2016 (5) TMI 625 - AT - Income Tax

Validity of reopening of assessment - information received from the investigation wing - introduction of own unaccounted money in its bank by way of accommodation entry - Held that - There was lack of application of mind by the Assessing Officer while acting upon the information received from the investigation wing of the department. The Assessing Officer did not appreciate that there was repetition of same entries and the Assessing Officer has totally banked upon the investigation made by the Investigation Wing of the Department. He did not bother himself to verify the veracity of the information received nor had he confronted the assessee with the claimed various material and report received from the investigation wing of the department, on perusal of which the Assessing Officer has claimed in the reasons recorded that, it was evident before him that the assessee had introduced its own unaccounted money in its bank by way of accommodation entry. We thus respectfully following the ratio laid down in Pr. CIT vs. G & G Pharma India Ltd. 2015 (10) TMI 754 - DELHI HIGH COURT hold that the initiation of re-opening proceedings in the present case by the Assessing Officer was not valid and the assessment made in furtherance to such initiation is also held void ab initio. - Decided in favour of assessee

Summary

Issues Involved:
1. Validity of initiation of reopening of proceedings under sec. 147/148 of the Income-tax Act, 1961.
2. Validity of sustaining of addition of ? 6,50,000 under sec. 68 of the Act on account of accommodation entry.
3. Non-service of notices issued by the first appellate authority.

Detailed Analysis:

1. Validity of Initiation of Reopening of Proceedings under Sec. 147/148:

The assessee challenged the reopening of proceedings under sec. 147/148 of the Income-tax Act, 1961. The assessee's argument was that the reopening was based solely on the report from the Investigation Wing without the Assessing Officer (AO) applying his mind. The assessee maintained regular books of accounts, which were audited, and filed annual returns with the Registrar of Companies. The return of income for the relevant year was processed under sec. 143(1) without any notice under sec. 143(2). The AO initiated reopening based on the Investigation Wing's report, claiming the assessee received accommodation entries. The AO recorded reasons to believe that ? 13 lakhs had escaped assessment, but the assessee argued that these reasons were vague and repetitive. The AO added ? 6,50,000 to the assessee's income based on the inability to produce share applicants, despite the assessee providing sufficient evidence.

The Tribunal referred to several judicial precedents, including the decision of the Hon'ble Delhi High Court in Principal CIT vs. G & G Pharma India Ltd., which emphasized that the AO must form a prima facie opinion based on tangible material and not merely on information from the Investigation Wing. The Tribunal found that the AO did not apply his mind and solely relied on the Investigation Wing's report, making the reopening invalid. The Tribunal concluded that the initiation of reopening proceedings was not valid and the subsequent assessment was void ab initio.

2. Validity of Sustaining of Addition of ? 6,50,000 under Sec. 68:

Given the finding on the invalidity of the reopening proceedings, the Tribunal held that the issue of sustaining the addition of ? 6,50,000 under sec. 68 became infructuous. The addition was made on the basis that the assessee could not produce the share applicants, despite providing sufficient evidence. However, since the reopening itself was invalid, the addition under sec. 68 could not stand.

3. Non-Service of Notices Issued by the First Appellate Authority:

The assessee also questioned the non-service of notices by the first appellate authority, which prevented the assessee from representing its case. However, this issue was not elaborated upon as the primary ground regarding the validity of reopening proceedings was decided in favor of the assessee, rendering other grounds infructuous.

Conclusion:

The Tribunal allowed the appeal, holding that the initiation of reopening proceedings was invalid due to the lack of application of mind by the AO. Consequently, the assessment and the addition of ? 6,50,000 were also held void. The appeal was allowed, and the order was pronounced in the open court on 22.04.2016.