2019 (4) TMI 698 - AT - Income Tax

Reopening of assessment u/s 148 - recording reasons to belief - original assessment u/s 143(3) - failure on the part of the assessee to disclose fully and truly all material facts necessary for assessment - HELD THAT - AO did not mention any material facts in the reasons. The Assessing Officer did not mention that assessee was already assessed under section 143(3) in the original assessment, in which, Assessing Officer has already examined the issue of share capital/premium and what was the material produced before him regarding accommodation entry. AO did not record as to who has provided accommodation entry to assessee in the reasons. Thus, there was no failure on the part of the assessee to disclose fully and truly all material facts necessary for assessment under section 147 of the Income Tax Act, 1961. It is clear that in the instant case the AO reopened the assessment after 04 years from the end of the assessment year and Assessing Officer has failed to specify if there is any failure on the part of the assessee to disclose fully and truly all material facts necessary for assessment under section 147 of the Income Tax Act, therefore, conditions of Section 147 are not satisfied in this case. Further, the reasons are vague and do not disclose any incriminating material against the assessee. The decisions relied upon by Learned Counsel for the Assessee squarely apply to facts of case. Therefore, reopening of the assessment is wholly unjustified in the matter. Assumption of jurisdiction under section 147/148 of the Income Tax Act is clearly illegal and bad in Law Reopening of assessment - received information from DIT (Inv.)-II, New Delhi that assessee has taken accommodation entry - AY 2007-2008 - HELD THAT - AO has recorded vague reasons based on wrong facts. The escapement of income based on accommodation entry as informed by Investigation Wing have been mentioned at ₹ 3.20 crores which in fact was ₹ 2.20 crores. Such fact is mentioned in the balance sheet of the assessee, copy of which is, filed at which is also supported by the list of Investors filed. The Assessing Officer in the reasons for reopening has also mentioned incorrect F.Y. 2007-2008 instead of F.Y. 2006-2007. Therefore, the reasons are based on wrong facts, which clearly show that there was no application of mind on the part of the Assessing Officer while recording reasons for reopening of the assessment. We, therefore, hold that assumption of jurisdiction by the Assessing Officer for reopening of the assessment is illegal and bad in Law. We, accordingly, set aside the orders of the authorities below and quash the reopening of assessment in the matter. Resultantly, all additions stand deleted.

Issues Involved:
1. Reopening of assessment under Section 147/148 of the Income Tax Act, 1961.
2. Validity of reassessment proceedings based on information from the Investigation Wing.
3. Addition of unexplained credit/share capital.

Detailed Analysis:

Issue 1: Reopening of Assessment under Section 147/148
The primary issue in both cases is the reopening of assessment under Section 147/148 of the Income Tax Act, 1961. The validity of the reassessment proceedings hinges on whether the reasons recorded by the Assessing Officer (AO) were sufficient and legally sound.

In the case of M/s. KLF Food (India) Ltd., the AO issued notice under Section 148 based on information from the DIT (Inv.)-II, New Delhi, suggesting that the assessee had taken accommodation entries amounting to ?1.50 crore. The assessee argued that the reasons for reopening were vague and based on borrowed satisfaction without any independent application of mind by the AO. The Tribunal noted that the AO did not specify any details or particulars of the credits in the reasons recorded and failed to mention if there was any failure on the part of the assessee to disclose fully and truly all material facts necessary for assessment. Consequently, the Tribunal found the reopening of the assessment to be illegal and invalid.

Similarly, in the case of Param Exim Limited, the AO reopened the assessment based on information from the DIT (Inv.)-II, New Delhi, regarding accommodation entries of ?3.20 crore. However, the Tribunal observed that the reasons recorded for reopening contained incorrect facts, such as the wrong financial year and incorrect amount of alleged accommodation entries. This indicated a lack of application of mind by the AO, leading the Tribunal to quash the reopening of the assessment.

Issue 2: Validity of Reassessment Proceedings Based on Information from the Investigation Wing
In both cases, the reassessment proceedings were initiated based on information from the Investigation Wing. The Tribunal emphasized that while the report from the Investigation Wing could be considered tangible material, the AO must independently apply their mind and not merely act on the advice of the Investigation Wing.

For M/s. KLF Food (India) Ltd., the Tribunal highlighted that the AO's reasons for reopening did not mention any specific details of the accommodation entries or the failure of the assessee to disclose material facts. The Tribunal relied on various judicial precedents, including the Delhi High Court's decision in Signature Hotels P. Ltd. vs. ITO, which held that reassessment proceedings based solely on information from the Investigation Wing without independent verification by the AO were invalid.

In the case of Param Exim Limited, the Tribunal found that the AO recorded vague reasons based on incorrect facts, further invalidating the reassessment proceedings.

Issue 3: Addition of Unexplained Credit/Share Capital
The addition of unexplained credit/share capital was another significant issue in both cases. The AO made additions based on the alleged accommodation entries received by the assessees.

For M/s. KLF Food (India) Ltd., the CIT(A) deleted the addition, noting that all investor companies were assessed to tax under Section 153C/153A, and no adverse findings were made against the assessee during the assessment. The Tribunal upheld this deletion, primarily because the reopening of the assessment itself was found to be invalid.

In the case of Param Exim Limited, the CIT(A) also deleted the addition on similar grounds, and the Tribunal upheld this decision, reiterating that the reassessment proceedings were invalid due to incorrect facts and lack of application of mind by the AO.

Conclusion
In both cases, the Tribunal quashed the reopening of assessments under Section 147/148, finding the reasons recorded by the AO to be vague, based on borrowed satisfaction, and containing incorrect facts. Consequently, the additions made on account of unexplained credit/share capital were also deleted. The Tribunal's decisions underscore the importance of the AO independently applying their mind and providing specific and correct reasons for reopening assessments.

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