2024 (10) TMI 86 - AT - Income Tax

Assumption of jurisdiction u/s 147/148 r.w.s 151 - wrong assumption of jurisdiction u/s 147 instead of statutory path available u/s 153C - case reopened beyond period of four years - information has been received from Investigation Wing, New Delhi adverse to the assessee - Bogus LTCG - addition u/s.68 on account of share capital treating the same as an accommodation entry - HELD THAT - Reluctance of the AO to initiate reopening proceedings based on some generalized and uncorroborated information. The notice under Section 148 of the Act on the last day (despite availability of so called information) was impliedly under compulsion to save on limitation. No independent inquiry appears to have been made by the AO in the long intervening period including the fate of assessment of the so called entry providers. Thus, the circumstances would show that the AO has proceeded on dotted lines as dictated in the information received. To demonstrate the inherent lack of application of mind, firstly, by the AO under Section 148(2) and thereafter, by the PCIT u/s 151 of the Act, the assessee points out that the financial year is wrongly mentioned, approval granted by the PCIT based on incomplete Performa and also satisfaction of the Addl. CIT that the case requires verification which is not the same expression as the chargeable income has escaped assessment referred to in the main provision of Section 148 of the Act. On perusal of the objections raised on behalf of the assessee, we find that for multiple reasons, on standalone and cumulative basis, the reopening under Section 147 of the Act does not meet the strict requirement of law at all and thus, jurisdiction usurped under Section 147 is apparently without sanction of law. We thus find overwhelming potency in the plea of the assessee that reasons recorded and approval granted thereon u/s 151 do not meet the requirement of law and hence the issuance of notice under Section 148 based on cryptic reasons combined with a mechanical approval of the Pr.CIT under Section 151 do not pass the test of judicial scrutiny. We thus have no hesitation to hold that the notice issued under Section 148 is without jurisdiction and consequently reassessment framed for Assessment Year 2010- 11 based on invalid notice, is bad in law and hence quashed. Assessee appeal allowed.

Summary

Issues Involved:
1. Assumption of jurisdiction under Section 147/148 read with Section 151 of the Income Tax Act.
2. Wrong assumption of jurisdiction under Section 147 instead of Section 153C.
3. Additions made under Section 68 and 69C of the Income Tax Act.

Detailed Analysis:

1. Assumption of Jurisdiction under Section 147/148 read with Section 151 of the Income Tax Act:

The assessee challenged the jurisdiction of the Assessing Officer (AO) under Section 147/148 read with Section 151 of the Act. The primary contention was that the AO acted mechanically and without independent application of mind, thus making the reassessment proceedings illegal and bad in law. The AO relied on information from the Investigation Wing regarding accommodation entries provided by the Surender Kumar Jain group. The assessee argued that the AO's reasons for reopening were based on borrowed satisfaction and not on independent verification. The reassessment was initiated nearly four years after receiving the information, indicating non-application of mind. The approval by the Principal Commissioner of Income Tax (PCIT) under Section 151 was also questioned for being routine and mechanical, lacking necessary details and independent satisfaction.

2. Wrong Assumption of Jurisdiction under Section 147 Instead of Section 153C:

The assessee argued that the correct statutory path for action against them should have been under Section 153C, as the incriminating material was found during the search of another assessee. The assessee cited several judgments where reassessment proceedings under Section 147/148 were quashed in similar circumstances, emphasizing the independent code of Section 153C. The material relied upon was collected from the premises of the searched person, making Section 153C applicable rather than Section 147.

3. Additions Made Under Section 68 and 69C of the Income Tax Act:

The AO made additions of Rs. 60 lakhs under Section 68 for share application money received from four entities and Rs. 1,20,000 under Section 69C for probable commission expenses. The assessee contended that the AO did not conduct an independent enquiry and that the information used was collected behind their back without providing an opportunity for cross-examination. The CIT(A) upheld these additions, but the ITAT did not adjudicate on the merits of these additions due to the quashing of the reassessment proceedings.

Conclusion:

The ITAT found that the reopening under Section 147 did not meet the legal requirements, and the jurisdiction assumed was without proper sanction of law. The reasons recorded and the approval granted under Section 151 were deemed insufficient and mechanical. Consequently, the notice issued under Section 148 was quashed, and the reassessment framed for Assessment Year 2010-11 was held to be bad in law. The appeal of the assessee was allowed, and the ITAT did not delve into other legal and factual aspects or the merits of the AO's action.