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2019 (11) TMI 28 - AT - Income TaxValidity of reopening of assessment - assumption of jurisdiction u/s 147 - non fulfillment of mandatory jurisdictional conditions specified under the Act - As per assessee reopening was based on the borrowed satisfaction of CIT Central II, New Delhi and was without an independent application of mind - addition on accommodation entry - HELD THAT - An investigation wing of the Income Tax department is very important organ and arm collecting lot of significant information/s under the Act. However, the requirement of recording the reasons u/s 148 of the Act is vested in the AO only and nobody else. In the present case, the AO should have given relevant details in the reasons recorded vis a vis the crucial aspects of information shared by the CIT Central/ investigation wing (if any) which in his own independent opinion led him to formulate the belief for assuming jurisdiction for re-assessment and sans which we cannot approve the present reasons as valid and correct. Notably, nowhere in the reasons AO has shed any light on as to whether any specific statement of Shri Aseem Gupta or any other person was there to warrant assumption of jurisdiction in assessee s case except some general allegations. Moreover, not a single document is mentioned and referred to in the reasons recorded wherefrom the stated allegation, as levelled in the reasons, can be supported. These are fatal errors which strike at the very foundation of the validity of the re-assessment proceedings. CIT (A), in his adjudication on the validity of the reasons recorded, has simply stated that since the AO has taken care of the procedure to be followed as dictated in the case of GKN Driveshaft 2002 (11) TMI 7 - SUPREME COURT nothing more was required to be seen and looked into. This observation, to our mind, is a very casual way of dealing with the detailed arguments of assessee made before him. Taking a holistic view on the facts of this case, we are of the considered view that reopening in the present case cannot be approved on the basis of the reasons recorded and the same is held to be without authority of law - AO has simply relied on the information from the CIT(Central)/DIT(Inv) to form a conclusion about escapement of income, which itself is flawed and cannot pass the test of 'reason to believe' - Decided in favour of assessee
Issues Involved:
1. Validity of the assumption of jurisdiction under Section 147 of the Income Tax Act. 2. Validity of the additions made by the Assessing Officer (AO) based on alleged accommodation entries and related expenditures. Detailed Analysis: 1. Validity of the Assumption of Jurisdiction under Section 147 of the Act: The primary issue raised by the assessee was the validity of the notice issued under Section 148 and the subsequent order passed under Section 147 of the Income Tax Act. The assessee argued that the notice and the order were "bad in law, because of non-fulfillment of mandatory jurisdictional conditions specified under the Act." Arguments by the Assessee: - The reasons recorded for reopening the assessment were based on borrowed satisfaction from the CIT Central II, New Delhi, without an independent application of mind by the AO. - The reasons did not specify the exact information received from the investigation wing or CIT-Central vis-a-vis the assessee’s transaction of ?600,000. - The reasons recorded were vague and did not provide a direct nexus or live link between the material and the formation of belief that income had escaped assessment. Arguments by the Department: - The Sr. DR supported the reasons recorded and argued that the correspondence between the AO and the DCIT, Central Circle 9, New Delhi, subsequent to the reopening, could not infer the absence of required material at the stage of issuance of notice under Section 148. - The Sr. DR relied on the Hon’ble Delhi High Court’s judgment in the case of Sonia Gandhi, which upheld reassessment based on tangible material from subsequent investigations. Tribunal's Findings: - The Tribunal emphasized that for any action under Section 147, the reasons recorded must themselves give rise to an honest belief that income has escaped assessment. - The reasons must be self-explanatory and should not leave the assessee guessing. They should provide a clear link between the conclusion and the evidence. - The Tribunal noted that the reasons recorded in this case were based on borrowed satisfaction from the CIT-Central and lacked independent application of mind by the AO. - The reasons did not specify any tangible material or specific inquiry made by the AO that could form a valid belief of income escaping assessment. The Tribunal concluded that the reopening of the assessment was based on invalid and unlawful reasons, lacking independent application of mind, and thus quashed the reassessment proceedings. 2. Validity of Additions Made by the AO: The AO had made several additions to the assessee’s income based on alleged accommodation entries and related expenditures: - ?600,000 on account of alleged accommodation entry. - ?6,000 on account of alleged expenditure to obtain the said accommodation entry under Section 69C of the Act. - ?970,000 on account of an increase in share capital. - ?62,80,000 on account of an increase in share premium. Arguments by the Assessee: - The additions were challenged on both legal grounds and merits. - The assessee argued that the reasons recorded did not provide any specific and particular tangible material to form a valid belief that the transactions were accommodation entries. Tribunal's Findings: - Since the Tribunal quashed the reassessment proceedings on the grounds of invalid assumption of jurisdiction under Section 147, the subsequent additions made by the AO were also rendered invalid. - The Tribunal did not need to adjudicate on the merits of the additions as the reassessment proceedings themselves were quashed. Conclusion: The Tribunal allowed the appeal of the assessee, quashing the reassessment proceedings due to the invalid assumption of jurisdiction under Section 147 of the Income Tax Act. The reasons recorded for reopening the assessment were found to be based on borrowed satisfaction without independent application of mind and lacked the necessary tangible material to form a valid belief of income escaping assessment. Consequently, the additions made by the AO were also invalidated.
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