2020 (12) TMI 1026 - AT - Income Tax

Reopening of assessment u/s 147 - AO had received information from the Investigation Wing about certain entries made/provided by one Shri Vipin Garg, at Tamilnadu, as per the information, the assessee had received an amount from the concern belonging to said Vipin Garg - HELD THAT - Information, though relevant, but was needed to be examined and verified with the accounts as well as the Income-tax return filed by the assessee. However, the Assessing Officer wrongly recorded that assessee had not filed any return of income. This fact recorded by the Assessing Officer itself shows that the Assessing Officer has not consulted the relevant record pertaining to the Income-tax return of the assessee and without consulting the relevant record, the Assessing Officer formed the belief on the basis of the information received from the Investigation Wing. The said information, should have been verified after correlating with the records of the assessee and thereafter the AO could have formed the belief that the said amount shown to have been received by the assessee from a concern of Shri Vipin Garg was, in fact, an accommodation entry or not. Assessing Officer had failed to properly apply his mind and the belief formed by the Assessing Officer regarding escapement of income of the assessee was based on mere suspicions only. Therefore, the reopening of the assessment without a reasonable belief formed by the Assessing Officer by applying his mind, cannot be held valid. - Decided in favour of assessee.

Summary

Issues Involved:
1. Validity of reopening the assessment u/s. 147 & 148 of the Income Tax Act, 1961.
2. Additions made by the Assessing Officer on merits.

Issue 1: Validity of Reopening Assessment:
The appeal challenges the order of the Commissioner of Income Tax (Appeals) confirming the Assessing Officer's decision to issue a notice u/s. 148 based on information from the Investigation Wing. The appellant contests the lack of independent application of mind by the Assessing Officer and argues that there was no valid reason or material to support the reopening. The appellant also questions the failure to consider the maintenance of proper books of account, duly audited by a Chartered Accountant, which were not rejected by the Assessing Officer. The appellant further alleges a violation of natural justice principles due to the reliance on a report without granting an opportunity for cross-examination. The Tribunal held that the Assessing Officer did not properly verify the information received, failed to consult relevant records, and formed a belief based on mere suspicions, leading to an invalid reopening of the assessment under section 147 of the Act. Consequently, the assessment framed under section 147 was deemed unlawful and quashed, resulting in the appeal being allowed.

Issue 2: Additions Made on Merits:
The Assessing Officer had received information from the Investigation Wing regarding accommodation entries made by Shri Vipin Garg, leading to the reopening of the assessment. The appellant argued that the Assessing Officer did not conduct a thorough enquiry or verify the income tax return and other documents to establish that the amount in question was an accommodation entry. The appellant highlighted discrepancies in the reasons recorded by the Assessing Officer, pointing out that the appellant had indeed filed a return of income for the relevant year. The Tribunal noted that the Assessing Officer's belief of income escapement was not based on a proper examination of facts and records, but rather on suspicions. The Tribunal concluded that the Assessing Officer failed to apply his mind adequately, rendering the reopening and subsequent additions unjustified. Therefore, the appeal was allowed, and the assessment was quashed.

In conclusion, the Tribunal found in favor of the appellant, ruling that the reopening of the assessment and the additions made were invalid due to the Assessing Officer's failure to conduct a proper examination and application of mind. The Tribunal emphasized the importance of verifying information and records before forming a belief of income escapement, highlighting the need for a reasonable basis for reopening assessments under the Income Tax Act, 1961.