2019 (12) TMI 680 - AT - Income Tax

Validity of reopening of assessment - HELD THAT - For assumption of jurisdiction, in the reasons so recorded by the Assessing officer, he has stated that assessee has failed to fully and truly disclose all material facts necessary for the assessment. Apparently, the Assessing officer has drawn reference to the proviso to section 147 of the Act which in our mind is not applicable in the instant case as the original return so filed by the assessee was processed u/s 143(1) and not under section 143(3) and thus, the proviso to section 147 and the condition so specified therein cannot be invoked to invoke assumption of jurisdiction u/s 147 of the Act. Basic requirement for assumption of jurisdiction u/s 147 is not satisfied in the instant case and consequent reassessment proceedings deserve to be set-aside - Appeal filed by the assessee is allowed.

Issues Involved:

1. Validity of the order passed by the AO under Section 147 of the IT Act, 1961.
2. Confirmation of an addition of ?1.10 Crores under Section 68 by treating the share capital money received from certain parties as unexplained.

Detailed Analysis:

Issue 1: Validity of the order passed by the AO under Section 147 of the IT Act, 1961

The appellant challenged the legality of the order passed by the Assessing Officer (AO) under Section 147 of the IT Act, 1961. The appellant's representative argued that the reasons recorded by the AO before issuing the notice under Section 148 were not specific and lacked clarity regarding the nature of the transactions. The AO had based the reopening of the assessment on information that the assessee had taken accommodation entries in the nature of loan/advance/purchase bills from five companies. However, the AO did not specify the source of this information or how it related to the assessee. The appellant contended that the AO did not examine the information to verify the nature of the receipts and that the reopening of the assessment was illegal and bad in law.

The appellant relied on several precedents, including the Co-ordinate Bench decision in the case of M/s Merta Oil Mills Company Pvt. Ltd. Vs. ITO, where the reopening of assessment was quashed due to the AO's failure to apply his mind and the vague reasons recorded. Similar reliance was placed on the cases of Meta Plast Engineering Pvt. Ltd. Vs. ITO and M/s Balaji Health Care Pvt. Ltd. Vs. The ITO(E), where the reopening of assessments was held to be bad in law due to lack of specific reasons and failure to establish a nexus between the information and the assessee.

The respondent (DR) argued that the AO had credible information to hold the belief that the assessee had obtained accommodation entries and that there was a clear nexus between the tangible material and the formation of belief that the income had escaped taxation. The respondent also argued that since the return of income was originally processed under Section 143(1), there was no question of change of opinion by the AO.

The tribunal noted that the reasons recorded by the AO must be specific and based on tangible material. The tribunal found that the AO had not specified the material on record that led to the belief that income had escaped assessment. The tribunal also noted that the transactions listed in the reasons recorded were related to share capital contributions, not loans or advances, indicating non-application of mind by the AO. The tribunal concluded that the basic requirement for assumption of jurisdiction under Section 147 was not satisfied and set aside the reassessment proceedings.

Issue 2: Confirmation of an addition of ?1.10 Crores under Section 68 by treating the share capital money received from certain parties as unexplained

Given that the tribunal set aside the reassessment proceedings under Section 147, the grounds on merits regarding the addition of ?1.10 Crores under Section 68 became academic and were dismissed as infructuous.

Conclusion:

The appeal filed by the assessee was allowed, and the reassessment proceedings under Section 147 were set aside due to the AO's failure to record specific and tangible reasons for reopening the assessment. The grounds on merits were dismissed as infructuous.

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