2019 (4) TMI 357 - AT - Income Tax

Reopening u/s 148 - reopening on the basis of report of the Investigation Wing - bogus accommodation entries - HELD THAT - we hold the notice issued under Section 148 of the Act to be invalid for two reasons -(i) the notice is issued for the purpose of verification of genuineness, identification and creditworthiness of the transaction, which is not permissible; (ii) the Assessing Officer has recorded his satisfaction on the basis of mere report from the Investigation Wing. There is no crucial link between the information made available to the Assessing Officer and the formation of belief of escapement of income. There is no basis for coming to the conclusion that the assessee received accommodation entries. The Investigation Wing alleged that the companies which issued cheques to the assessee company are companies of Shri S.K. Jain group and they are entry providers. However, the basis for such conclusion is missing. There is no mention that any document was seized from Shri S.K. Jain group or any director of the 12 companies which have given cheques to the assessee has given the statement that they have provided accommodation entries to the assessee. The Assessing Officer has simply reopened the case on the basis of information provided by the Investigation Wing without any independent application of mind. There is no tangible material which formed the basis for the belief that income has escaped assessment. It is a settled law that when there are two views, the view in favour of the assessee is to be followed and moreover, there are at least two decisions subsequent to the decision of Paramount Communication (P) Ltd. 2017 (4) TMI 188 - DELHI HIGH COURT , wherein their Lordships have quashed the notice issued under Section 148 on the basis of information from the Investigation Wing. The facts in the case of the assessee are almost identical to the facts in the case of RMG Polyvinyl (I) Ltd. 2017 (7) TMI 371 - DELHI HIGH COURT and Meenakshi Overseas Pvt.Ltd. 2017 (5) TMI 1428 - DELHI HIGH COURT While taking the above view, we quash the notice issued under Section 148 of the Act and consequently, the assessment completed in pursuance thereto. Accordingly, ground Nos.1, 1.1 and 1.2 of the assessee s appeal are allowed.

Issues Involved
1. Validity of the initiation of proceedings under Section 147 of the Income Tax Act.
2. Whether the reopening of assessment under Section 147 for the purpose of verification is permissible.
3. Whether the satisfaction of the Assessing Officer was based on independent application of mind or was a borrowed satisfaction from the Investigation Wing.
4. Validity of the approval granted under Section 151 of the Income Tax Act.

Detailed Analysis

1. Validity of the initiation of proceedings under Section 147 of the Income Tax Act
The assessee contested the initiation of proceedings under Section 147, arguing that there was no tangible, relevant, specific, and reliable material on record to justify the belief that income had escaped assessment. The Tribunal noted that the reasons recorded for the issue of notice under Section 148 were based on information from the Investigation Wing, which alleged that the assessee had received accommodation entries from the S.K. Jain group. However, the Tribunal found that the reasons did not specify the material found during the search of the S.K. Jain group that led to this belief. The Tribunal concluded that the initiation of proceedings was not valid as it was based on borrowed satisfaction without independent verification by the Assessing Officer.

2. Whether the reopening of assessment under Section 147 for the purpose of verification is permissible
The Tribunal held that reopening an assessment under Section 147 for the purpose of verification is not permissible. The Tribunal emphasized that Section 143(2) of the Income Tax Act allows for verification within a specified time limit, and once that limit is expired, Section 148 cannot be invoked merely for verification purposes. The Tribunal stated, "Therefore, in our opinion, in the case under consideration, the reopening of assessment for the purpose of verification of genuineness, identification, and creditworthiness of the transaction is not permissible under law and is liable to be quashed."

3. Whether the satisfaction of the Assessing Officer was based on independent application of mind or was a borrowed satisfaction from the Investigation Wing
The Tribunal found that the Assessing Officer's satisfaction was based solely on the information provided by the Investigation Wing without any independent application of mind. The Tribunal noted that the reasons recorded did not mention any material or document that led to the belief of escapement of income. The Tribunal stated, "From a perusal of the aforesaid reasons, we do not find any application of mind by the Assessing Officer for reaching to the conclusion that there was escapement of income except the information from the Investigation Wing."

4. Validity of the approval granted under Section 151 of the Income Tax Act
The assessee argued that the approval granted under Section 151 was mechanical and without application of mind. The Tribunal did not specifically address this issue in detail but implied that since the initiation of proceedings under Section 147 was invalid, the approval under Section 151 was also not valid.

Conclusion
The Tribunal quashed the notice issued under Section 148 and the assessment completed pursuant to such notice. The Tribunal held that the reopening of assessment for verification purposes is not permissible and that the Assessing Officer's satisfaction was based on borrowed satisfaction without independent application of mind. Consequently, the appeal of the assessee was allowed, and the assessment order was quashed.

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