the reasons, has not applied his mind and has not brought out any factual finding with regard to the impugned addition. It is also noticed that the assessee s request with regard to the workings of the impugned addition and the statements recorded from President Anand Rathi Commodities was not shared with him by the lower authorities. Reopening u/s 147 has been done without recording any specific reasons pertaining to the assessee and without linking the information received from DDIT (Inv) specifically to the assessee - Decided in favour of assessee.

Summary

Issues Involved:
1. Validity of Reassessment Notice under Section 148 of the Income Tax Act.
2. Legality of Addition of Rs. 17,40,120/- under Section 68 of the Income Tax Act.

Summary:

1. Validity of Reassessment Notice under Section 148 of the Income Tax Act:
The assessee contended that the reassessment notice issued under Section 148 was based on incorrect information and without proper application of mind. The assessee argued that the notice was issued on the grounds of a bogus loss, whereas the assessee had declared a profit. The original assessment had already scrutinized the issue, and thus, reassessment based on a change of opinion was not permissible. The Tribunal observed that the Assessing Officer (AO) had reopened the assessment based on information from the Investigation Cell, which was not specifically linked to the assessee. The AO failed to record any specific findings related to the assessee's transactions. The Tribunal concluded that the reopening under Section 147 was done without proper application of mind and without specific reasons pertaining to the assessee, making the reassessment invalid.

2. Legality of Addition of Rs. 17,40,120/- under Section 68 of the Income Tax Act:
The assessee challenged the addition of Rs. 17,40,120/- under Section 68, arguing that the addition was made without providing copies of the information received and without an opportunity for cross-examination, violating the principles of natural justice. The Tribunal noted that the AO had not provided the assessee with the statement of Mr. Chetan Pitamber or the details of the amount in question. The Tribunal found that the AO had not applied his mind while recording the reasons for the addition and had not established a clear link between the information received and the assessee's transactions. Consequently, the Tribunal held that the addition under Section 68 was not justified and deleted the addition.

Conclusion:
The Tribunal allowed the appeal, declaring the reassessment under Section 147 invalid and deleting the addition of Rs. 17,40,120/- under Section 68. The order was pronounced in the open court on 16/05/2023.