2024 (2) TMI 541 - AT - Income Tax

Validity of reopening of assessment - valid approval granted by the Pr. CIT or not? - reason to believe or reason to suspect - Unexplained cash credit - assessee got the illegal gratification from Mr. Amit Sharma in lieu of the contracts awarded to him and the figure mentioned in the loose papers or the figures of illegal gratification - HELD THAT - As there were factual mistakes in the reasons recorded and there is no independent application of mind by the A.O. and the approval has been granted on the very same reasons which were earlier discarded by the Office of the JCIT. There is also contradiction with the claim made before the Settlement Commission by the very same PCIT and the reasons recorded. Thus, in our opinion, the approval granted by the Pr. CIT is a mechanical approval. A.O. made addition on the ground that the assessee got the illegal gratification from Mr. Amit Sharma in lieu of the contracts awarded to him and the figure mentioned in the loose papers or the figures of illegal gratification and the same is taxable as unexplained cash credit in the hands of the assessee. The assessee during the year 2016 had taken a rented accommodation from one Mr. Amit Sharma, Dehradun to substantiate the said claim, the assessee produced the rent Agreement - A.O. mentioned several wrong facts in the reasons. Further, the case of the father of the assessee was reopened u/s 148 of the Act, but no addition has been made on the said issue. From reading the above facts and circumstances it is clear that the A.O. has entertained a wrong belief and was not having tangible material on the basis of which a person having common prudence can entertain a belief that any income has escaped assessment. As there is no independent application of mind by the A.O, there is an approval on the very same reasons which were earlier discarded by the Office of the JCIT and there is a contradiction compared to submissions made before the Settlement Commission by the very same officer, therefore, it can be safely concluded that the approval granted u/s 151 of the Act by the Office of PCIT is mechanical approval and hence the assumption of jurisdiction by the A.O. is bad in law. Decided in favour of assessee.

Summary

Issues Involved:
1. Jurisdiction of the Assessing Officer (AO) under Section 147.
2. Validity of reassessment proceedings and approval under Section 151.
3. Addition of Rs. 11,40,50,000 based on documents and statements.

Summary:

Issue 1: Jurisdiction of the AO under Section 147
The assessee contended that the CIT(A) erred in affirming the jurisdiction of the AO under Section 147, arguing that the mandatory provisions of Sections 147 to 151 were not followed. The AO initiated reassessment proceedings based on documents impounded during a survey and search operations in the case of Amit Sharma, which indicated that payments amounting to Rs. 13,16,50,000/- were made to the assessee. The AO's reasons for reopening the assessment were challenged for containing factual inaccuracies and lacking independent application of mind.

Issue 2: Validity of Reassessment Proceedings and Approval under Section 151
The reassessment proceedings were initiated multiple times, with the first proposal sent within four years from the end of the assessment year. However, the approval was refused initially due to lack of corroboration and independent application of mind. Subsequent proposals were also not approved until the fifth attempt, which was granted mechanically without addressing previous directions. The Tribunal found that the approval granted by the PCIT was mechanical and lacked proper application of mind, as evidenced by contradictory claims made before the Settlement Commission and the reasons recorded by the AO.

Issue 3: Addition of Rs. 11,40,50,000 Based on Documents and Statements
The AO made an addition of Rs. 11,40,50,000/- to the assessee's income based on loose papers found during the survey, which were argued to be 'live' documents rather than 'dumb' papers. The assessee contended that these documents should not be considered as sufficient evidence under Section 34 of the Evidence Act, 1872, and cited Supreme Court judgments to support this claim. The Tribunal noted several factual inaccuracies in the AO's assessment, including the misinterpretation of entries related to the assessee's father and the nature of contracts awarded to Amit Sharma.

Conclusion:
The Tribunal allowed the assessee's appeals, quashing the reassessment proceedings due to the mechanical and improper approval under Section 151 and lack of independent application of mind by the AO. Consequently, other grounds on legal issues and merits were rendered academic and not decided. The stay applications filed along with the appeals were deemed infructuous.