2016 (3) TMI 419 - AT - Income Tax

Reopening of assessment - sufficiency or correctness of the material - Held that - When no assessment u/s 143(3) of the Act was completed, there was no information available on the file of the Assessing Officer for verification whether any credit was introduced by those two creditors either by way of investment or loan or in any other forms. The AO while recording reasons verified that the information belonged to the assessee and it belonged to the relevant assessment year under consideration and the information was received from a reliable source i.e. the Director of Income Tax (Investigation) and thereafter he recorded satisfaction that he had reason to believe that there was a escapement of income in the case , therefore, in the circumstances it cannot be said that AO has not applied his mind. In the case of ITO vs. Comero Leasing & Financing Pvt. Ltd. ( 2014 (8) TMI 761 - ITAT DELHI ) cited by the ld. AR, the assessment was completed and the records were available with the AO before issue of notice u/s 148 of the Act, whereas in the case of assessee, the return was processed u/s 143(1) of the Act only and no scrutiny assessment was completed before issue of notice u/s 148 of the Act, thus, the ratio of the said decision is not applicable of the fact of the case of the assessee. We also agree with the contention of ld Sr DR that sufficiency or correctness of the material cannot be considered at the stage of issuing notice under section 148 of the Act as held by the Hon ble Supreme Court in the case of the Raymond Woolen Mills Ltd Vs ITO (1997 (12) TMI 12 - SUPREME Court ).Thus, we uphold the finding of the Ld. CIT(A) in impugned order that notice issued by the AO under section 148 of the Act was in accordance to law - Decided against assessee

Summary

Issues Involved:
1. Legality of re-assessment and jurisdiction under sections 147 to 151 of the Income Tax Act.
2. Validity of additions made under section 68 of the Income Tax Act.
3. Upholding of penalty levied under section 271(1)(c) of the Income Tax Act.

Issue-wise Detailed Analysis:

1. Legality of Re-assessment and Jurisdiction under Sections 147 to 151 of the Income Tax Act:

The assessee challenged the re-assessment proceedings initiated by the Assessing Officer (AO), arguing that the re-assessment was illegal and beyond jurisdiction. The AO had issued a notice under section 148 based on information from the Director of Income Tax (Investigation) indicating that the assessee had received accommodation entries from two parties. The CIT(A) upheld the AO's actions, stating that the initial assessment was under section 143(1) and not under section 143(3), making the proviso to section 147 inapplicable. The CIT(A) emphasized that the AO had material to form a prima facie belief of income escapement due to the assessee's failure to disclose fully and truly all material facts. The Tribunal agreed with the CIT(A), noting that the AO had applied his mind and recorded satisfaction based on reliable information. Thus, the Tribunal upheld the re-assessment proceedings, dismissing the assessee's grounds on this issue.

2. Validity of Additions Made under Section 68 of the Income Tax Act:

The assessee contested the addition of Rs. 3,00,000 as unexplained cash credit under section 68, arguing that all necessary documents proving the identity, genuineness, and creditworthiness of the creditors were provided. The AO, however, found that the assessee failed to produce sufficient evidence and observed that cash was deposited in the creditors' bank accounts just before issuing cheques to the assessee. The CIT(A) upheld the AO's addition, stating that the assessee did not provide adequate details of the creditors. The Tribunal, noting contradictory assertions regarding the availability of evidence, decided to restore the matter to the AO for fresh examination. The AO was directed to reassess the issue, providing the assessee with sufficient opportunity to present evidence. Consequently, the Tribunal allowed the assessee's grounds on this issue for statistical purposes.

3. Upholding of Penalty Levied under Section 271(1)(c) of the Income Tax Act:

The penalty under section 271(1)(c) was levied by the AO based on the addition of Rs. 3,00,000 as unexplained cash credit. Since the Tribunal restored the issue of the addition to the AO for fresh examination, the penalty issue became redundant. The Tribunal allowed the assessee's appeal on the penalty issue, noting that the grounds for penalty did not survive due to the restoration of the primary issue.

Conclusion:

The Tribunal concluded by partly allowing the assessee's appeal for statistical purposes regarding the addition under section 68 and allowing the appeal concerning the penalty under section 271(1)(c). The Tribunal upheld the legality of the re-assessment proceedings initiated by the AO. The decision was pronounced in the open court on 9th March 2016.