2016 (9) TMI 212 - AT - Income Tax

Reopening of assessment - investigation by Directorate of Income Tax (Investigation), New Delhi - accommodation entries provided - Held that - Directorate of Income Tax (Investigation), New Delhi, has carried out enquiries in respect of the persons/companies engaged in the business of providing accommodation entries to various companies and these persons used to issue cheques in lieu of cash received after deducting their commission and the cheques were generally issued as share application money/unsecured loan. This was a general description of the modus operandi of accommodation entry but the Assessing Officer nowhere mentioned in the reasons recorded as what was stated by those entry operators in respect of the assessee. We find that even in the assessment order also the Assessing Officer has not given details what was stated by the so-called entry operators in respect of the entries related to the assessee. It was submitted by the assessee that no opportunity to cross-examine the entry operators was provided by the Assessing Officer. Further, from the table of the accommodations entries, which the assessee is said to have received, reproduced in the assessment order, we find that there are five instances, where the entries have been repeated. Assessing Officer has not applied his independent mind while recording the reasons in this case and, therefore, proceedings under section 147 of the Act initiated by way of issue of notice under section 148 of the Act are quashed.

Summary

Issues Involved:
1. Quashing of proceedings initiated under section 147 of the Income Tax Act.
2. Deletion of addition of ?95,65,510 on account of accommodation entries.
3. Validity of issuing two notices simultaneously under section 148 of the Income Tax Act.
4. Condonation of delay in filing the appeal by the Revenue.

Detailed Analysis:

1. Quashing of Proceedings Initiated Under Section 147 of the Income Tax Act:
The Revenue challenged the quashing of proceedings initiated under section 147 of the Income Tax Act by the learned Commissioner of Income-tax (Appeals). The learned Sr. Departmental Representative (DR) argued that the reasons for reopening were based on specific information from the Investigation Wing, which indicated that the assessee had obtained accommodation entries amounting to ?95,65,510. The DR cited several judgments, including Raymond Woollen Mills and AGR Investment, to support the sufficiency of reasons for issuing notice under section 148.

However, the learned Authorized Representative (AR) for the assessee contended that the Assessing Officer (AO) did not apply his mind independently and merely relied on information from the Investigation Wing. The AR pointed out that the reasons recorded by the AO contained repeated entries, indicating a lack of due diligence.

The Tribunal, after examining the facts and relevant case laws, including the judgment in Signature Hotels Pvt. Ltd. vs. ITO, concluded that the AO did not independently apply his mind while recording the reasons for reopening the assessment. The Tribunal observed that the repetition of entries and the general description of the modus operandi without specific details about the assessee indicated a callous approach. Consequently, the Tribunal upheld the decision of the learned Commissioner of Income-tax (Appeals) to quash the proceedings under section 147.

2. Deletion of Addition of ?95,65,510 on Account of Accommodation Entries:
The Revenue also challenged the deletion of the addition of ?95,65,510 made by the AO on account of accommodation entries. Since the Tribunal had already quashed the reassessment proceedings under section 147, the issue of deletion of the addition became academic. Therefore, the Tribunal did not adjudicate on this issue.

3. Validity of Issuing Two Notices Simultaneously Under Section 148:
The assessee raised cross objections regarding the validity of issuing two notices simultaneously under section 148. The first notice was issued on 19/03/2010, and the second notice was issued on 31/03/2010. The learned Commissioner of Income-tax (Appeals) held that the second notice rendered the first notice redundant. The assessee argued that this finding was contrary to judicial pronouncements.

During the hearing, the learned Authorized Representative for the assessee chose not to press this cross objection. Consequently, the Tribunal treated the cross objection as withdrawn and dismissed it.

4. Condonation of Delay in Filing the Appeal by the Revenue:
The Revenue filed an application for condonation of delay in filing the appeal. The learned Sr. Departmental Representative explained that the delay of 87 days was due to the dealing Inspector proceeding on leave for his marriage, which caused the relevant file to be delayed. The AR for the assessee opposed the condonation of the delay.

The Tribunal, after considering the arguments, found that the delay was due to a reasonable cause and a bona fide mistake. In the interest of justice, the Tribunal condoned the delay and admitted the appeal.

Conclusion:
In conclusion, the Tribunal upheld the quashing of the proceedings initiated under section 147 of the Income Tax Act due to the lack of independent application of mind by the AO. The deletion of the addition of ?95,65,510 on account of accommodation entries was not adjudicated as it became academic. The cross objection regarding the validity of issuing two notices under section 148 was withdrawn and dismissed. The delay in filing the appeal by the Revenue was condoned. The decision was pronounced in the open court on 29th July 2016.