2019 (12) TMI 674 - AT - Income Tax

Re-opening of assessment - Addition u/s 68 - HELD THAT - There is no report or evidence of any authority conducting spot verification, dates etc. The share applicant companies are all registered companies under the Companies Act and are having bank accounts as well as PAN nos. The assessee has raised share capital of ₹ 90 lakhs during the year and this was disclosed in the annual accounts attached with the income tax return. It is a recorded and disclosed fact. To record in the reasons that this was discovered during survey is not factually correct. A disclosed fact already on record cannot be discovered. Similarly the recording that information was received from the investigation wing is vague. No particulars are given. The director has sought for time to provide details. It is not a case of failure to prove the identity etc. Identity, creditworthiness and genuineness of a transaction cannot be proved in spot enquiry during survey. Hence as in the case of reasons recorded for re-opening for AY 2009-10 the re-opening of assessment for AY 2010-11 is also bad in law. There is no independent application of mind by the AO to the information received from the investigation wing. Suspicion cannot take place of proof or evidence. Though it is true that conclusive evidences need not be brought on record at the time of recording of reasons, there should be some verification which should lead to the formation of belief that income subject to tax has escaped assessment. Vague statement, wrong recording of facts in the reasons recorded for re-opening, render the re-assessment is bad in law.

Summary

Issues Involved:
1. Legality of the re-opening of assessments under Section 148 of the Income Tax Act for AY 2009-10 and AY 2010-11.
2. Validity of additions made under Section 68 of the Income Tax Act for AY 2009-10 and AY 2010-11.

Issue-wise Detailed Analysis:

1. Legality of the re-opening of assessments under Section 148 of the Income Tax Act for AY 2009-10 and AY 2010-11:

AY 2009-10:
The assessee challenged the re-opening of the assessment on the grounds that the Assessing Officer (AO) did not independently apply his mind to the material before forming a belief that income had escaped assessment. The AO relied on information from the DDIT (Inv.), Unit-4(1), Kolkata, which indicated that the assessee maintained two bank accounts in Oriental Bank of Commerce. However, the assessee contended that these accounts did not belong to them. The AO, in his letter dated 08.07.2016, attempted to justify the re-opening by stating that the amount deposited in these accounts was transferred to the assessee through several Jama-Kharchi companies.

The Tribunal found that the AO had merely relied on the report from the DDIT without independent application of mind. There was no evidence provided to establish a connection between the assessee and the persons who opened the bank accounts. The reasons recorded for re-opening were vague and lacked a rational and intelligible nexus with the material in possession of the AO. The Tribunal cited various case laws, including ITO vs. Lakhmani Mewal Das and Ganga Saran & Sons vs. ITO, to support its conclusion that the re-opening was bad in law.

AY 2010-11:
For AY 2010-11, the re-opening was based on a survey conducted on 05.07.2016, which revealed that the assessee had raised share capital of ?90,00,000 during FY 2009-10. The AO claimed that the share subscriber companies were non-existent and that the share capital was routed through accommodation entry providers. The AO also noted that the Director of the assessee company could not prove the identity, creditworthiness, and genuineness of the transactions during the survey.

The Tribunal found that the reasons recorded for re-opening were not supported by any material evidence. There was no report or evidence of spot verification, and the share applicant companies were registered entities with bank accounts and PAN numbers. The Tribunal held that the re-opening was based on vague statements and incorrect recording of facts, making it bad in law. The Tribunal emphasized that suspicion cannot replace proof or evidence, and there should be some verification leading to the belief that income had escaped assessment.

2. Validity of additions made under Section 68 of the Income Tax Act for AY 2009-10 and AY 2010-11:

AY 2009-10:
The assessee argued that adequate opportunity was not given to present their case and that the AO and CIT(A) did not properly appreciate the evidence provided. The Tribunal noted that the AO's reliance on the report from the DDIT without independent verification rendered the additions under Section 68 invalid. The Tribunal cited case laws to support the principle that the reasons for re-opening must have a rational connection with the belief that income had escaped assessment.

AY 2010-11:
Similar to AY 2009-10, the assessee contended that the AO did not provide adequate opportunity to present their case. The Tribunal found that the reasons recorded for re-opening were vague and lacked supporting evidence. The Tribunal held that the additions under Section 68 were invalid as the AO did not independently verify the information received from the investigation wing.

Conclusion:
The Tribunal allowed the appeals for both assessment years, holding that the re-opening of assessments was bad in law and the additions made under Section 68 were invalid. The Tribunal emphasized the need for independent application of mind by the AO and the requirement for a rational and intelligible nexus between the material and the reasons recorded for re-opening assessments.