2020 (11) TMI 766 - AT - Income Tax

Validity of reopening of assessment u/s 147 - borrowed satisfaction - no material for forming belief that income of the assessee had escaped assessment - as argued action was initiated on the basis of mere suspicion and vague information and there was no independent satisfaction of the A.O. - as per assessee no satisfaction of the A.O. of escapement of income, which is a necessary pre requisite for initiating the reassessment proceedings was not as per law - HELD THAT - AO has merely relied on the information passed on to him by the Investigation department regarding accommodation entry taken by the assessee, without even applying his mind to it and verifying the same. The entire reasons, we find, talks about some information with the Department regarding the assessee having availed accommodation entries of ₹ 20 lacs from M/s Virgin Capital Services Pvt.Ltd. a paper company of M/s Surinder Kumar Jain Group, which is engaged in providing such entries, through cheque in lieu of cash. There is nothing in the reasons revealing application of mind by the AO to the information in his possession, as to whether he had verified that any such amount was actually received during the year and if so in what mode or manner i.e as share capital or unsecured loan etc. A.O. has formed his belief solely on this information without even verifying and cross checking the same with the facts on record available with him. The belief of escapement of income as recorded in the reasons, is clearly not that of the A.O. but, as rightly pointed out by the Ld. Counsel for the Assessee, it is a borrowed belief. Since the satisfaction regarding escapement of income as recorded in the reasons, was not that of the AO but was borrowed satisfaction, the jurisdiction therefore assumed to reopen the case u/s 147 of the Act was bad in law. - Decided in favour of assessee.

Summary

Issues:
1. Validity of assessment under section 147 of the Income Tax Act, 1961.
2. Addition of undisclosed income under section 68 of the Act.
3. Addition of commission under section 69 of the Act.

Issue 1: Validity of assessment under section 147 of the Income Tax Act, 1961:
The appeal challenged the assessment framed under section 147 of the Act, contending that the initiation of proceedings was arbitrary and lacked independent satisfaction. The Assessing Officer (AO) relied on information from the DIT(Inv) without verifying it. The appeal cited instances of borrowed satisfaction and referenced legal precedents to support the argument. The CIT(A) upheld the AO's actions, stating that there was sufficient material for forming a belief of income escapement. However, the tribunal found that the AO failed to independently apply his mind to the information provided, leading to a borrowed belief. Citing relevant case law, the tribunal concluded that the reassessment was not based on the AO's own satisfaction and hence quashed the assessment order.

Issue 2: Addition of undisclosed income under section 68 of the Act:
The AO treated the amount of ?20,00,000 as undisclosed income from undisclosed sources and added it under section 68 of the Act. The CIT(A) upheld this addition, which was further challenged in the appeal. However, since the tribunal quashed the assessment order due to the invalidity of the reassessment, the issue of this addition became academic and was not addressed in detail.

Issue 3: Addition of commission under section 69 of the Act:
Additionally, the AO added commissions paid by the assessee company under section 69 of the Act. The CIT(A) upheld these additions, which were also challenged in the appeal. However, similar to the previous issue, these grounds on the merits were considered academic due to the quashing of the assessment order.

In conclusion, the tribunal allowed the appeal on the first ground related to the validity of the assessment under section 147 of the Act, highlighting the lack of independent satisfaction by the AO. As a result, the assessment order was deemed unsustainable in law and quashed. The issues regarding additions of undisclosed income and commissions were not addressed due to the primary ground's resolution.