2017 (3) TMI 193 - AT - Income Tax

Reopening of assessment - information received from the Directorate of Income Tax - Held 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 my 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 I.T. Act, 1961 on the basis of information allegedly received by him from the Directorate of Income Tax (Inv.), New Delhi. - Decided in favour of assessee.

Issues Involved:
1. Sustaining assessment under section 143(3)/147 of the Act.
2. Initiation and completion of proceedings under section 147 of the Act.
3. Basis of information received from DIT (Investigation) for initiation of proceedings.
4. Addition of ?45,00,000 as unexplained cash credit under section 68 of the Act.
5. Double taxation of the same sum.
6. Reliance on the statement of Sh. D.N. Taneja.
7. Reliance on the statement of Sh. S.K. Gupta without providing an opportunity for rebuttal.
8. Lack of independent findings by the CIT(A) and violation of principles of natural justice.

Detailed Analysis:

1. Sustaining Assessment under Section 143(3)/147 of the Act:
The Assessee argued that the assessment was sustained at an income of ?44,82,092 as against a returned loss of ?15,018 without a fair opportunity of being heard, violating the principles of natural justice. The Tribunal noted that the original return was processed under section 143(1) and later reopened based on information from the Directorate of Income Tax (Investigation).

2. Initiation and Completion of Proceedings under Section 147 of the Act:
The Assessee contended that the initiation and completion of proceedings under section 147 were without satisfying the statutory pre-conditions. The Tribunal found that the reasons for reopening were vague and not based on tangible material, thus deeming the reopening invalid.

3. Basis of Information Received from DIT (Investigation) for Initiation of Proceedings:
The Assessee claimed that the initiation of proceedings was based on information received from DIT (Investigation) mechanically and without independent application of mind. The Tribunal agreed, stating that the Assessing Officer (AO) had not applied his mind independently and had issued the notice based on information from the Directorate of Income Tax (Investigation).

4. Addition of ?45,00,000 as Unexplained Cash Credit under Section 68 of the Act:
The Assessee argued that the addition was made without considering the necessary documents explaining the receipt of ?45,00,000 from M/s Passion Chit Company Pvt. Ltd. The Tribunal noted that the AO and CIT(A) ignored the documents provided by the Assessee, which showed the transaction as a sale of shareholding.

5. Double Taxation of the Same Sum:
The Assessee contended that there was double taxation of the same sum, once as sale consideration and again as undisclosed income. The Tribunal did not specifically address this issue, as the reassessment proceedings were quashed.

6. Reliance on the Statement of Sh. D.N. Taneja:
The Assessee argued that reliance on the statement of Sh. D.N. Taneja, who was not a director or shareholder in the company, was erroneous. The Tribunal found that the AO had relied on statements without proper verification, contributing to the invalidity of the reassessment.

7. Reliance on the Statement of Sh. S.K. Gupta without Providing an Opportunity for Rebuttal:
The Assessee claimed that the statement of Sh. S.K. Gupta was used without providing an opportunity for rebuttal or cross-examination. The Tribunal noted that the AO had not provided the Assessee with an opportunity to rebut the statement, further invalidating the reassessment.

8. Lack of Independent Findings by the CIT(A) and Violation of Principles of Natural Justice:
The Assessee argued that the CIT(A) relied on the AO's order without independent findings and did not provide a fair opportunity of being heard. The Tribunal agreed, emphasizing the mechanical nature of the proceedings and the lack of independent application of mind by the CIT(A).

Conclusion:
The Tribunal concluded that the AO had not applied his mind independently and had issued the notice based on vague and non-tangible information from the Directorate of Income Tax (Investigation). The reassessment proceedings were quashed, and the Assessee's appeal was allowed. The other issues were deemed academic and not addressed. The order was pronounced in open court on 02-02-2017.

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