2021 (1) TMI 85 - AT - Income Tax

Reopening of assessment u/s 147 - invalidate sanction under section 151 - Addition u/s 68 - information was received from the office of the Director of Income-tax (Investigation-II), New Delhi that a search operation was carried out in the case of S.K. Jain group of cases wherein found that the said group has been providing accommodation entries to various persons and the assessee-company was also figured in the same list - HELD THAT - As decided in VRC TOWNSHIP PVT. LTD. 2020 (10) TMI 1223 - ITAT DELHI wrong Section have been mentioned in the reasons and some of the Columns material for re-assessment are left Blank and that Addl. CIT did not record how he was satisfied on wrong facts and wrong reasons would clearly show that reopening have been done in the matter without application of mind based on wrong facts and as such the reopening of the assessment cannot be justified. It may also be noted here that the Learned Addl. CIT, Range-12, Delhi while granting sanction under section 151 of the I.T. Act has mentioned in the reasons that Yes, I am satisfied that this is a fit case for reopening under section 147. Such a satisfaction was not found valid by ITAT, Delhi Benches in the cases of Shree Balkishan Agarwal Glass Industries Ltd., Delhi 2020 (9) TMI 1153 - ITAT DELHI and M/s. Behat Holdings Ltd., Delhi vs., ITO, Ward-4(3), New Delhi 2020 (1) TMI 1358 - ITAT DELHI based on several decisions of the Hon ble High Courts. Thus, the issue is covered against the Revenue by the above decisions of the Tribunal as well. The A.O. has thus no justification to assume jurisdiction under section 147 in a Lawful manner and as such the same are liable to be quashed. In view of the above discussion, we set aside the Orders of the authorities below and quash the reopening of the assessment. Resultantly, all additions stand deleted. Since we have quashed the reopening of the assessment, therefore, there is nothing to decide the issue of addition on merits. Appeal of the Assessee allowed.

Issues Involved:
1. Initiation of re-assessment proceedings under Section 147/148 of the Income Tax Act, 1961.
2. Addition of ?25 lakhs under Section 68 of the Income Tax Act, 1961.
3. Addition of ?45,000 under Section 69C of the Income Tax Act, 1961 on account of unexplained expenditure.

Detailed Analysis:

1. Initiation of Re-assessment Proceedings under Section 147/148 of the Income Tax Act, 1961:

The Assessee challenged the initiation of re-assessment proceedings, arguing that the reasons for reopening were based on a non-existent Section 147(b) of the Income Tax Act, which was deleted effective 01.04.1989. The Assessee contended that the initiation was done mechanically without application of mind, relying on the directions and actions suggested by the DDIT/DIT (Inv.), thus constituting borrowed satisfaction. The Assessee also highlighted that the amount of ?25 lakhs was received and returned within the same assessment year through banking channels, indicating no escapement of income.

The Tribunal noted that the validity of re-assessment proceedings is determined based on the reasons recorded for reopening. It found that the A.O. mentioned the non-existent Section 147(b) and acted on borrowed satisfaction without independent inquiry or verification. The Tribunal referenced the ITAT Delhi Bench decision in the case of VRC Township Pvt. Ltd., where similar issues led to quashing of re-assessment proceedings. The Tribunal emphasized that the A.O. and the Senior Authorities did not apply their minds and acted mechanically, leading to invalid re-assessment proceedings.

2. Addition of ?25 Lakhs under Section 68 of the Income Tax Act, 1961:

The A.O. made an addition of ?25 lakhs under Section 68 on account of unexplained share capital received from M/s. KDG Properties and Con Pvt. Ltd. The Assessee argued that the amount was received and returned within the same assessment year, and no shares were issued, thus no income escaped assessment.

The Tribunal observed that the A.O. recorded incorrect facts and acted under a mistaken belief. The Tribunal found that the Assessee was not a beneficiary of the ?25 lakhs and that the A.O. did not verify the correctness of the information received. The Tribunal concluded that the addition was made without proper application of mind and based on incorrect facts.

3. Addition of ?45,000 under Section 69C of the Income Tax Act, 1961 on Account of Unexplained Expenditure:

The A.O. made an addition of ?45,000 under Section 69C for unexplained expenditure related to obtaining accommodation entries. The Assessee contended that the re-assessment proceedings were invalid, and thus, the addition should be quashed.

Given the Tribunal's decision to quash the re-assessment proceedings, the addition under Section 69C was also rendered invalid. The Tribunal did not delve into the merits of this addition, as it was consequential to the invalid re-assessment proceedings.

Conclusion:

The Tribunal quashed the re-assessment proceedings under Section 147/148 of the Income Tax Act, 1961, due to the initiation being based on a non-existent section, borrowed satisfaction, and mechanical application of mind by the A.O. and Senior Authorities. Consequently, all additions made under Sections 68 and 69C were deleted, and the appeal of the Assessee was allowed.

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