2021 (8) TMI 632 - AT - Income Tax

Reopening of assessment u/s 147 - reasons were recorded on receipt of information from Investigation Wing - case of the assessee was reopened second time - Share capital received from M/s. Moderate Credit Corporation Ltd. - HELD THAT - Perusing of the reasons recorded and assessment order framed in this case further shows that, the entire reopening and assessment proceedings have been based upon the information received by the AO from the Investigation Wing of Income-tax, where Aseem Gupta had admitted to provide accommodation entries to several beneficiaries with the help of several bank accounts opened in the name of several proprietary concerns and companies in which either he himself or his employees were Director or proprietor. Apart from this information, which has been taken as gospel truth by the AO, no independent enquiry has been made to collate and corroborate this statement and information provided by Aseem Gupta to Investigation Wing. The issue in question that assessee company has received accommodation entry from Moderate Corporate Corp. belonging to one Aseem Gupta, CA was subject matter of the earlier assessment framed u/s 147 read with section 143 (3) of the Act. Last sentence of the reasons recorded apparently goes to prove that AO has reopened assessment u/s 147/148 of the Act to verify the genuineness, identification and creditworthiness of the aforesaid transaction. It is settled principle of law that jurisdiction u/s 147 can only be assumed to enquire into the escapement of income or on the basis of some tangible material - See M/S SBS REALTORS (P) LTD. VERSUS INCOME TAX OFFICER, WARD-22 (4) , NEW DELHI 2019 (4) TMI 357 - ITAT DELHI Assessment framed in this case is not sustainable since the very jurisdiction assumed by the AO u/s 147 of the Act is bad in law and assessment framed on the basis of change of opinion u/s 147/143 (3) is void ab initio and is not sustainable in the eyes of law, hence quashed. Since assessment framed is not sustainable in the eyes of law on legal grounds, grounds raised on merits are not required to be disposed off.- Decided in favour of assessee.

Issues Involved:
1. Validity of the CIT(A)'s order.
2. Legality of the assessment framed under sections 147/143(3) of the Income-tax Act.
3. Reliance on the statement of a third party without cross-examination.
4. Jurisdiction of the AO under section 147 read with section 148 after four years.
5. Alleged failure of the assessee to disclose material facts.
6. Concept of change of opinion.
7. Mechanical sanction accorded by the CIT.
8. Addition of ?50,00,000 as unexplained cash credit under section 68.
9. Charging of interest under sections 234B and 234A.

Detailed Analysis:

1. Validity of the CIT(A)'s Order:
The appellant challenged the CIT(A)'s order as being "bad in law and on facts." The Tribunal observed that the CIT(A) confirmed the AO's addition of ?50,00,000 as unexplained cash credit without adequately addressing the assessee's arguments and evidence.

2. Legality of the Assessment under Sections 147/143(3):
The Tribunal found that the AO's reasons for reopening the assessment were based on incorrect and non-existent facts. It was noted that the AO had previously assessed the case under section 147/143(3) on 27.03.2014, contradicting his statement that the case was not selected for scrutiny. The Tribunal held that the assumption of jurisdiction under section 147 was "bad in law" as it was based on factually incorrect premises.

3. Reliance on Third-Party Statement:
The AO relied on the statement of Aseem Gupta, recorded under oath during a survey, without allowing the assessee a chance for cross-examination. The Tribunal emphasized that statements recorded during surveys have no evidentiary value unless corroborated by independent evidence. The Tribunal cited the case of Sungrow Impex, where it was held that Aseem Gupta's retracted statement had no evidentiary value.

4. Jurisdiction under Section 147/148 after Four Years:
The Tribunal noted that the case was reopened after the expiry of four years from the end of the relevant assessment year. It underscored that for such reopening, the AO must demonstrate that the assessee failed to disclose material facts fully and truly, which was not evident in this case. The Tribunal found that the reopening was based on information already available during the first reassessment, making it a case of "change of opinion."

5. Alleged Failure to Disclose Material Facts:
The Tribunal observed that the AO did not provide any evidence of the assessee's failure to disclose material facts fully and truly. The reopening was based on information from the Investigation Wing without independent verification by the AO. This lack of independent inquiry rendered the reopening invalid.

6. Concept of Change of Opinion:
The Tribunal cited the Supreme Court's decision in CIT vs. Kelvinator of India Ltd., which held that reopening an assessment based on a mere "change of opinion" is not permissible. The Tribunal found that the AO's second reopening was based on the same issue of accommodation entries, which had already been examined during the first reassessment, thus constituting a "change of opinion."

7. Mechanical Sanction by the CIT:
The Tribunal found that the CIT accorded approval for reopening in a mechanical manner without applying his mind. The reasons recorded and the show-cause notice issued did not indicate any failure on the part of the assessee to disclose material facts. The Tribunal held that the mechanical approval by the CIT rendered the entire assessment proceedings null and void.

8. Addition of ?50,00,000 as Unexplained Cash Credit:
The Tribunal noted that the AO added ?50,00,000 as unexplained cash credit under section 68 based on the statement of Aseem Gupta and information from the Investigation Wing. However, the Tribunal found that the AO did not independently verify the genuineness, identification, and creditworthiness of the transactions. The Tribunal held that the AO's reliance on uncorroborated third-party statements was insufficient to justify the addition.

9. Charging of Interest under Sections 234B and 234A:
The Tribunal did not specifically address the issue of charging interest under sections 234B and 234A, as the primary grounds for quashing the assessment were sufficient to dispose of the appeal.

Conclusion:
The Tribunal quashed the assessment framed under sections 147/143(3) as void ab initio due to the AO's incorrect assumption of jurisdiction, reliance on uncorroborated third-party statements, mechanical approval by the CIT, and reopening based on a "change of opinion." The appeal filed by the assessee was allowed.

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