2016 (10) TMI 545 - AT - Income Tax

Validity of reopening of assessment - reasons to believe - Held that - We are of the view that AO has not applied his mind so as to come to an independent conclusion that he has reason to believe that income has escaped during the year. In our view the reasons are vague and are not based on any tangible material as well as are not acceptable in the eyes of law. The AO has mechanically issued notice u/s. 148 of the Act, on the basis of information allegedly received by him from the Directorate of Income Tax (Investigation)-I, New Delhi. Keeping in view of the facts and circumstances of the present case and the case law applicable in the case of the assessee, we are of the considered view that the reopening in the case of the assessee for the asstt. Year in dispute is bad in law and deserves to be quashed. - Decided in favour of assessee.

Issues Involved:
1. Non-admission of additional evidence by CIT(A).
2. Applicability of provisions of Section 147/148 of the I.T. Act.
3. Justification of additions made under Section 68 of the I.T. Act.
4. Excessiveness of additions towards assessable income.
5. Legality and excessiveness of interest levied under Section 234.

Issue-wise Detailed Analysis:

1. Non-admission of additional evidence by CIT(A):
The Assessee raised a ground that the CIT(A) erred in not admitting additional evidence filed before her. However, this issue was not elaborated upon in the judgment, indicating that it was not the primary focus of the appeal.

2. Applicability of provisions of Section 147/148 of the I.T. Act:
The Assessee argued that the provisions of Section 147/148 were not applicable to their case, rendering the notice issued under these sections illegal. The Tribunal examined the reasons recorded for reopening the case, which were based on information received from the Directorate of Investigation indicating that the Assessee had received an accommodation entry of ?5.82 crores. The Tribunal found that the AO did not apply his mind independently to conclude that income had escaped assessment. The reasons were deemed vague and not based on tangible material. The Tribunal relied on precedents, particularly the Delhi High Court's judgment in the case of Pr. CIT vs. G&G Pharma India Ltd., to conclude that the reopening of assessment was invalid. Consequently, the reassessment proceedings were quashed.

3. Justification of additions made under Section 68 of the I.T. Act:
The Assessee contended that the additions of ?83,15,000/- (for AY 2003-04) and ?11,00,000/- (for AY 2004-05) made under Section 68 for unexplained cash credits were unjustified. The Tribunal did not delve into this issue in detail, as it quashed the reassessment proceedings based on the illegality of the notice issued under Section 147/148.

4. Excessiveness of additions towards assessable income:
The Assessee argued that the additions towards assessable income were excessive and that the observations made by the authorities were incorrect or untenable. As with the previous issue, the Tribunal did not address this argument in detail due to the quashing of the reassessment proceedings.

5. Legality and excessiveness of interest levied under Section 234:
The Assessee claimed that the interest levied under Section 234 was illegal and excessive. This issue was not specifically addressed in the judgment, as the primary focus was on the validity of the reassessment proceedings.

Conclusion:
The Tribunal allowed both appeals filed by the Assessee, quashing the reassessment proceedings for both assessment years (2003-04 and 2004-05) due to the invalidity of the notice issued under Section 147/148. The other grounds raised by the Assessee were not addressed in detail, as the quashing of the reassessment proceedings rendered them moot. The judgment emphasized the necessity for the AO to apply his mind independently and record proper reasons before issuing a notice under Section 148.

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