2021 (2) TMI 1053 - AT - Income Tax

Reopening of assessment u/s 147 - Addition u/s 68 - HELD THAT - AO in his reasons to believe in the case of the assessee before us had merely referred to the information that was received by him from the DGIT(Inv.), Mumbai that the assessee as a beneficiary had received accommodation entries from two concerns, and dispensing with even the bare minimum requirement of pointing out the nature of the impugned accommodation entries i.e as to whether they were accommodation entries in the nature of sales or unsecured loans or share application money, on the basis of vague and scanty information and without any further verification, examination or any other exercise had jumped to the conclusion that the income of the assessee in respect of the accommodation entries had escaped assessment for the year in question. A.O had blatantly failed to apply his mind to the material available on record for forming a belief that the income of the assessee had escaped assessment. We, thus, are of the considered view that as the A.O had acted mechanically on the information supplied by the Directorate of Income-tax(Inv.) that the assessee was a beneficiary of the alleged bogus/accommodation entries provided by the aforesaid entry provider, viz. Shri Praveen Kumar Jain, and had failed to apply his mind to the material available on his record, the reopening of the assessment by him u/s 147 of the Act could not be held to be justified. A.O had failed to independently apply his mind to the material available on his record and mechanically acting on the information supplied by the Directorate of Income-tax (Inv.) had reopened the case of the asseessee u/s 147 of the Act, the same, thus, cannot be sustained and is liable to be vacated, Accordingly, in the absence of valid assumption of jurisdiction by the A.O u/s 147 of the Act, the consequential assessment framed by him u/s 143(3) r.w.s 147, dated 29.03.2015 cannot be sustained and is quashed. Appeal of the assessee is allowed

Issues Involved:
1. Validity of reopening the assessment under Section 147 of the Income Tax Act, 1961.
2. Addition of ?10,000,000 as unexplained cash credits under Section 68 of the Income Tax Act, 1961.

Issue-wise Detailed Analysis:

1. Validity of Reopening the Assessment under Section 147:

The assessee challenged the reopening of the assessment under Section 147, arguing that the Assessing Officer (A.O) did not conduct an independent inquiry or form a proper reason to believe that income had escaped assessment. The A.O had reopened the case based on information received from the Directorate General of Income Tax (Investigation), Mumbai, which indicated that the assessee had received accommodation entries from two group concerns managed by an infamous entry provider. The A.O issued a notice under Section 148, and the assessee contended that the A.O had acted mechanically without applying his own mind to the information received.

The Tribunal examined the 'reasons to believe' recorded by the A.O and found that the A.O had merely referred to the information from the DGIT(Inv.), Mumbai, without independently verifying or forming a belief that the income had escaped assessment. The Tribunal noted that the A.O failed to specify the nature of the accommodation entries and did not demonstrate a link between the information and the formation of belief. The Tribunal cited several judicial pronouncements, including *PCIT Vs. Meenakshi Overseas Pvt. Ltd.* and *PCIT Vs. G & G Pharma India Ltd.*, which emphasized the necessity for the A.O to independently apply his mind to the material on record.

The Tribunal concluded that the A.O had acted mechanically on the information supplied by the DGIT(Inv.) without independent verification, thus failing to meet the statutory requirement for reopening the assessment under Section 147. Consequently, the Tribunal held that the reopening of the assessment was not justified and quashed the assessment framed under Section 143(3) read with Section 147.

2. Addition of ?10,000,000 as Unexplained Cash Credits:

The A.O had added ?10,000,000 to the assessee's income, treating it as unexplained cash credits under Section 68. The assessee had claimed to have raised loans from M/s Natasha Enterprises and M/s Mohit International, but the A.O, relying on statements from various individuals recorded during search proceedings, concluded that the loans were not genuine.

The assessee argued that the loans were supported by documentary evidence, including confirmations from the lenders, PAN numbers, and bank statements showing receipt of the loans through account payee cheques. The assessee also pointed out that ?72 lakhs of the loan amount had been repaid, which evidenced the genuineness of the transactions. The A.O, however, did not call for information from the lenders or direct their appearance for verification.

The Tribunal, having quashed the assessment for lack of jurisdiction, did not delve into the merits of the case regarding the addition of ?10,000,000 as unexplained cash credits. The contentions on the merits were left open for consideration in any subsequent proceedings.

Conclusion:

The appeal of the assessee was allowed on the grounds that the A.O had failed to independently apply his mind to the material on record and had mechanically acted on the information supplied by the DGIT(Inv.). The reopening of the assessment under Section 147 was quashed, and consequently, the assessment framed under Section 143(3) read with Section 147 was set aside. The contentions regarding the addition of ?10,000,000 as unexplained cash credits were not addressed on merits and were left open.

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