2016 (6) TMI 839 - AT - Income Tax

Reopening of assessment - accommodation entry received - information received from the DIT (Inv.) - Held that - Notice u/s 148 has been issued in a mechanical manner on the basis of vague information from Directorate of Inspection (Inv.). The AO did not dwell upon the veracity and the basis of information received. He has not mentioned any material which has led him to believe that the amount deposited in the bank account represented accommodation entry which has escaped assessment. He has simply filled up a proforma mentioning the information received. Therefore, the notice u/s. 148 is patently illegal Reasons do not satisfy the requirements of s. 147 of the Act. The reasons and the information referred to is extremely scanty and vague. There is no reference to any document or statement. 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 reasons recorded reflect that the AO did not independently apply his mind to the information received from the DIT (Inv.) and arrive at a belief whether or not any income had escaped assessment. - Decided in favour of assessee

Summary

Issues:
1. Validity of initiation of proceedings u/s. 147 of the Income Tax Act, 1961
2. Validity of notice u/s. 148 of the Act
3. Addition made to the returned income of the assessee
4. Legality of the assessment order passed

Analysis:

Issue 1: Validity of initiation of proceedings u/s. 147 of the Income Tax Act, 1961
The appeal challenged the initiation of proceedings u/s. 147, contending that the reasons recorded did not establish that the assessee's income had escaped assessment. The AO's reasons were deemed vague and lacking in substance, merely based on information without proper analysis. The Tribunal found the initiation to be illegal, following a similar precedent set by the Hon'ble Delhi High Court in a previous case. The Tribunal quashed the reassessment proceedings due to insufficient grounds for reopening the assessment.

Issue 2: Validity of notice u/s. 148 of the Act
The notice u/s. 148 was challenged for being issued mechanically based on vague information, without proper application of mind by the AO. The Tribunal agreed that the notice lacked substance and was patently illegal, as it did not provide sufficient grounds for reopening the assessment. Citing a relevant case law, the Tribunal held that the notice was invalid and supported the assessee's contention for quashing the reassessment proceedings.

Issue 3: Addition made to the returned income of the assessee
The AO had added an amount to the assessee's returned income based on information received about an alleged accommodation entry. The Tribunal found that the addition was made without proper justification and disregarded the fact that the assessee was a young individual without any substantial income source. The Tribunal noted that the assessee had fulfilled the initial burden as per section 68 of the Act, making the addition unwarranted.

Issue 4: Legality of the assessment order passed
The assessment order was challenged as being void ab initio due to an allegedly invalid notice issued earlier. The Tribunal considered the procedural irregularities in the assessment process, especially regarding the notice under section 143(2) of the Act. The Tribunal concluded that the assessment order was invalid, following the quashing of the reassessment proceedings based on the flawed initiation and notice issuance.

In conclusion, the Tribunal allowed the appeal filed by the Assessee, quashing the reassessment proceedings and highlighting the legal flaws in the initiation, notice, and assessment order. The judgment emphasized the importance of proper grounds and due diligence in tax proceedings to protect the rights of taxpayers.