2022 (11) TMI 939 - AT - Income Tax

Reopening of assessment u/s 147 - Reason to believe - Addition u/s.68 - unsecured loans obtained - HELD THAT - From the reasons recorded by the AO it is evident that reference has been made to the report of ADIT (Investigation), which is based on the investigation carried out by the CBI. In the aforesaid reasons, on one hand, the assessee is alleged to be one of the group companies formed by Shri Arun and Harsh Dalmia and is engaged in providing accommodation entries to various concerns. While on the other hand, the assessee was alleged to be the beneficiary, which has received bogus accommodation entries. In the entire reasons, as recorded by the AO, there is no mention of the entity from which the assessee is alleged to have received the bogus accommodation entry. There is also no allegation that the 20 dummy concerns which are alleged to be operated by directors of the assessee have provided the aforesaid bogus accommodation entry to the assessee. Though the investigation carried out by the CBI is alleged to be the basis for initiating the reassessment proceedings u/s 147 however, there is no mention as to which information can prima facie lead to the conclusion that income chargeable to tax has escaped assessment in the case of the assessee. There is also no mention of any alleged transaction resulting in bogus accommodation entry in favour of the assessee. As in the present case, the nexus between the alleged material, i.e. the investigation report of the CBI, and the belief of escapement of income from assessment under section 147 of the Act is missing and thus renders the reasons to be reasons to suspect for making further investigation. Thus we are of the considered view that in the present case reasons recorded by the AO are not only vague but also lack the vital link between the alleged material and the belief that income of the assessee has escaped assessment. - Decided in favour of assessee.

Summary

Issues Involved:
1. Deletion of addition made under Section 68 of the Income Tax Act, 1961 on account of unsecured loans.
2. Deletion of addition on account of disallowance of Salary and Travelling Expenses.
3. Validity of reassessment proceedings under Section 147 of the Income Tax Act, 1961.
4. Application of Rule 27 of ITAT Rules, 1963 by the assessee.

Issue-wise Detailed Analysis:

1. Deletion of Addition under Section 68 on Account of Unsecured Loans:
The Revenue challenged the deletion of Rs. 22,09,94,882/- for AY 2007-08 and Rs. 15,84,40,000/- for AY 2008-09 made under Section 68 of the Income Tax Act, 1961. The Assessing Officer (AO) had added these amounts as unsecured loans obtained by the assessee, alleging them to be bogus accommodation entries based on information from the CBI. The CIT(A) deleted these additions, and the Revenue appealed against this deletion. However, the Tribunal did not address the merits of these additions due to the decision on the validity of reassessment proceedings.

2. Deletion of Addition on Account of Disallowance of Salary and Travelling Expenses:
The Revenue also challenged the deletion of Rs. 1,86,052/- for AY 2007-08 and Rs. 2,14,068/- for AY 2008-09 on account of disallowance of Salary and Travelling Expenses. The CIT(A) had deleted these disallowances made by the AO. The Tribunal did not address the merits of these disallowances due to the decision on the validity of reassessment proceedings.

3. Validity of Reassessment Proceedings under Section 147:
The assessee challenged the validity of reassessment proceedings initiated under Section 147 of the Act. The AO had issued a notice under Section 148 based on information from the CBI, alleging that the assessee was involved in providing and receiving bogus accommodation entries. The Tribunal found that the reasons recorded by the AO were vague and lacked specific details about the entity from which the bogus entries were received. The Tribunal emphasized that the reasons must be clear, unambiguous, and provide a direct link between the material and the belief that income has escaped assessment. The Tribunal concluded that the reasons recorded were merely reasons to suspect and not sufficient to justify the reassessment proceedings. Consequently, the reassessment proceedings were set aside.

4. Application of Rule 27 of ITAT Rules, 1963:
The assessee filed a petition under Rule 27 of ITAT Rules, 1963, challenging the validity of reassessment proceedings. The Revenue objected to the admission of this petition, arguing that the assessee had not filed a cross-appeal or cross-objection. The Tribunal referred to various judicial pronouncements, including the Delhi High Court's decision in Sanjay Sawhney vs PCIT, which clarified that Rule 27 allows a respondent to support an order on any grounds decided against them without filing a cross-appeal or cross-objection. The Tribunal admitted the petition under Rule 27, allowing the assessee to challenge the reassessment proceedings.

Separate Judgment for AY 2008-09:
For AY 2008-09, the Tribunal noted that the AO had recorded similar reasons for reopening the assessment as in AY 2007-08. Therefore, the findings and conclusions regarding the validity of reassessment proceedings for AY 2007-08 applied mutatis mutandis to AY 2008-09. Consequently, the reassessment proceedings for AY 2008-09 were also set aside, and the Revenue's appeal was dismissed.

Conclusion:
The appeals by the Revenue for both AY 2007-08 and AY 2008-09 were dismissed. The petitions filed by the assessee under Rule 27 of ITAT Rules, 1963, challenging the validity of reassessment proceedings, were allowed. The reassessment proceedings initiated under Section 147 of the Income Tax Act, 1961, were set aside due to the vagueness and insufficiency of the reasons recorded by the AO.