2022 (7) TMI 631 - AT - Income Tax

Reopening of assessment u/s 147 - Addition u/s 68 - assessee stated that the assessee had no connection whatsoever with Kartika Investments and Victory Tie-up Pvt.Ltd., neither payment was received nor was any payment made to them - whether reason recorded for re-opening by the AO was found to be based on incorrect facts? - HELD THAT - Looking to the findings of the AO, who has not rebutted the explanation by placing any credible material in support of his allegation that the assessee company has obtained bogus profit through accommodation entry. In the absence of specific finding supported by evidence mere reasoning on the basis of suspicion would not support the allegation. AO has not brought any evidence to prove the correctness of allegation that the assessee procured profit in the present case. In light of the binding precedents on this issue in the case of Sarthak Securities Co.Pvt.Ltd. 2010 (10) TMI 92 - DELHI HIGH COURT re-opening of the assessment cannot be sustained in the present case. Since the re-opening of assessment is based upon purely on guess work hence, cannot be sustained - therefore, hold that the reasons recorded by the AO do not conform to law as there is a gross non-application of mind. Hence, the impugned order is hereby quashed. - Decided in favour of assessee.

Summary

Issues Involved:
1. Legality of reopening the assessment order.
2. Merit of additions made by the Assessing Officer.
3. Charging of interest under section 234B of the Income Tax Act.

Analysis:

Issue 1: Legality of reopening the assessment order

The appeal challenged the reopening of the assessment for the assessment year 2011-12. The assessee contended that the re-opening was illegal, unjustified, and based on incorrect facts. The Assessing Officer (AO) had mentioned a different entity's name in the reasons for re-opening, which was admitted as a typographical error. The contention was that this error, along with other discrepancies, showed a lack of application of mind by the AO. The Revenue argued that the reasons related to the assessee company, justifying the re-opening. The Tribunal noted the AO's admission of the error and the absence of evidence supporting the allegation of bogus profit. Relying on legal precedents, the Tribunal held that the re-opening lacked merit and was based on guesswork, leading to the quashing of the assessment order.

Issue 2: Merit of additions made by the Assessing Officer

As the assessment was quashed due to incorrect reasons for re-opening, the Tribunal did not delve into the merit of the additions made by the AO. The issues related to additions, such as unexplained cash credit, expenditure, share capital, and commission, became of academic interest only after the assessment was invalidated.

Issue 3: Charging of interest under section 234B

Since the assessment was quashed, the Tribunal did not separately address the issue of charging interest under section 234B. The appeal being partly allowed based on the incorrect re-opening of the assessment, the interest charge also did not require specific adjudication.

In conclusion, the Tribunal found the re-opening of the assessment to be legally flawed, leading to the partial allowance of the assessee's appeal. The merit of additions and interest charges became moot due to the quashing of the assessment order. The judgment highlighted the importance of correct reasoning and evidence in assessment proceedings to ensure compliance with the law.

This comprehensive analysis covers the legal aspects and arguments presented in the judgment, providing a detailed understanding of the issues involved and the Tribunal's decision.