2017 (4) TMI 711 - AT - Income Tax

Validity of reopening of assessment - reasons to believe - Held that - Section 147 and 148 are charter to the Revenue to reopen earlier assessments and are, therefore protected by safeguards against unnecessary harassment of the assessee. They are sword for the Revenue and shield for the assessee. Section 151 guards that the sword of Sec. 147 may not be used unless a superior officer is satisfied that the AO has good and adequate reasons to invoke the provisions of Sec. 147. The superior authority has to examine the reasons, material or grounds and to judge whether they are sufficient and adequate to the formation of the necessary belief on the part of the assessing officer. If, after applying his mind and also recording his reasons, howsoever briefly, the Commissioner is of the opinion that the AO s belief is well reasoned and bonafide, he is to accord his sanction to the issue of notice u/s. 148 of the Act. Inthe instant case, we find from the perusal of the order sheet which is on record, the Commissioner has simply put approved and signed the report thereby giving sanction to the AO. Nowhere the Commissioner has recorded a satisfaction note not even in brief. Therefore, it cannot be-said that the Commissioner has accorded sanction after applying his mind and after recording his satisfaction. See Shri Gautamchand Kanuga Versus DCIT, Circle 1, Kalyan 2016 (1) TMI 1274 - ITAT MUMBAI As decided in SARTHAK SECURITIES CO. PVT. LTD. Versus INCOME TAX OFFICER-WARD 7 (3) 2010 (10) TMI 92 - DELHI HIGH COURT neither the reasons in the initial notice nor the communication providing reasons remotely indicated independent application of mind. Though conclusive proof was not germane at this stage the formation of belief must be on the base or foundation or platform of prudence which a reasonable person was required to apply. From the perusal of the reasons recorded and the order of rejection of objections, the names of the companies were available with the authority and their existence was not disputed. The assessee in its objections had stated that the companies had bank accounts and payments were made to the assessee through banking channel. The identity of the companies was not disputed. Under these circumstances, the initiation of proceedings under section 147 and issuance of notice under section 148 of the Act were to be quashed. - Decided in favour of assessee.

Issues Involved:
1. Violation of principles of natural justice.
2. Validity of re-assessment proceedings initiated by the Assessing Officer.
3. Justification of additions made by the Assessing Officer.
4. Consideration of documentary evidence by the Assessing Officer.
5. General grounds for adding, amending, or altering the grounds of appeal.

Detailed Analysis:

Issue 1: Violation of Principles of Natural Justice
The assessee contended that the order passed by the Assessing Officer (AO) was in violation of the principles of natural justice. However, the judgment did not provide a detailed discussion on this specific issue, indicating that it was not the primary focus of the appeal.

Issue 2: Validity of Re-assessment Proceedings
The main contention revolved around the validity of the re-assessment proceedings initiated under Section 147 of the Income Tax Act, 1961. The assessee argued that the re-assessment was initiated merely based on information from the investigation wing without independent application of mind by the AO. The judgment highlighted that the reopening of the assessment was based on a search conducted on M/s. Mahasagar Securities Pvt. Ltd., which revealed fraudulent billing activities and bogus transactions. The name of the assessee appeared in the list of beneficiaries extracted from the seized data. Despite this, the Tribunal found that the AO did not apply his mind independently and merely relied on the information provided by the investigation wing. The Tribunal referenced previous cases (Shri Hirachand M. Kanunga and Shri Gautamchand M. Kanunga) where similar re-assessment proceedings were deemed invalid due to lack of independent satisfaction by the AO. The Tribunal concluded that the re-assessment proceedings in the present case were also invalid.

Issue 3: Justification of Additions Made by the Assessing Officer
The AO had added the entire sale consideration of ?15,34,929/- under the head "income from other sources," treating the transactions as fictitious accommodation entries. The CIT(A) confirmed this addition. The Tribunal, however, found that the AO's action was based on invalid re-assessment proceedings. Consequently, the additions made by the AO were also deemed unjustified and were ordered to be deleted.

Issue 4: Consideration of Documentary Evidence
The assessee argued that the AO did not properly appreciate the documentary evidence provided. The Tribunal did not delve deeply into this issue, as the primary basis for its decision was the invalidity of the re-assessment proceedings. Since the re-assessment itself was quashed, the consideration of documentary evidence became a secondary matter.

Issue 5: General Grounds for Adding, Amending, or Altering the Grounds of Appeal
The assessee reserved the right to add, amend, alter, or vary any of the grounds of appeal. This is a standard clause in appeals and was not specifically addressed in the judgment.

Conclusion:
The Tribunal allowed the appeal filed by the assessee, quashing the re-assessment order under Section 143(3) read with Section 147 of the Income Tax Act, 1961. The Tribunal found that the re-assessment proceedings were initiated without independent application of mind by the AO and were therefore invalid. Consequently, the additions made in the re-assessment proceedings were also deleted. The judgment emphasized the importance of independent satisfaction by the AO before initiating re-assessment proceedings and upheld the principles laid down in previous similar cases.

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