2015 (10) TMI 1712 - AT - Income Tax

Validity of reopening of assessment - addition u/s 68 - Held that - The reasons and the information referred to is extremely scanty and vague. There is no reference to any document or statement, except Annexure, which has been quoted above. Annexure cannot be regarded as a material or evidence that prima facie shows or establishes nexus or link which discloses escapement of income. Annexure is not a pointer and does not indicate escapement of income. Further, it is apparent that the AO did not apply his own mind to the information and examine the basis and material of the information. The AO accepted the plea on the basis of vague information in a mechanical manner. The CIT also acted on the same basis by mechanically giving his approval. The reasons recorded reflect that the AO did not independently apply his mind to the information received from the Director of I.T. (Inv.) and arrive at a belief whether or not any income had escaped assessment. See Signature Hotels P. Ltd. vs. Income Tax Officer 2011 (7) TMI 361 - Delhi High Court - Decided in favour of assessee.

Summary

Issues:
1. Validity of notice u/s. 148
2. Addition of cash deposit u/s. 68
3. Charging of interest under various sections of the I.T. Act, 1961

Validity of notice u/s. 148:
The appeal arose from an order by the Ld. CIT(A) relevant to the assessment year 2003-04. The Assessee challenged the legality of the appellate order, arguing that the notice u/s. 148 was invalid and without jurisdiction. The AO had reopened the case based on information received, alleging undisclosed income from cash deposits. The Assessee contended that the notice was issued in a mechanical manner without proper basis or belief of income escapement. The Tribunal found the reasons recorded for initiating proceedings lacked substance, as they were vague and did not establish a nexus to income escapement. Citing previous court decisions, the Tribunal held that the notice u/s. 148 was illegal, similar to the Signature Hotels case, and quashed the reassessment proceedings in favor of the Assessee.

Addition of cash deposit u/s. 68:
The AO had added cash deposits to the Assessee's income under section 68, as unexplained income due to lack of proper documentation. The Assessee failed to provide a satisfactory explanation or the source of the cash deposits, leading to the addition. However, the Tribunal's decision to quash the reassessment proceedings rendered this issue academic, and it was not further addressed in the judgment.

Charging of interest under various sections of the I.T. Act, 1961:
The Ld. CIT(A) had confirmed the charging of interest under various sections of the I.T. Act, 1961. However, this issue was not specifically discussed in detail in the judgment as the Tribunal primarily focused on the validity of the notice u/s. 148. Since the reassessment proceedings were quashed in favor of the Assessee, the other issues, including the charging of interest, were considered academic and not further deliberated upon.

In conclusion, the Tribunal allowed the Assessee's appeal, quashing the reassessment proceedings due to the invalidity of the notice u/s. 148, which was found to be issued without proper basis or belief of income escapement. The judgment highlighted the importance of substantiated reasons for reopening assessments and referenced previous court decisions to support the decision. The other issues raised in the appeal, such as the addition of cash deposits and charging of interest, were not extensively discussed as the primary focus was on the legality of the notice u/s. 148.