2016 (3) TMI 634 - AT - Income Tax

Validity of reopening of assessment - basis of a letter received from Investigation Wing - Held that - It is clear from the reasons recorded by the AO that the AO acted only on the basis of a letter received from Investigation Wing , New Delhi. The reasons recorded does not give as to who has given the bogus entries to the assessee. The reasons recorded also does not mention as to on which dates and through which mode the bogus entries were made by the assessee. The reasons recorded which are extracted in the earlier part of the order does not show, what was the information given by DIT(Inv.),New Delhi. The date of the information received by the AO were not spelt out in the reasons recorded. The involvement of the assessee is also not spelt out, except mentioning the corporate bodies who had subscribed to the share capital of the assessee were non-existent and not creditworthy. On identical facts the Hon ble Dlehi High Court in the case of CIT vs Insecticides (India) Ltd (2013 (5) TMI 691 - DELHI HIGH COURT ) has taken a view that the reasons recorded were vague and uncertain and cannot be construed as satisfaction on the basis of the relevant material on the basis of which a reasonable person can form a belief that income has escaped assessment. Also the reasons recorded did not disclose the AO s mind regarding escapement of income. The Hon ble Delhi High Court ultimately held that initiation of proceedings u/s 148 of the Act was not valid and justified in the eyes of law. Following the said decision we hold that initiation of re-assessment proceedings is not valid. On this ground, the assessment is liable to be annulled. - Decided in favour of assessee

Summary

Issues Involved:
1. Validity of initiation of re-assessment proceedings under Section 148 of the Income Tax Act.
2. Addition of share application money as unexplained cash credit under Section 68 of the Income Tax Act.

Issue-wise Detailed Analysis:

1. Validity of Initiation of Re-assessment Proceedings under Section 148:

The Assessee challenged the initiation of proceedings under Section 147 of the Act by the Assessing Officer (AO), arguing that the reasons recorded by the AO were vague and insufficient to form a belief that income chargeable to tax had escaped assessment. The CIT(A) upheld the initiation of proceedings, stating that the information received from the D.I.T. (Investigation), New Delhi, regarding the assessee being a beneficiary of accommodation entries was sufficient for the AO to initiate proceedings under Section 148. However, the Tribunal found that the AO acted solely based on a letter from the Investigation Wing, New Delhi, without independent application of mind. The reasons recorded did not specify who provided the bogus entries, the dates, or the mode of entries, making the reasons vague and uncertain. Citing the Delhi High Court's decisions in CIT vs Insecticides (India) Ltd and CIT vs SFIL Stock Broking Ltd, the Tribunal concluded that the initiation of re-assessment proceedings was not valid and annulled the assessment on this ground.

2. Addition of Share Application Money as Unexplained Cash Credit under Section 68:

The AO treated the share application money received from various parties as unexplained cash credit under Section 68, as the parties were either non-existent or their creditworthiness could not be established. The CIT(A) disagreed with the AO's conclusions and held that the assessee had discharged its onus by providing necessary documents such as share application forms, PAN/GIR numbers, income tax returns, balance sheets, and confirmation letters. The CIT(A) noted that the AO did not conduct separate inquiries for the four parties reported by the DIT (Investigation) and rejected the evidence provided by the assessee without substantial justification. For the 15 parties whose notices were returned unserved, the CIT(A) held that the assessee had provided sufficient evidence to prove their genuineness. The Tribunal upheld the CIT(A)'s conclusions, agreeing that the AO failed to bring any evidence to show that the share application money belonged to the assessee. Consequently, the Tribunal dismissed the revenue's appeal and upheld the deletion of the addition of Rs. 1,02,80,000 made by the AO.

Conclusion:

The Tribunal dismissed the revenue's appeal, holding that the initiation of re-assessment proceedings was invalid due to vague and insufficient reasons recorded by the AO. On merits, the Tribunal upheld the CIT(A)'s decision, concluding that the assessee had provided sufficient evidence to prove the genuineness of the share application money, and the AO failed to substantiate the addition made under Section 68. The appeal of the revenue was dismissed, and the order of the CIT(A) was upheld.